1969 (1) TMI 15 - HC - Income Tax

Motor car - determining the amount of depreciation to be allowed - determining the original cost - Tribunal was right in rejecting the department s contention that as only half the motor car was treated as having been used for the purpose of the assessee s business only half the original cost of the motor car was to be taken as the original cost

Summary

Issues:
Interpretation of section 10(2)(vii) and section 10(5)(b) of the Indian Income-tax Act, 1922 regarding computation of profits from the sale of a motor-car based on written down value and depreciation allowed.

Analysis:
The case involved a dispute regarding the computation of profits under section 10(2)(vii) of the Income-tax Act, 1922, arising from the sale of a motor-car by an individual assessee during the assessment year 1960-61. The primary question was whether the profits should be calculated by deducting the depreciation actually allowed under section 10(2)(vi) from the written down value of the car, or if notional depreciation allowable under the same section should be considered. The controversy stemmed from the differing interpretations of the written down value as defined in section 10(5)(b) and the actual depreciation allowed to the assessee.

The Income-tax Officer initially computed the profit based on depreciation admissible under section 10(2)(vi), which was subsequently rectified through a section 154 order. The Appellate Assistant Commissioner ruled in favor of the assessee, asserting that the depreciation actually allowed should be considered in determining the written down value. The Revenue appealed to the Income-tax Appellate Tribunal, arguing that only 50% of the original cost of the motor-car should be taken into account, along with the depreciation actually allowed over the years, to arrive at the written down value.

The Tribunal, rejecting the Revenue's argument, relied on a decision of the Andhra Pradesh High Court and emphasized that depreciation actually granted to the assessee had to be taken into consideration for computing the written down value. The Tribunal's decision was based on the understanding that depreciation actually allowed cannot be equated with depreciation allowable. Additionally, the Tribunal highlighted that section 10(3) concerning partial use of assets for business purposes did not modify the meaning of written down value in section 10(5)(b).

The judgment further analyzed the provisions of section 10(2)(vii) and emphasized that if the sale proceeds exceed the written down value, the excess is taxed as profit, effectively recouping the depreciation allowance granted in previous years. The judgment clarified that the calculation under section 10(2)(vii) should be based on the definition of written down value as provided in section 10(5)(b), considering the actual depreciation granted to the assessee.

Ultimately, both judges, S. K. Kapur and Jagjit Singh, concurred in favor of the assessee, affirming that the depreciation actually allowed should be taken into account for computing profits under the relevant provisions of the Income-tax Act. The judgment highlighted the importance of interpreting the statutory provisions accurately to determine the correct tax liability in cases involving asset sales and depreciation allowances.