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TMI Blog1973 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 6,098 on the ground that "this initial depreciation forms profit in the sale of assets to the company". The Income-tax Officer presumably proceeded to include this amount to a charge under section 41(2) of the Income-tax Act, 1961 (hereinafter called the Act). The Appellate Assistant Commissioner directed deletion of this amount in the view that section 47(iv) of the Act is applicable, the transfer being to a new Indian company which is a fully owned subsidiary company of the assessee. The Tribunal after holding that section 47(iv) is applicable to the case, considered that the assessee is entitled to the relief in view of the Explanation to clause (i) of sub-section (2) of section 34. At the instance of the Commissioner of Income-tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . After applying the provisions of section 50 and determining the cost of acquisition the head of income under which the difference between the amount for which the asset was sold and the cost of acquisition is to be included has to be determined. Since under section 48 the income chargeable under the head "capital gain" shall be computed by deducting from the full value of the consideration the cost of acquisition of the asset as provided in section 50, the entire difference between the sale value and the written down value will represent the capital gain. But as the transaction is one coming under section 47(iv) this capital gain cannot be included in the assessment. In reply to this part of the argument, the learned counsel for the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, section 41(2) levies a balancing charge when the receipt exceeds the written down value. "Actual cost" is defined in section 43(1) as meaning the actual cost of the asset to the assessee subject to certain other adjustments with reference to particular assets. "Written down value" is defined in section 43(6) as meaning in the case of assets acquired in the previous year the actual cost to the assessee and in the case of assets acquired before the previous year the actual cost less all depreciation actually allowed to him under the provisions of the Act or under the earlier enactments. The word "depreciation" in this provision would include all the deductions including initial depreciation allowed under section 32(1)(iv) or (v). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion the written down value under section 43(6) is Rs. 20,000 minus Rs. 4,000=Rs. 16,000. The sale price exceeds the written down value to the extent of Rs. 8,000. Out of this excess, under section 41(2) so much of the excess as does not exceed the difference between the actual cost and the written down value is chargeable to tax as revenue income. The amount falling under section 41(2), therefore, would be Rs. 20,000. minus Rs. 16,000=Rs. 4,000. "Cost of acquisition" in the same illustration for the purpose of section 50 is the written down value plus the adjusted profit which is equivalent, to Rs. 16,000 plus Rs. 4,000=Rs. 20,000. Capital gain computed under section 48 is the sale price minus cost of acquisition, i.e., Rs. 24,000 minus Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the written down value would be deductible under section 32(1)(iii) as a loss. In calculating the cost of acquisition under section 50 the loss of Rs. 1,000 is deducted from the written down value of Rs. 16,000 and, therefore, the cost of acquisition will be only Rs.15,000. The capital gain computed under section 48 would be the sale price minus cost of acquisition, Rs. 15,000 minus Rs. 15,000=Nil. Thus it could be seen that except in cases where the sale price is in excess of the actual cost with respect to a depreciable asset there could be no capital gain under the provisions of the Act. In all cases where the asset is sold for actual cost or for less than the actual cost it would be a case for application of either section 41(2) or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 47(iv) is not applicable. We are unable to accept the contention of the learned counsel for the assessee that section 34(2)(i), Explanation, in any way helps the assessee. Depreciation under section 32 is calculated on such percentage of the actual cost of the asset to the assessee. In calculating the transferee's profits depreciation should, therefore, be determined with reference to the cost of the asset to him. This has been so held by the Privy Council and the Supreme Court in Commissioner of Income-tax v. Buckingham Carnatic Company Ltd. and Jogta Coal Co. Ltd. v. Commissioner of Income-tax , respectively. Therefore, the transferee would be entitled to insist on aggregating for the purpose of finding out the total deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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