Law:

Section:

Section 41(2) of the Income-tax Act, 1961 - Balancing charge - Assessment year 1963-64 - Assessee-company transferred a building to its wholly owned subsidiary company - Assessee had been allowed initial depreciation of Rs. 6,098 on that building - ITO brought this amount to charge under section 41(2) but Tribunal deleted it holding that section 47(iv) was applicable and that in view of Explanation to clause (i) of section 34(2), assessee was entitled to relief - Whether in view of fact that statute chooses to provide for allowances and depreciation in respect of subsidiary company only to extent provided under section 43(2), it does not mean that parent company which transfers asset would be excluded from clutches of section 41(2) - Held, yes - Whether, therefore sum of Rs. 6,098 was includible as profit of assessee-company under section 41(2) - Held, yes FACTS The assessee-company transferred one of its buildings valued at Rs. 38,661 to its fully owned subsidiary company. On this building the assessee had been given initial depreciation in the sum of Rs. 6,098. The Income-tax Officer brought to charge this sum under section 41(2) on the ground that this formed profit in the sale of assets to the company. The Appellate Assistant Commissioner directed deletion of this amount in the view that section 47(iv) was applicable. The Tribunal after holding that section 47(iv) was applicable to the case, considered that the assessee was entitled to the relief in view of the Explanation to clause (i) of section 34(2). On reference: HELD For finding out the difference between the actual cost and the written down value for charging it to tax under section 41(2), the written down value must have been ascertained with reference to section 43(6) by deducting all depreciation actually allowed from the actual cost. But, for the computation of capital gain, the "cost of acquisition" will have to be deducted from the full value of the consideration received. A reading of sections 41(2) and 50 shows that the balancing charge and the capital gain could not overlap. It is only the amount which is in excess of the balancing charge that would be attracted to capital gain under section…

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