1972 (11) TMI 6 - HC - Income Tax

1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the initial depreciation of Rs. 1,01,814 was not to be deducted for the purpose of computing the written down value for computing the profits under section 10(2)(vii) of the Income-tax Act, 1922? - 2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in applying the provisions contained in sec tion 10(5)(b) instead of section 10(5)(c) ?

Summary

Issues:
1. Deductibility of initial depreciation for computing written down value under section 10(2)(vii) of the Income-tax Act, 1922.
2. Application of provisions in section 10(5)(b) instead of section 10(5)(c) for determining the written down value.

Analysis:
The case involved the determination of the written down value for computing profits under section 10(2)(vii) of the Income-tax Act, 1922. The assessee, a Hindu undivided family resulting from a partition, argued that the initial depreciation of Rs. 1,01,814 allowed to the original family should be added to the written down value of assets taken over on partition. This contention was upheld by the Appellate Assistant Commissioner for the assessment year 1952-53. However, the department disputed this approach, contending that the written down value should exclude the initial depreciation. The Tribunal considered the definition of written down value under section 10(5) of the Act, specifically clauses (b) and (c), to make its determination.

The court analyzed the definition of written down value under section 10(5) of the Act, highlighting clauses (b) and (c). It noted that clause (c) applies to assets acquired by way of gift or inheritance, not applicable in a partition scenario where no gift is involved. The court delved into the meaning of inheritance, relying on legal dictionaries and common interpretations to conclude that property acquired in a partition cannot be considered inherited under clause (c). Therefore, the Tribunal correctly applied clause (b) of section 10(5) in this case.

Regarding the deductibility of initial depreciation, the court emphasized that clause (b) of section 10(5) only allows deduction of depreciation actually allowed to the assessee. Since the initial depreciation was not allowed to the current assessee but to the original family, it was not deductible under clause (b). Consequently, the court answered both questions in favor of the assessee, holding that the initial depreciation should not be deducted for computing the written down value and that section 10(5)(b) was correctly applied. The court awarded costs to the assessee and directed the judgment to be sent to the Income-tax Appellate Tribunal, Cochin Bench.

In conclusion, the court's decision clarified the interpretation of written down value under the Income-tax Act, emphasizing the distinction between inheritance and partition scenarios. The judgment provided a detailed analysis of the relevant provisions and definitions to resolve the issues raised by the parties, ultimately ruling in favor of the assessee based on the correct application of the statutory provisions.