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Calculation of depreciation of capital assets transferred pursuant to an amalgamation. Analysis: The case involved a dispute regarding the calculation of depreciation of capital assets of a company transferred following an amalgamation. The assessee, Cheviot Jute Co. Ltd., claimed depreciation on assets taken over at book value, while the Income Tax Officer (ITO) allowed depreciation on the written down value in the books of the transferor company, Belvedere Jute Mills Co. Ltd. The Appellate Assistant Commissioner (AAC) allowed the assessee's appeal, stating that the amalgamation occurred before the effective date of the relevant provision. The Revenue appealed to the Tribunal, arguing that the Explanation 7 to section 43(1) should apply, but the Tribunal dismissed the appeal, holding that the Explanation did not apply in this case. The Tribunal referred a question to the High Court regarding the applicability of Explanation 7 to section 43(1) for the assessment year in question. The Revenue contended that the law as it stood during the assessment year should apply, citing relevant case law to support their argument. On the other hand, the assessee's counsel argued that both "actual cost" and "written down value" were defined in the relevant sections, and it needed to be determined which explanation was more applicable. The High Court analyzed the relevant provisions of the Income Tax Act, specifically sections 32, 34, and 43, along with the explanations provided therein. It noted that depreciation had to be allowed based on the written down value of assets, as defined in section 43(6). The court emphasized that in cases of amalgamation, the written down value of transferred assets should be considered as if the transferor company continued to hold them. Therefore, the court held that Explanation 2A to section 43(6) was more appropriate in this case, and all depreciation allowed on the assets had to be considered in determining the written down value. In conclusion, the High Court answered the referred question in favor of the assessee, stating that Explanation 2A to section 43(6) should be applied in this case. The judgment was agreed upon by both judges, and no costs were awarded.
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