Law:

Section:

Section 41(2) of the Income-tax Act, 1961 (Corresponding to section 10(2)(vii) of the Indian Income-tax Act, 1922) – Balancing charge – Assessment year 1958-59 – HUF consisting of a father and his son, owned three trucks on which depreciation was allowed reducing their written down value to nil – On disruption of family its separated members constituted a partnership firm and took over HUF's business as a running concern – Thereupon trucks were sold – ITO included sale proceeds of aforesaid trucks in assessee-firm's total income, treating same as deemed profits by virtue of second proviso to section 10(2)(vii) of 1922 Act – AAC rejected assessee's contention that as no depreciation was allowed to it in respect of those trucks, no question arose of computing any profit in its hands – Tribunal as well as High Court affirmed said view – Whether when depreciation allowance was allowed to HUF in its assessment proceedings, it was a step taken in determining taxable income of family, and, firm being a distinct assessable entity from HUF, depreciation allowed to family could not be regarded as depreciation allowed to assessee-firm – Held, yes – Whether, therefore, section 10(2)(vii) of 1922 Act was not attracted to assessee –firm, and, consequently, amount in question was not taxable in its hands by virtue of that provision – Held, yes FACTS The assessee, a partnership firm, carried on business as forest contractors. The business was originally carried on by HUF consisting of father and son, but due to total disruption of the family, its separated members constituted the aforesaid partnership firm, and took over the business as a running concern. When the business was being owned by the HUF it included three trucks on which depreciation had been allowed, reducing the written down value of nil. The trucks were sold later. The ITO included the entire sale proceeds in assessee-firm's total income, treating it as deemed profit by virtue of second proviso to section 10(2)(vii) of 1922 Act. On appeal, the AAC rejected the assessee-firms contention that as no depreciation was allowed to it in respect of the said trucks, no question arose of computing any profit in its hands.…

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