Law: Income Tax Act, 1961

Section: 32(1)(iii)

(a) Income-tax----Depreciation---Balancing allowance---Business of distributing liquid petroleum gas---Iron cylinders acquired by assessee---Used as "returnable packages"---Sold to refinery---Shortfall--Cylinders not "actually used up"---Not deductible under depreciation rules---Shortfall not written off---Balancing allowance not allowable---Indian Income-tax Act, 1961, S.32(1)(iii)---Indian Income-tax Rules, 1962, R.5; App. I, Part I, Item. M(2)(2)(d)(i). The appellant-company carried on the business of distributing liquid petroleum gas manufactured by a refinery. For the purpose of distribution the appellant--had during the course of 1955 to the beginning of 1961, acquired iron cylinders at a total cost of Rs.1,09,63,754. Those cylinders were used as "returnable packages". They were accounted by the appellant as its capital assets but no allowance for depreciation thereon was claimed or allowed in any of the assessments up to the assessment year 1961-62. The appellant sold the cylinders to the refinery in 1961 for Rs.82,19,947 and claimed the shortfall of Rs.27,43,807 as a deduction for the assessment year 1962-63. The Appellate Tribunal allowed the deduction of the loss of Rs.27,43,807 as one, allowable under Rule 5 of the Income-tax Rules, 1962, read with .the remarks against item M(2)(2)(d)(i) of Part I of Appendix I to the Rules; and, in this view, the Tribunal did not allow deduction under section 32(1)(iii) as the claim thereunder did not survive. On a reference, the High Court held that the loss was not allowable under Rule 5 read with item M(2)(2)(d)(i) of Part I of Appendix I to the Rules; that section 32(1)(iii) was not applicable as the question of written down value was one of fact and the Tribunal had not made any fording in regard thereto, and that in any case, as the appellant had not written off the amount in its books of account, that amount could not be allowed as a balancing allowance under section 32(1)(iii) of the Income-tax Act, 1961. On appeal to the Supreme Court: Held. affirming the decision of the High Court, (i) that the shortfall of Rs.27,43,807 was not allowable under Rule 5 read with item M(7)(2)(d)(i) of Part I of Appendix I to…

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