Law: Income Tax Rules, 1922

Section: 8(2)

  Interpretation of statutes-Taxing statute-Court has to look to real nature of transaction and not to its form.   Income-tax Rules, 1922, r. 8(2)----Partnership firm converted into private limited company with erstwhile partners as shareholders-Assets, machinery, building and plant of firm absorbed in share capital of new company-Additional depreciation allowed on machinery in hands of old firm-Such machinery cannot be said to be second hand-Assessee entitled to additional deprecia tion allowance on such machinery in subsequent assessment years.   Date of hearing: 8th November 1965.  JUDGMENT   MUHAMMAD FAZLE. GHANI, J.-By this reference made under section 66 (1) of the Income-tax. Act, 1922, at the instance of the Commissioner of Income-tax, North Zone, Lahore, the Appellate Tribunal has referred the following question of law as arising out of their order dated the 26th of March 1963, in Income-tax Appeals Nos. 2385 and 2386 by the respondent-assessee :-   "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-company is entitled to additional depreciation in respect, of the assessment years 1957-58 and 195859 within the meaning of rule 8 (2) of the Income-tax Rules?"   The assessee originally carried on business in tannery, hidesand skins as a firm under the name and style of Messrs Bufco Traders, Hide Market, Lahore. The firm comprised of six partners. The profits of the firm were distributed equally among the partners to the extent of 66 percent and the balance of 34 per cent. paid in proportion to the capital standing to the credit of the partners on the last day of the year. In April 1956, this firm incorporated itself into a private limited company. The share holders of the new company were the same as the former partners of defunct firm and they were allotted a share of equal value as share holders in the new company against their capital in the firm. The tennery business was set up during the "previous year" relevant to the assessment year 1956-57 and the firm was allowed the benefit of additional depreciation for the assessment year 1956-57…