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Interpretation of section 41(2) of the Income-tax Act in the context of initial depreciation granted in a Hindu undivided family partition deed. Analysis: The case involved a dispute regarding the application of section 41(2) of the Income-tax Act in the context of a partition deed involving two Hindu undivided families. The question referred to the court was whether the cost to the assessee for computing profit assessable under section 41(2) should be the cost at which it was valued in the partition deed, considering the initial depreciation granted in the hands of the larger Hindu undivided family. The properties were divided by metes and bounds under a partition deed, with plant and machinery valued at Rs. 8,70,826 allotted to the assessee's family. The initial depreciation on the plant and machinery had been granted to the larger Hindu undivided family. The Income-tax Officer sought to assess the initial depreciation in the hands of the smaller family, but the Tribunal held that section 41(2) cannot apply when there is no identity between the beneficiary of depreciation and the seller, and when the sale consideration does not exceed the written down value. The court analyzed the provisions of section 41(2) of the Income-tax Act and concluded that the Income-tax Officer's decision to withdraw the initial depreciation granted to the larger Hindu undivided family could not be legally sustained. The court agreed with the Tribunal that there was no identity between the beneficiary of the initial depreciation and the seller of the plant and machinery. Additionally, the court noted that section 41(2) applies only when the sale consideration exceeds the written down value, which was not the case in this instance. Therefore, the Income-tax Officer was not justified in invoking section 41(2) in this scenario. The court upheld the Tribunal's decision, ruling in favor of the assessee and directing the Revenue to pay the costs of the assessee, including counsel's fee. In conclusion, the court's judgment clarified the application of section 41(2) of the Income-tax Act in cases involving partition deeds and initial depreciation granted in Hindu undivided families. The court emphasized the requirement for identity between the beneficiary of depreciation and the seller for section 41(2) to apply, along with the condition that the sale consideration must exceed the written down value. The judgment favored the assessee, highlighting the importance of a proper interpretation of tax laws in complex family partition scenarios.
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