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Issues Involved:
1. Whether depreciation was rightly allowed to the assessee on the machinery purchased for Rs. 30,572. 2. The cessation of liability towards the Swiss supplier. 3. The interpretation of "actual cost" under the Indian Income-tax Act, 1922, and the Income-tax Act, 1961. Issue-Wise Detailed Analysis: 1. Depreciation Allowance on Machinery Purchased for Rs. 30,572: The primary question referred to the court was whether, on the facts and circumstances of the case, depreciation was rightly allowed to the assessee on the basis that the cost to it of the machinery purchased was Rs. 30,572. The assessee, a private limited company, purchased machinery from a Swiss supplier in 1955 for 27,820 Swiss Francs (Rs. 30,572). The total cost debited, including customs duty and other expenses, amounted to Rs. 33,529. Depreciation and development rebate were allowed based on this cost for the assessment years 1956-57 to 1960-61. 2. Cessation of Liability Towards the Swiss Supplier: The Income-tax Officer (ITO) noticed an item of Rs. 30,572 under "Capital reserve not available for dividend" in the balance sheet as of December 31, 1960, indicating capital profit on liabilities written back. The assessee informed the ITO that the payment was not made due to a dispute over a defect in the machinery, and no legal action was taken by the Swiss supplier to recover the amount. The ITO concluded that the cost of the asset was "Nil" as no amount was laid out or expended by the assessee to obtain the machinery. The Tribunal, however, held that there was no cessation of liability, as the liability was transferred to the capital reserve account, and the original cost to the assessee remained Rs. 30,572. 3. Interpretation of "Actual Cost" Under the Income-tax Acts: The court examined the provisions of the Indian Income-tax Act, 1922, and the Income-tax Act, 1961, to determine the meaning of "actual cost." Under the Act of 1922, "actual cost" meant the cost to the assessee, excluding contributions from the government or public authorities. The court referred to several precedents, including Commissioner of Income-tax v. Poona Electric Supply Co. Ltd. and Corporation of Birmingham v. Barnes, which interpreted "actual cost" as the total cost of the asset, regardless of who contributed towards it. After the enactment of the Income-tax Act, 1961, "actual cost" was defined under section 43(1) to include reductions for any cost met directly or indirectly by any other person or authority. The court noted that the law had changed significantly, and contributions from any person or authority must be deducted from the actual cost to ascertain the cost to the assessee. Conclusion: The court concluded that for the assessment year 1961-62, the depreciation was rightly allowed to the assessee on the basis that the cost of the machinery was Rs. 30,572. However, for the assessment years 1962-63 to 1964-65, the depreciation was wrongly allowed on the same basis. The actual cost to the assessee should be reduced by Rs. 30,572 due to the cessation of liability, as no legal action was taken by the Swiss supplier to recover the amount. The court answered the question accordingly and made no order as to costs, given that both the assessee and the revenue partially succeeded.
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