1979 (4) TMI 84 - AT - Income Tax

Summary

Issues:
1. Claim of depreciation on fixed assets.
2. Entitlement to terminal depreciation on transfer of assets to a company.
3. Interpretation of the definition of "sale" under the Income Tax Act, 1961.
4. Consideration of capital loss on the sale of a business as a going concern.

Detailed Analysis:
1. The appellant contended that the Assessing Officer (AO) erred in disallowing the claim for depreciation on fixed assets. The AO rejected the claim stating that since the machineries were sold during the year, the appellant was not entitled to any depreciation. The appellant argued for balancing depreciation under section 32(1)(iii) of the Act. The Appellate Assistant Commissioner (AAC) rejected this contention, stating that the transaction was an exchange, not a sale, based on the Supreme Court decision in CIT vs. R.R. Ramakrishna Pillai. The appellant further argued that the definition of "sale" in the 1961 Act includes a transfer by way of exchange, citing the Supreme Court decision in B.M. Kharwar. The Tribunal found that the AAC misapplied the Supreme Court decision and the matter was remanded for fresh adjudication.

2. The issue of entitlement to terminal depreciation on the transfer of assets to a company was raised. The appellant claimed terminal loss on the sale of the asset based on the difference between the written down value and the selling price. The AAC rejected this claim, stating that the transaction was an exchange, not a sale, and relied on previous decisions. The Tribunal found that the AAC's interpretation was incorrect as the 1961 Act includes a broader definition of "sale" that encompasses transfers by way of exchange. The matter was remanded for fresh adjudication.

3. The interpretation of the definition of "sale" under the Income Tax Act, 1961 was crucial in this case. The appellant argued that the definition of "sale" in the Act includes transfers by way of exchange, citing relevant Supreme Court decisions. The AAC's reliance on a different interpretation was found to be erroneous by the Tribunal, leading to the decision to remand the case for fresh adjudication based on the correct legal provisions.

4. The consideration of capital loss on the sale of a business as a going concern was also discussed. The Departmental Representative argued that the appellant's business was sold as a going concern, making any loss a capital loss. Citing Supreme Court decisions and a Bombay High Court decision, the Departmental Representative supported the AAC's order on this ground. However, the Tribunal found that the AAC's reliance on the concept of exchange rather than sale was misplaced, leading to the decision to remand the case for proper consideration of the capital loss issue.