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Commissioner of Income-tax Vs. S. Balasubramanian (Lrs. of T.S. Srinivasa Iyer) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 562 and 563 of 1977 (Reference Nos. 375 and 376 of 1977)
Judge
Reported in[1986]160ITR610(Mad)
ActsIncome Tax Act, 1961 - Sections 41(2)
AppellantCommissioner of Income-tax
RespondentS. Balasubramanian (Lrs. of T.S. Srinivasa Iyer)
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateT. Srinivasamoorthi, Adv.
Excerpt:
- - as against that assessment, there was an appeal but without success. 3. however, a mere reading of section 41(2) of the income-tax act will clearly show that the order of the income-tax officer withdrawing the proportionate initial depreciation granted in the hands of the bigger hindu undivided family by invoking section 41(2) cannot legally be sustained......taking into account the proportionate initial depreciation granted in the hands of the larger hindu undivided family ?' 2. the assessee is a hindu undivided family of which one balasubramanian is the karta. there was another hindu undivided family headed by t. s. srinivasa iyer and the kartas of the two hindu undivided families were members of a larger hindu undivided family. there was no other coparcener in that larger hindu undivided family excepting t. s. srinivasa iyer and t. s. balasubramanian. the larger hindu undivided family possessed considerable properties and the same were subjected to partial partition dividing them by metes and bounds, under a deed of partition dated august 31, 1967. under that partition, the properties mentioned in the d schedule were allotted to the.....
Judgment:

Ramanujam, J.

1. At the instance of the Revenue, the following question has been referred for the opinion of this court by the Appellate Tribunal :

'Whether, on the facts and in the circumstances of the case, the cost to the assessee for the purpose of computing profit assessable under section 41(2) of the Income-tax Act, 1961, is the cost at which it was valued in the partition deed and without taking into account the proportionate initial depreciation granted in the hands of the larger Hindu undivided family ?'

2. The assessee is a Hindu undivided family of which one Balasubramanian is the karta. There was another Hindu undivided family headed by T. S. Srinivasa Iyer and the kartas of the two Hindu undivided families were members of a larger Hindu undivided family. There was no other coparcener in that larger Hindu undivided family excepting T. S. Srinivasa Iyer and T. S. Balasubramanian. The larger Hindu undivided family possessed considerable properties and the same were subjected to partial partition dividing them by metes and bounds, under a deed of partition dated August 31, 1967. Under that partition, the properties mentioned in the D Schedule were allotted to the assessee's family headed by the karta, S. Balasubramanian, and also the liabilities mentioned in the E schedule. This consisted of land together with buildings and laboratory buildings in which certain plant and machinery had been erected. In the partition deed, the plant and machinery had been valued at Rs. 8,70,826 which is the written down value of the assets in the income-tax records of the larger Hindu undivided family. Subsequent to the said partition, the plant and machinery which had been allotted to the smaller family headed by S. Balasubramanian were sold by that family to Messrs. Gemini Pictures Circuit Private Limited. In the hands of the larger Hindu undivided family, consisting of Srinivasa Iyer and Balasubramanian, the initial depreciation on the plant and machinery amounting to Rs. 97,666 had earlier been granted. Taking note of the allowance of such initial depreciation in the hands of the larger Hindu undivided family, the Income-tax Officer attempted to bring to charge under section 41(2) of the Income tax Act, the said amount in the hands of the larger Hindu undivided family. When that larger Hindu undivided family objected to the same, the Income-tax Officer proceeded to assess under section 41(2) of the Act, the said initial depreciation in the hands of the smaller Hindu undivided family headed by Balasubramanian who is the assessee in this case, in proportion to the value of the machinery allotted to the family. This was objected to by the assessee. However, the Income-tax Officer rejected the assessee's contention and proceeded to withdraw the proportionate initial depreciation of Rs. 53,526 in the hands of the assessee under section 41(2) of the Act. As against that assessment, there was an appeal but without success. There was a further appeal to the Appellate Tribunal. In that appeal, the Tribunal held that section 41(2) of the Act cannot have any application to the facts of this case, as there is no identity between the person who got the benefit of initial depreciation and the person who actually sold the plant and machinery. The Tribunal also held further that since the sale of the plant and machinery by the assessee to Gemini Pictures Circuit Private Limited is only on the written down value, there is no room for the application of section 41(2) of the Act. The said view of the Tribunal has been challenged by the Revenue in this case before us.

3. However, a mere reading of section 41(2) of the Income-tax Act will clearly show that the order of the Income-tax Officer withdrawing the proportionate initial depreciation granted in the hands of the bigger Hindu undivided family by invoking section 41(2) cannot legally be sustained. As has been held by the Tribunal, first of all, there is also no identity between the person who got the benefit of initial depreciation and the person who actually sold the plant and machinery. Further, the application of section 41(2) of the Act will arise only when the sale consideration has exceeded the written down value. In this case, it is not indispute that the sale was only as per the written down value of the plant and machinery. Therefore, in this case, the Income-tax Officer was not justified in invoking section 41(2) of the Act. We are, therefore, of the view that the Tribunal has come to the right conclusion in this case. We, therefore, answer the question in favour of the assessee. The Revenue will pay the costs of the assessee. Counsel's fee Rs. 500 one set.


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