1. This is reference under section 66(1) of the Indian Income-tax Act, 1922.
2. The assessee-company owns certain oil installations in Bombay and Madras. Prior to 1939, the income of the assessee was being assessed under section 10 as business income. After 1939, the assessee-company ceased to carry on business but was recovering rent of its installations. During the year 1953, the income from the rent was brought to tax under section 12. During that year, the assessee sold a portion of the oil installation machinery for a sum of Rs. 9,00,000. At that date, the original cost of the machinery sold was Rs. 2,77,401, but its written down value at the beginning of the year was Rs. 48,451. The excess realised over the written down value was Rs. 2,28,950. In the assessment year 1954-55 relating to the accounting year 1953, the Income-tax Officer held that this sum of Rs. 2,28,950 was liable to be included within the assessee's assessable income in view of the provisions of section 12(3) read with section 10(2) (vii). The assessee's appeal to the Appellate Assistant Commissioner was rejected, but in the further appeal to the Tribunal, the Tribunal has held that this sum of Rs. 2,28,950 cannot be included within the assessee's assessable income in view of the judgment of a Division Bench of the Madhya Pradesh High Court in Commissioner of Income-tax v. Nandlal Bhandari & Sons (P.) Ltd.
3. Under these circumstances, this reference has been made at the instance of the revenue and the question referred is :
'Whether, on the facts and in the circumstances of the case, the profit on sale of machinery amounting to Rs. 2,28,950 under the second proviso to section 10(2) (vii) read with section 12 is liable to tax ?'
4. Section 10(2) (vii) enacts that if the amount for which any building, machinery or plant in respect of which depreciation has been allowed is sold, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value thereof shall be deemed to be profits. The Madhya Pradesh High Court has in the above judgment held that the provisions in the second proviso to section 10(2) (vii) are not applicable in computing income assessable under section 12, even though the main provision of section 10(2) (vii) which provides for depreciation allowance is applicable and that this proviso is not a condition under which depreciation is granted. We are in respectful agreement with the ratio of this judgment and the reasoning on which it has been arrived at. In view of that ratio, we answer the question in the negative.
5. The revenue to pay the respondent's costs.