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Issues:
1. Interpretation of whether a sum of Rs. 2,70,593 is liable to tax under s. 10(2A) of the Indian Income-tax Act, 1922. Analysis: The judgment pertains to a case where the respondent-assessee, a jute mill company, sold machinery during the relevant accounting period, earning profits. The Income Tax Officer (ITO) held the profit to be taxable under the Act, but the Appellate Assistant Commissioner (AAC) exempted it from tax. The department appealed, arguing that the profit should be assessable under s. 10(2A) or as capital gains under s. 12B(2). The Tribunal upheld the AAC's order, leading to the reference to the High Court. Regarding the application of s. 10(2A), the Tribunal found that the conditions required for its application were not met in this case. The Commissioner contended that depreciation allowance could be considered a "loss" under s. 10(2A), making the profits from the sale of machinery taxable. The Commissioner relied on a previous court decision to support this argument. The Court analyzed the provisions of s. 10(2A) and the nature of depreciation allowance. It was acknowledged that depreciation could be seen as a capital loss suffered by the assessee. However, the Court found that the second condition of s. 10(2A) was not satisfied, as the profits from the sale of machinery could not be linked to the earlier depreciation allowance. The Court concluded that the amount in question should be treated as capital gains, not a result of the earlier depreciation allowance. Ultimately, the Court answered the reference question in the negative, ruling against the department and ordering them to pay the costs of the reference. The judgment provides a detailed analysis of the application of s. 10(2A) in the context of depreciation allowance and the taxation of profits from asset sales.
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