Commissioner of Income Tax vs S. Balasubramanian (Lrs. of T.S. Srinivasa Iyer)

Ramanujam, J.—At the instance of the Revenue, the following question has been referred for the opinion of this court by the Appellate

Tribunal :

Whether, on the facts and in the circumstances of the case, the cost to the assessee for the purpose of computing profit assessable u/s 41(2) of the

Income Tax Act, 1961, is the cost at which it was valued in the partition deed and without taking into account the proportionate initial depreciation

granted in the hands of the larger Hindu undivided family ?

The assessee is a Hindu undivided family of which one Balasubramanian is the karta. There was another Hindu undivided family headed by T. S.

Srinivasa Iyer and the kartas of the two Hindu undivided families were members of a larger Hindu undivided family. There was no other

coparcener in that larger Hindu undivided family excepting T. S. Srinivasa Iyer and T. S. Balasubramanian. The larger Hindu undivided family

possessed considerable properties and the same were subjected to partial partition dividing them by metes and bounds, under a deed of partition

dated August 31, 1967. Under that partition, the properties mentioned in the D Schedule were allotted to the assessee''s family headed by the

karta, S. Balasubramanian, and also the liabilities mentioned in the E schedule. This consisted of land together with buildings and laboratory

buildings in which certain plant and machinery had been erected. In the partition deed, the plant and machinery had been valued at Rs. 8,70,826

which is the written down value of the assets in the Income Tax records of the larger Hindu undivided family. Subsequent to the said partition, the

plant and machinery which had been allotted to the smaller family headed by S. Balasubramanian were sold by that family to Messrs. Gemini

Pictures Circuit Private Limited. In the hands of the larger Hindu undivided family, consisting of Srinivasa Iyer and Balasubramanian, the initial

depreciation on the plant and machinery amounting to Rs. 97,666 had earlier been granted. Taking note of the allowance of such initial

depreciation in the hands of the larger Hindu undivided family, the Income Tax Officer attempted to bring to charge u/s 41(2) of the Income tax

Act, the said amount in the hands of the larger Hindu undivided family. When that larger Hindu undivided family objected to the same, the Income

Tax Officer proceeded to assess u/s 41(2) of the Act, the said initial depreciation in the hands of the smaller Hindu undivided family headed by

Balasubramanian who is the assessee in this case, in proportion to the value of the machinery allotted to the family. This was objected to by the

assessee. However, the Income Tax Officer rejected the assessee''s contention and proceeded to withdraw the proportionate initial depreciation of

Rs. 53,526 in the hands of the assessee u/s 41(2) of the Act. As against that assessment, there was an appeal but without success. There was a

further appeal to the Appellate Tribunal. In that appeal, the Tribunal held that section 41(2) of the Act cannot have any application to the facts of

this case, as there is no identity between the person who got the benefit of initial depreciation and the person who actually sold the plant and

machinery. The Tribunal also held further that since the sale of the plant and machinery by the assessee to Gemini Pictures Circuit Private Limited is

only on the written down value, there is no room for the application of section 41(2) of the Act. The said view of the Tribunal has been challenged

by the Revenue in this case before us.

However, a mere reading of section 41(2) of the Income Tax Act will clearly show that the order of the Income Tax Officer withdrawing the

proportionate initial depreciation granted in the hands of the bigger Hindu undivided family by invoking section 41(2) cannot legally be sustained.

As has been held by the Tribunal, first of all, there is also no identity between the person who got the benefit of initial depreciation and the person

who actually sold the plant and machinery. Further, the application of section 41(2) of the Act will arise only when the sale consideration has

exceeded the written down value. In this case, it is not in dispute that the sale was only as per the written down value of the plant and machinery.

Therefore, in this case, the Income Tax Officer was not justified in invoking section 41(2) of the Act. We are, therefore, of the view that the

Tribunal has come to the right conclusion in this case. We, therefore, answer the question in favour of the assessee. The Revenue will pay the costs

of the assessee. Counsel''s fee Rs. 500 one set.