Law:

Section:

Section 41(2) of the Income-tax Act, 1961 [Corresponding to section 10(2)(vii), Second proviso, of the Indian Income-tax Act, 1922] - Balancing charge - Assessment year 1956-57 - Whether for purpose of assessing to tax surplus arising from sale of a factory under second proviso to section 10(2)(vii) of 1922 Act, it is necessary that factory should have been used by assessee during relevant previous year - Held, yes - Whether a sugar factory, which was a seasonal factory, could be deemed to have been used during non-crushing season even though not actually employed in crushing - Held, no FACTS The assessee-company owned two sugar factories. The previous year relevant to the assessment year 1956-57 was 1-9-1954 to 31-8-1955. One of the factory was sold by the company on 28-9-1954 which resulted in a surplus of being the excess of sale price over the written down value. This excess was assessed by the ITO under section 10(2)(vii) of 1922 Act, second proviso, as profit. In arriving at the written down value of the assets sold, the depreciation for the previous year was not taken into account, as such depreciation had not been allowed in respect of that year, for the reason that the factory had not worked during that year. On appeal, the AAC deleted the addition. On revenue's appeal. The tribunal also affirmed the order of AAC. According to the Tribunal , the factory must have done some business or had been running either for the whole year or even for a part of the year before the difference between the sale-price and the written down value could be treated as income. But in the instant case even before the previous year the company had disbanded all the staff working in factory and the vendee had taken possession of the factory as early as on 1-7-1954, i.e., before the relevant previous year. On reference : HELD As regards the question as to whether it was necessary that the factory should have been used in the previous year, in view of the decisions of the Supreme Court in Liquidators of Pusa Ltd. v. CIT [1954] 25 ITR 265 and CIT v. Moon Mills Ltd. [1961] 65 ITR 630 , it was to be held that it was necessary that the factory should have been used during the…

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