1. This is a reference made by the Income-tax Appellate Tribunal, The reference relates to the assessment year 1961-62 for which the accounting period ended on 31st October, 1960. The assessee, the Jaora Sugar Mills (P.) Ltd., is a private limited company. It filed its return accompanied by computation of income. The assessee made a claim for additional depreciation of Rs. 1,58,444 on the ground that the HUF of Kalooram Govindram was working this sugar factory in the past. There was a partition suit in 1942 and in consequence of a partition decree the Jaora Sugar Mills was purchased at an auction by competitive bid between the two branches of the HUF. The HUF of Kalooram Govindram purchased the factory for Rs. 34,00,000. The movable and immovable assets of the sugar factory were sold by the HUF--Kalooram Govindram--to Jaora Sugar Mills (P.) Ltd., the present assessee, for a sum of Rs. 32,07,511-11-9. It, is further alleged that the parties at the time of sale and also at the time of the agreement to sell agreed that the purchaser shall make other allotments of fully paid up shares to make up variations, if any, in the written down value of the whole of the undertaking as determined in the ultimate analysis by the decision of the income-tax proceedings of the HUF for the assessment year 1950-51 and later years. These proceedings, it appears, were pending before the Supreme Court of India. When the appeal was pending before the AAC, it appears that the Supreme Court decided the case pertaining to the assessment year 1950-51 and the decision of the Supreme Court is reported in Kalooram Govindram v. CIT : 57ITR335(SC) . In this decision their Lordships of the Supreme Court held that the valuation of the property for purposes of partition was not notional but was real and that was the basis for allotting properties to the different members. The cost of the property allotted to a member cannot be that at which it was purchased by the joint family in the remote past but would be the value given to it for the purposes of partition. On the basis of this decision, it was contended before the AAC by raising the additional ground that the assessee is entitled to its claim for depreciation to the extent of Rs. 1,58,444. The AAC did not allow the contention of the assessee. In appeal the same contention was advanced; but the Appellate Tribunal also did not accept the contention. Consequently, this reference has been made at the instance of the assessee.
2. The questions referred are :
' (1) Whether, on the facts and the circumstances of the case, the assessfe-company was entitled to further depreciation on the enhanced value of the assets as a result of the appeal effect to the Supreme Court decision reported in : 57ITR335(SC) given by the ITO as per his order dt. 4-1-1968 in the case of the vendor, HUF ?
(2) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that further depreciation on the enhanced value of assets could not be allowed to the assessee in the assessment year 1961-62?'
3. It was contended on behalf of the assessee that when the agreement to sell and the sale deed both contained a clause that the written-down value of the properties purchased would be on the basis of the value ultimately determined in the income-tax proceedings pending in the assessment of the joint family for the year 1950-51 and onwards, and when these proceedings ultimately ended in the decision of their Lordships of the Supreme Court wherein it was accepted that the value of the share could not be the value for which the assets were acquired in the past, it was contended that the assessee was entitled to depreciation. It was contended by the learned counsel that the AAC rejected the contention of the assessee on the ground that at the time of registration of the sale the price had to be fixed and it could not remain undetermined. The Tribunal, according to learned counsel, rejected the contention on the ground that the accounts once having become final could not be reopened and he contended that the AAC as well as the Tribunal have committed an error of law. According to learned counsel the proceedings were still pending when the appeal was pending before the AAC and when the clause in the sale-deed and the agreement clearly mentioned that the written-down value of the assets will be determined in accordance with the ultimate decision of the income-tax proceedings for the assessment year 1950-51 in the case of the HUF and when their Lordships of the Supreme Court accepted that the value of the share will have to be determined after deducting the depreciation from the original cost price, the written down value for purposes of assessment of the assessee-firm would be the price after deducting depreciation. And thus the assessee was entitled to deduction of depreciation to the tune of Rs. 1,58,444. The view of the AAC, according to learned counsel, is not correct in law that at the time of transfer the value had to be determined. Similarly, the view taken by the Tribunal also is incorrect as there is no question of reopening the accounts when they have come to a close, in the face of a specific clause in the agreement to sell and the sale-deed existing between the parties.
4. Learned counsel appearing for the department frankly conceded that so far as the AAC's view is concerned, it does not appear to be correct. But he attempted to contend that when a return was filed by the assessee-company the statement of accounts was filed, although he could not contend that it could not be corrected.
5. Admittedly, the assessment has not been completed. The appeal was pending before the AAC when the decision of their Lordships of the Supreme Court came. It is also not in dispute that the agreement to sell and the sale deed contained a clause that the written-down value of the assets will be determined on the basis of the ultimate decision in the income-tax proceedings of the HUF for the assessment year 1950-51 and onwards which were pending at that time. It is also not in dispute that these proceedings ultimately ended with the decision of their Lordships of the Supreme Court reported in : 57ITR335(SC) (Kalooram Govindram v. CIT); and it is also not in dispute that it has been held by their Lordships that the value of the share could not be the value at which it was acquired in the past, but will have to be ascertained after deducting the depreciation. And on this basis, it appears that before the AAC when the appeal was pending, the assessee submitted the additional ground of appeal and claimed additional depreciation on the basis of the decision in Kalooram Govindram v. CIT : 57ITR335(SC) . It is not a case of completed assessment and the AAC could not have refused to consider this ; but it appears that the AAC had some notion about the transfer and on that basis felt that this could not be done. Unfortunately, the Tribunal on a different consideration rejected the contention. The view taken by the Tribunal also is not justified in law. In our opinion, therefore, the assessee was entitled to depreciation in the light of the decision of their Lordships of the Supreme Court in : 57ITR335(SC) .
6. Our answer, therefore, to the question No. 1 is in the affirmative and the answer to question No. 2 is in the negative. In the circumstances of this case, parties are directed to bear their own costs.