The amendment to the second proviso to S. 10 (2) (vii) of the Income-tax Act, 1922, by Act 67 of 1949, removed the condition that the buildings and machinery must have been used for the business in the previous year for the deemed profits to be chargeable.

Judgment

SUBBA RAO, J. : The appeal by special leave is directed against the judgment of the High Court of Judicature at Madras in Tax Case No. 74 of 1959.

2. The facts may briefly be stated. The respondent-assessee, The Ajax Products Ltd. now under liquidation, was a public limited company incorporated in 1939 to carry on the business in the manufacture and sale of steel and abrasives products. On October 30, 1954, the company, at an extraordinary general body meeting, made a resolution to go into voluntary liquidation and the liquidator appointed by the said resolution carried on the business till the middle of December, 1954 when the business was completely closed down. on March 10, 1955, the Liquidator executed a sale-deed to Garboundum Universal Limited transferring to the latter the plant, machinery and buildings for a sum of Rupees 10.00,000. The said amount was made up of (1) Rs. 1,00,000 being the value of the land, (2)) Rs. 1,31,732 being the value of the buildings and (3) Rs. 7,68,268 being the value of plant and machinery. The books of the assessee Company showed that the original cost of the buildings was Rs. 3,46,034 that its written down value was Rs. 1,08,321, that the cost of the machinery was Rs. 3,90,.148 and its written down value Rs. 90,098. The total amount of the depreciation allowed in the past for both the buildings and machinery amounted to Rupees 5,36,034. The sale resulted in the excess realisation at RS. 23,411 over the written down value of the buildings. In the case of the machinery the sale price exuded the difference between the cost and the written down value and that excess was Rs. 3,00,050.

3. The relevant assessment year is 1956-57 and the corresponding accounting year is the calendar year 1955. The Income-tax Officer held that the sale was the result of collusion between the vendor and the vendee, He came to the conclusion that the assessce had realised the full original cost of the buildings and machinery and on that basis, he treated the sum of Rs. 5,36,034 which was allowed as depreciation in respect of buildings and machinery in the previous years as profits within the meaning of the second proviso to S. 10 (2) (vii) of the Indian Income-tax Act, 1922. On appeal, the Appellate, Assistant Commissioner held that the valuation fixed in the sale-deed executed by the assessee in favour of Garborandm Universal Limited was genuine and on that basis, determined the profits liable to tax at a sum of Rs. 3,23,461. He rejected the contention of the assessee that the second proviso to S. 10(2)(vii) was not applicable to his case. Against the order of the Appellant Assistant Commissioner, both the assessee and the Income-tax Officer preferred appeals to the Income-tax Tribunal. The Tribunal estinated the value of the buildings at a sum of Rs. 2,32,963 which gave a profit on sale of Rs. 1.25.00 instead of Rs. 23,411 showed by the assessee. Agreeing with the Appellant Assistant Commissioner it accepted the figure of Rs. 3,00,050 shown by the assessee as profit on the sale of plant and machinery. In the result, it held that a sum of Rs. 4,25,050 was liable to tax under the second proviso to S. 10 (2) (vii). It also rejected the contention of the assessee that the said proviso was not applicable to its case. On the application filed by the assessee the Tribunal referred to the High Court the following two questions.

(1) Whether the assessee was properly assessed on Rs. 4,25,050 as profits under the proviso to Ss. 10 (2) (vii) of the Act and

(2) Whether there were materials for the Tribunal estimating the sale value of the buildings at Rs. 2,32,963.

4. The Divisional Bench of the High Court held that the estimate of the sale value of the buildings by the Tribunal was not based upon any material and, therefore, could not stand. On that finding, it substitute the figure of Rs. 3,23,461 for the figure of Rs. 4,25,050 in question (1). It further held that as the said machinery and buildings were not used for the