Law:

Section:

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment years 1990-91 to 1998-99 - Whether each of sub-sections of section 41 deals with different and distinct topics and one cannot read recoupment under one sub-section into another - Held, yes - Whether, therefore, concept of 'balancing charge' in section 41(2) cannot be read into section 41(1) - Held, yes - Whether, therefore, after deletion of section 41(2), department is not entitled to tax sale proceeds of 100 per cent depreciated and written off assets as business income of assessee under section 41(1) - Held, yes Section 50 of the Income-tax Act, 1961 - Capital gains - Computation in case of depreciable assets - Assessment years 1990-91 to 1998-99 - Whether bottles and crates costing less than Rs. 5,000 purchased prior to 31-3-1995 did not form part of block of assets and, hence, after deletion of section 41(2) profit on sale of such assets was not taxable either as a balancing charge under section 41(1) or as capital gain under section 50 - Held, yes - Whether, however, on account of deletion of proviso to section 32(1)(ii) vide Finance Act, 1995, bottles and crates purchased after 1-4-1995 formed part of block of assets and, consequently, such assets became exigible to capital gains tax under section 50 - Held, yes FACTS The assessee-company was in the business of manufacture and sale of soft drinks. For the purpose of its business, it bought bottles and crates whose cost per unit did not exceed Rs. 5,000 and, therefore, was allowed 100 per cent depreciation on the cost thereof. When bottles and crates got worn out, they were sold by the assessee and proceeds therefrom were shown as 'miscellaneous income' in the subsequent years. However, the department, notwithstanding deletion of section 41(2), held that the sale proceeds of the 100 per cent depreciated and written off assets could still be treated as the business income of the assessee under section 41(1). In similar case of other assessee, the assessee received a sum on sale of scrap bottles and crates during the assessment year 1998-99. The sale proceeds were separated in two parts : (i) in respect of…

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