Law: Income Tax Act, 1922

Section: 10(2)(vii)

Section 32 of the Income-tax Act, 1961 [Corresponding to section 10(2)(vii) of the Indian Income-tax Act, 1922] - Depreciation - Allowance of - Assessment year 1957-58 - Whether where machinery became useless and was never in use in any sense of term during relevant accounting year, no deduction under section 10(2)(vii) of 1922 Act could be allowed - Held, yes - Whether where loss was calculated on revaluation of stock-in-trade due to change in method of accounting, deduction of said loss was to be allowed as changed method of accounting had been followed even in subsequent year - Held, yes FACTS For the assessment year 1957-58, the assessee-firm claimed deduction under section 10(2)(vii) being the loss on obsolete machinery and equipment. The assessee also claimed deduction as loss on revaluation of stock. The claims of the assessee were disallowed by the ITO. On appeal, the AAC and the Tribunal upheld the disallowance. On reference : HELD It is settled law that in order to obtain a deduction under section 10(2)(vii ) of the 1922 Act the machinery should have been used in the previous year. This is clear from Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 and CIT v. National Syndicate [1961] 41 ITR 225 . In the instant case, the indications were that the machinery became useless long before the accounting year and was never in case, in any sense of the term during that year or for many years prior to that year. It was held that machinery was not used at all during the accounting period relevant to the assessment year in any sense of the terms that as a result, the deduction was rightly denied. As regards the deduction of revaluation of stock, there was no allegation in this case of any lack of bona fides or a statement to the effect that the changed method was not followed in subsequent years. It could not be said that the reduced value put upon the stock-in-trade by a competent engineer did not represent its market value. In these circumstances, assessee's claim to deduct a sum as loss on revaluation of stores and spares was tenable in law. Note : The case was decided partly in favour of the assessee and partly in favour of the revenue. CASES REFERRED TO…

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