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TMI Blog1989 (1) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of the assessee-company had discontinued in the accounting year relevant to the assessment year 1968-69. The business loss of the assessment year 1968-69 was Rs. 1,51,987. Thereafter the company was under liquidation. On account of the sale of the assets in the accounting year relevant to the assessment year 1982-83 with which we are concerned, profit arose and the said profit was assessable as business income under the special provisions of section 41(2) of the Act. The assessee claimed that the abovementioned business loss of Rs. 1,51,987 was liable to be set off against the business income assessable under section 41(2) of the Act. This claim was made under the provisions of section 41(5) of the Act. Section 41(5) was as under : "41. (5) Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1), sub-section (2), sub-section (2A), sub-section (3) or sub-section (4) in respect of that business or profession, any loss, not being a loss sustained in speculation business or under the head "Capital gains", which arose in that business or profession during the previous year in which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery, plant or furniture became due. There is an Explanation below sub-section (2) which says that where the moneys payable in respect of the building, machinery, plant or furniture, referred to in this sub-section become due in the previous year in which the business for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year. 7. It is obvious from the above provision that for the purposes of section 41(2), we have to presume that the business was in existence although the business might have ceased earlier. Thereafter comes the provisions of section 41(5) of the Act which we have extracted above. It is clear that section 41 is a self-contained code, in respect of the profits that arise from the sale of building, machinery, plant or furniture of a business which had ceased to exist in some earlier year. Section 41(2) lays down that it would be presumed that the business was in existence in the year in which building, plant, machinery or furniture were sold. Section 41(5) lays down that when the income charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial kind of set off to be allowed against the special kind of income mentioned in section 41(2) of the Act. Consequently, provisions of section 72(3) would not have any application to set off under section 41(5) of the Act. We, therefore, hold that the business loss of the assessment year 1968-69, which was the year in which the business ceased to exist would be liable to be set off against the income u/s 41(2) of the Act, which arose in the assessment year 1982-83, the year with which we are concerned. We set aside the order of the authorities below on this point and hold that the set off would be allowable under section 41(5) of the Act. 8. The next ground relates to the computation of capital gains arising on the sale of assets referred to above. The submission of the assessee before the Income-tax Officer was that the assessee should be allowed to substitute the value as on 1-1-1964 for cost of acquisition. The assessee filed before the Income-tax Officer a report of the Registered Valuer indicating the value as on 1-1-1964 as under : Rs. Land ... 85,950 Building ... 17,72,330 Machineries ... 26,87,000 ------------------ Total : 45,45,280 ------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f acquisition of the asset shall, at the option of the assessee be, the fair market value of the asset on the said date, as reduced by the amount of depreciation, if any allowed to the assessee after the said date and as adjusted." 10. On analysing section 50 of the Act, we find that this section classifies depreciable assets into those acquired in the circumstances mentioned in section 49 and those assets acquired otherwise. In the case of non-depreciable assets, the assessee is entitled to substitute the market price as on 1-1-1964 as the cost of acquisition, when it became his or his predecessor's property before that date. However, in respect of depreciable assets, sub-section (1) specifically directs the written down value to be taken as the cost of acquisition and there is no scope for substituting the market value as on 1-1-1964 in such cases except in cases covered by sub-section (2). Under sub-section (2), the assessee is entitled to substitute the market value as on 1-1-1964 where he has become the owner of the depreciable asset in the circumstances mentioned in section 49 and not otherwise. The basis of different treatment given to this class of assessees owning deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich he sold for the benefit of the creditors and the sale proceeds were distributed amongst the creditors, as held by the Hon'ble Members of the Hyderabad Bench of the Tribunal in G.A. Narayan Murthy v. ITO reported in 1986,18 ITD 125. Even presuming that capital gains would arise in the hands of the appellant, there is no cost in respect of the property sold so far as the official liquidator is concerned, as he has not acquired any property nor paid any price for it. What is contemplated in section 48(ii) is an asset in the acquisition of which it is possible to envisage the cost." 12. After hearing the parties, we find that this ground was not raised before any of the authorities below. The above ground does not arise out of the order of the Commissioner of Income-tax (Appeals). This is a case of reopened assessment. Even in the course of original assessment this ground had not been raised. In these circumstances the assessee cannot be allowed to raise this ground. 13. The decision of the Tribunal referred to in the additional ground relates to insolvency proceedings. That decision is not in respect of a company under liquidation represented by official liquidator. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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