Law: Income Tax Act, 1922

Section: 10(2)(vii)

Law: Income Tax Act, 1922

Section: 10(2)(vii)

Law: Income Tax Act, 1961

Section: 256

Section 32 of the Income-tax Act, 1961 [Corresponding to section 10(2)(vii) of Indian Income-tax Act, 1922] - Depreciation - Allowance of - Assessment year 1961-62 - Whether where assets of proprietary concern of assessee had been converted into assets of partnership concern of which assessee had become partner, such conversion would not constitute 'sale' within scope of section 10(2)(vii) of 1922 Act and, therefore, depreciation granted to assessee on such assets in earlier years could not be taken away - Held, yes FACTS The assessee as an individual was running four proprietary businesses of playing lorries, running an oil mill, running a rice mill and running a cinema house. The assessee converted these business into partnership concern of which he had become a partner. The assets of the business thrown into the partnership included certain buildings and plant and machinery such as cinema, machinery, lorry, car and sundry machinery on which depreciation was allowed to the assessee as the proprietor of these businesses in his earlier assessment years 1950-51 to 1959-60. The ITO took back the depreciation allowed to the assessee in the earlier years of building, plant and machinery and added this sum to the assessee's income for the assessment year 1961-62, relying on the provisions of the proviso to section 10(2)(vii) of the 1922 Act. The AAC dismissed the assessee's appeal but the Tribunal reversed the decision of the ITO. On reference : HELD From the language of section 10(2)(vii ) of the 1922 Act, two things are clear that the statutory provision applies only if there had been a sale of the building, machinery and plant or its scrap value. The very idea of sale involves that the sale must be for a particular price. As far as the instant case was concerned, all that had happened was that the assets which were the assets of the proprietary concern had been converted into assets of the partnership concern of which the assessee had become a partner. Such a conversion or utilisation of the plant and machinery would not constitute 'sale' within the scope of section 10(2)(vii) of the 1922 Act. Once it was held that there was no sale, there was no question of…

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