1990 (5) TMI 70 - AT - Income Tax

Summary

Issues Involved:

1. Taxability of the balancing charge on the sale of a truck.
2. Applicability of Section 41(2) of the Income-tax Act based on implicit depreciation.

Detailed Analysis:

1. Taxability of the Balancing Charge on the Sale of a Truck:

The primary issue was whether the balancing charge of Rs. 28,466 on the sale of a truck was exigible to tax. The truck was purchased for Rs. 43,000 and sold for Rs. 32,000. The assessee had not maintained any books of account, and the income from the truck was estimated for the years 1974-75 to 1980-81. The income so estimated ranged between Rs. 5,000 and Rs. 9,600. The Income Tax Officer (ITO) assumed that the income assessed was net income after allowing all expenses, including depreciation, even though no depreciation was claimed or allowed. Consequently, the ITO calculated a balancing charge of Rs. 28,466. The Commissioner (A) upheld this calculation on the grounds that the low income assessed implied depreciation must have been allowed.

The Tribunal found that the addition of Rs. 28,460 was "bad in law and against the facts on record." It was common ground that no depreciation was claimed or allowed for any of the past assessment years. Section 41(2) stipulates that a profit may be assessed only where the sale proceeds of the machinery or plant exceed the written down value. As per Section 43(6), "Written down value" means the actual cost of the asset less the depreciation actually allowed. Since no depreciation was allowed, the balancing charge could not be taxed under Section 41(2).

2. Applicability of Section 41(2) of the Income-tax Act Based on Implicit Depreciation:

The second issue was whether Section 41(2) could be invoked based on depreciation implicitly allowed. The Tribunal held that Section 41(2) could not be invoked because no depreciation was actually allowed. The Tribunal emphasized the clear stipulation in Section 41(2) that profit can be assessed only where the sale proceeds exceed the written down value, which is defined under Section 43(6) as the actual cost less the depreciation actually allowed. The Tribunal found no room for any deemed depreciation allowance.

The Revenue argued that the Tribunal's decision referred to a decision of the Allahabad High Court in the case of Karamat Khan, where the interpretation of the words "actually allowed" in Section 10(2)(vii) of the Income-tax Act, 1922, corresponding to Section 41(2) of the Income-tax Act, 1961, was considered. The Judicial Member believed that reliance on a High Court decision to interpret a word gives rise to a question of law.

The Third Member, Shri Ch. G. Krishnamurthy, President, concluded that the Tribunal's finding that no depreciation was claimed or allowed was a pure finding of fact, which does not give rise to any question of law. The Supreme Court's decision in Madeva Upendra Sinai clarified that "actually allowed" means depreciation actually taken into account or granted, not notionally allowed. Thus, the Tribunal's conclusion was consistent with the Supreme Court's interpretation, and no referable question of law arose.

Conclusion:

The Tribunal dismissed the reference application, holding that no referable question of law arose out of the Tribunal's order. The Tribunal's findings were based on clear facts that no depreciation was claimed or allowed, and therefore, the balancing charge could not be taxed under Section 41(2). The Supreme Court's authoritative pronouncement in Madeva Upendra Sinai supported this interpretation, confirming that "actually allowed" means expressly allowed, not notionally.