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High Court Of Delhi
RAJ NARAIN AGGARWAL - Appellant
Versus
INCOME TAX COMMISSIONER, DELHI - Respondent
Decided On : 01/23/1969
INCOME TAX - Assessment year 1956-57 - Whether the assessment order for the assessment year 1955-56 finally concluded that the sum of Rs. 1,76,919. 00 directed to be carried forward to the next year, represented loss and not unabsorbed depreciation left over in the preceding year? - Whether, on the facts and in the circumstances of the case, the written down value of the two factories in question for the purposes of computation of depreciation allowance was Rs. 6,20,000. 00?
Fact of the Case:
The assessee, a Hindu undivided family, was a partner in a partnership firm that owned three factories. The firm suffered losses in two of the factories, which were carried forward to the assessment year 1955-56. The partnership firm was dissolved on January 1, 1955, and the assets were divided between the partners. The assessee received two of the factories, which were valued at Rs. 6,20,000. 00. The assessee claimed depreciation allowance on the factories based on the written down value of Rs. 6,20,000. 00, but the Income-tax Officer decided that the written down value should be the same as it was in the hands of the dissolved firm. The assessee also claimed that its share of the carried forward losses should be set off against its income of the current year, but the Income-tax Officer rejected this claim.
Finding of the Court:
The Tribunal upheld the Income-tax Officer's decision on the depreciation allowance, holding that the written down value of the factories should be the same as it was in the hands of the dissolved firm. The Tribunal also held that the assessee could not carry forward the unabsorbed depreciation from the dissolved firm, as this could only be done by the identical assessee. However, the Tribunal held that the assessment order for the preceding year 1955-56, which had become final and conclusive between parties, allowed the total sum of Rs. 1,76,919. 00 as carried forward loss and not as carry forward of loss and unabsorbed depreciation.
Issues: 1. Whether the assessment order for the assessment year 1955-56 finally concluded that the sum of Rs. 1,76,919. 00 directed to be carried forward to the next year, represented loss and not unabsorbed depreciation left over in the preceding year? 2. Whether, on the facts and in the circumstances of the case, the written down value of the two factories in question for the purposes of computation of depreciation allowance was Rs. 6,20,000. 00?
Ratio Decidendi: 1. The assessment order for the preceding year 1955-56 did not finally conclude that the sum of Rs. 1,76,919. 00 directed to be carried forward to the next year, represented loss and not unabsorbed depreciation left over in the preceding year. The Income-tax Officer merely described the amount as a carried forward loss, and unabsorbed depreciation could have legitimately been described as such. 2. The written down value of the two factories in question for the purposes of computation of depreciation allowance was Rs. 6,20,000. 00. The valuation of the property was not notional but real, and that was the basis for allocating properties to different partners. Adjustment was made by payment of Rs. 4,35,000. 00 in cash by the assessee to the other partner with a view to equalising their shares. In these circumstances, the cost of the property to the assessee on the date of the partition would be the value given to it for the purposes of allotment.
Final Decision: 1. The first question is answered in the negative. 2. The second question is answered in the affirmative and in favour of the assessee subject to the correction that the sum of Rs. 6,20,000. 00 will be read as Rs. 6,000,000. 00.
( 1 ) THE following two questions of law have been referred to this Court under section 66 (1) of the Indian Income-tax Act, 1922 :-
" (1) Whether, on the facts and in the circumstances of the case, the assessment order for the assessment year 1955-56 finally concluded the position that the sum of Rs. 1,76,919. 00 directed to be carried forward to the next year, represented loss and not unabsorbed depreciation left over in the preceding year ?
(2) Whether, on the facts and in the circumstances of the case, the written down value of the two factories in question for the purposes of computation of depreciation allowance was Rs. 6,20,000. 00 ?"
( 2 ) THE statement of case relates to the assessment year 1956-57 (previsous year ending 31-12-55 ). The assessee is a Hindu undivided family. A partnersip firm was constituted in the name of Prem Narain Raj Narain by a written instrument dated 1-1-1944 between two brothers Raj Narain and Prem Narain, each acting as a Karta of his Hindu undivided family. The said partnership owned three factories, namely (1) Prag Distilled Water Ice Factory, (2) Prag Cold Storage, and (3) Prem Raj Enamel Metal Factory. The firm carried on business up to January 1, 1955. Prag Distilled Water Ice Factory and Prag Cold Storage suffered losses of Rs. 2,12,027. 00 and Rs. 1,02,481. 00 respectively up to the end of the assessment year 1955-56 which were carried forward loss was Rs. 3,53,838. 00 in the assessment of the said registered partnership for the assessment year 1955-56 comprising of Rs. 3,14,508. 00 in the aforementioned two factories and Rs. 39, 330. 00 in Prem Raj Enamel Metal Factory. This loss was allocated equally between the two partners so that the carried forward loss in the hands of each partner was Rs. 1,76,919. 00. The partnership firm was dissolved on January 1, 1955. On the same date, the three factories were valued by the partners with the help of experts and divided into two lots. The lot comprising Prag Distilled Water Ice Factory as a going concern together with its assets and liabilities except goodwill and land and Prag Cold Storage also as a going concern together with its assets and liabilities excepting godwill and land fell to the share of the assessee. The value of these assets was determined at Rs. 6,20,000. 00. As the assets falling to the share of the assessee exceeded in value of the lot taken by Prem Narain, the assessee paid a sum of Rs. 4,35,000. 00 for equalising the values of the divided assets. Regarding valuation and division of the assets, the Tribunal observed-
"we may, in the first instance, point out that the procedure followed by the partners in valuing the factories is such as to leave no doubt about the genuineness of the values fixed by them. The partners consulted experts on the point before fixing the values. Even after fixing the values, the assets were divided into two lots by the asses- see and the option was given to Prem Narain to elect either of the two lots. In case where such a procedure is adopted, it is unlikely that any unrealistic values will be fixed for the assets.
( 3 ) EVEN apart from this having regard to the written down value of these factories in the case of the firm coupled with the present times when the prices of plant and machinery have gone up many fold, we have not in the least any doubt that Rs. 6 Lac was the fair and reasonable value of the two factories on 1-1-65. "
( 4 ) IT may be pointed out that the learned counsel for the parties agreed that the value of the assets claimed by the assessee was rupees six lacs and Rs. 6,20,000. 00 appearing in the second question referred is a mistake.
( 5 ) THE assessee earned an income of Rs. 1,27,287. 00 from Prag Distilled Water Ice Factory and an income of Rs. 25,152. 00 from Prag Cold Storage in the year under reference. The assessee claimed depreciation allowance on both the factories on the basis of rupees six lacs as their written down value but the Income- tax Officer decid
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