1978 (2) TMI 126 - AT - Income Tax

Summary

Issues:
1. Admissibility of brokerage paid by the assessee in the sale of buses.
2. Taxability of the transfer of buses to the retiring partner under section 41(2) of the IT Act.
3. Claim for setting off unabsorbed depreciation of earlier years against the current year's income.

Detailed Analysis:

1. The first issue pertains to the admissibility of Rs. 1,400 claimed as brokerage paid by the assessee in connection with the sale of buses to third parties. The department contended that this brokerage cannot be considered an allowable deduction and should be taxed under section 42(1) of the IT Act. The tribunal highlighted the need to ascertain the circumstances under which the buses were sold and the brokerage was paid. If the sale was necessary for business continuity and the brokerage was incurred to obtain the best price, it might qualify as an allowable deduction under section 37(1). The tribunal directed the assessing officer to reevaluate the situation after gathering relevant information.

2. The second issue revolves around the taxability of transferring five buses to a retiring partner under section 41(2) of the IT Act. The contention was that the transfer was in satisfaction of the retiring partner's rights and not a sale, hence not subject to tax under section 41(2). The assessing officer disagreed, citing the retiring partner's indebtedness to the firm. The tribunal upheld the assessee's contention, drawing on the Supreme Court's decision in CIT vs. Dewas Cine Corporation, emphasizing that the transfer was not taxable under section 41(2).

3. The final issue concerns the claim for setting off unabsorbed depreciation of earlier years against the current year's income. The assessee relied on a Bombay High Court decision supporting this claim, while the department referred to decisions by the Allahabad and Gujarat High Courts opposing it. The tribunal sided with the latter decisions, ruling that unabsorbed depreciation cannot be set off against the current year's income. The tribunal overturned the directions of the Appellate Authority in this regard.

In conclusion, the tribunal partially allowed the appeal, addressing each issue comprehensively and providing detailed reasoning for its decisions based on relevant legal precedents and interpretations of the IT Act.