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Issues Involved:
1. Applicability of Section 10(2)(vii) of the Indian Income-tax Act to the surplus arising from the sale of plant and machinery. 2. Taxability of profit on the sale of factory stores under the Income-tax Act. Detailed Analysis: Issue 1: Applicability of Section 10(2)(vii) of the Indian Income-tax Act to the surplus arising from the sale of plant and machinery The primary issue is whether the sum of Rs. 13,05,144, arising from the sale of plant and machinery of the sugar factory, is chargeable under Section 10(2)(vii) of the Indian Income-tax Act. The section deals with allowances for depreciation and the taxation of surplus from the sale of depreciated assets. The facts reveal that the assessee, a company incorporated in 1905, sold its sugar factory and related assets to Messrs. Dalmia Jain & Co. for Rs. 28,00,000. The Income-tax Officer assessed the surplus arising from this sale under the second proviso to Section 10(2)(vii), which states that if the sale amount exceeds the written down value, the excess is deemed to be profits of the previous year in which the sale took place. The assessee contended that the sale was part of the winding-up process and not a continuation of the business. However, the Tribunal found that the business continued up to the date of sale and even after, as the company was still selling its stock of sugar and incurring establishment charges. The Tribunal's findings were supported by evidence, including the fact that the company continued to sell sugar stocks valued at Rs. 6 lakhs for Rs. 7.5 lakhs and spent Rs. 50,000 on establishment charges post-sale. The Tribunal concluded that the sale of machinery was part of the business activities and not merely a realization of assets. The legal interpretation of Section 10(2)(vii) supports the view that the section applies to any machinery or plant sold, whether it is part of a continuing business or in the process of winding up. The proviso aims to balance depreciation allowances already granted, treating the surplus as taxable income to recoup any excess depreciation allowed. Conclusion: The sum of Rs. 13,05,144 arising from the sale of plant and machinery is chargeable under Section 10(2)(vii) of the Indian Income-tax Act. Issue 2: Taxability of profit on the sale of factory stores under the Income-tax Act The second issue concerns whether the profit of Rs. 15,882 on the sale of factory stores is taxable under the Income-tax Act. The Income-tax Officer assessed this profit based on the difference between Rs. 88,000 (sale proceeds on the basis of expert valuation) and Rs. 72,118 (cost of stores). The Tribunal found that the Income-tax Officer relied on the stores account in the books of Messrs. Dalmia Jain & Co., which valued the stores at Rs. 88,000. However, the memorandum of agreement indicated that stores ordered or received after 9th August 1943 were to be paid at cost price, suggesting no profit was made on these stores. Additionally, the stores were lumped with other property in the agreement, and no specific allocation was made for the stores alone. The Tribunal's conclusion that the assessee made a profit on the stores was not supported by clear evidence. Conclusion: The profit of Rs. 15,882 on the sale of factory stores is not taxable under the Income-tax Act in the circumstances of this case. Final Judgment: 1. The sum of Rs. 13,05,144 arising from the sale of plant and machinery is chargeable under Section 10(2)(vii) of the Indian Income-tax Act. 2. The profit of Rs. 15,882 on the sale of factory stores is not taxable under the Income-tax Act.
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