A claim for deduction for purposes of income-tax must be based on one or other of the principles of expenditure, write-off of an itemised loss, or a charge or proper debit item against revenue.

BALASUBRAHMANYAN J.

In this case arising under the I.T. Act, 1961, the assessee had made a claim for deduction of Rs. 59, 465 in the account year ended May 31, 1969, relevant to the assessment year 1970-71. The deduction claimed was in respect of the value of certain tools and implements. The assessee is a manufacturing concern. It produces radiator parts. In the process of manufacturing these articles, tools and implements are being used. It is needless to say that the tools are short lived. They become useless or obsolete in a couple of years, so that the assessee has to be constantly replacing old tools with new ones. In terms of accounting, what the assessee does is to write down the value of the tools every year by a certain figure, claiming the figure as a deduction, in arriving at the year's net profits. This deduction does not represent either an outgoing or an item of expenditure, but was claimed as an allowance by the assessee apparently as an itemised loss or, at any rate, as a proper charge against revenue in the profit and loss account. Whatever be the basis of the claim, the assessee sought to deduct the amount of write-off in the value of the tools every year in the computation of its profits for income-tax purposes. The ITO did not blindly allow the figure of write-off as claimed by the assessee. On the contrary, he went into details, and allowed only what he regarded really as the proper estimate of loss or depreciation in the value of the tools, disallowing the balance, in the computation of the assessable income. For instance, in the year ended March 31, 1966, the assessee wrote off Rs. 18, 750 in the tools account. But the ITO allowed Rs. 9, 750 disallowing almost a like amount. In the next year, the ITO allowed Rs. 30, 000 as loss or depreciation in the tools account, as against Rs. 45, 000 written off by the assessee in the books. In the next year, the assessee wrote off Rs. 9, 500 and the ITO apparently having been satisfied about the legitimacy of the write-off of this figure, allowed the claim in its entirety. But in the year next following, the ITO allowed only Rs. 35, 465 out of Rs. 85, 215 written off in the books. The assessee accepted the disallowances made by the ITO in all these assessments. During the four-year period the disallowances made by the ITO in this fashion amounted in all to Rs. 59, 465. Subsequently, in the year ended May 31, 1969, relevant to the assessment year 1970-71, the assessee happened to sell its properties and assets to a limited company. In the process, it also turned over to that concern all its tools in their existing condition at book value. Having done so, the assessee claimed in its incometax assessment in the relevant year of sale, a deduction in the sum of Rs. 59, 465, which represented the aggregate amount of disallowance made by the ITO in all the prior years out of the amounts written off by the assessee as and towards depreciation in the value of tools and implements. The assessee claimed that the sum of Rs. 59, 465 was a proper debit item to be allowed in the computation of the profits for the concerned year ended May 31, 1969. The ITO, however, disallowed the claim. When the matter was taken in appeal before the Tribunal, they accepted the claim of the assessee as to one-half. Hence this reference brought at the instance of the I.T. Department In their order, the Tribunal have quite clearly discountenanced the assessee's contention that the amount of Rs. 59, 465 represented the loss of the year in question arising on the sale by the assessee of the old tools and implements. The Tribunal, however, upheld the claim of the assessee on another footing, namely, that the deduction must be allowed because it represented an expenditure to be allowed in that particular year. The Tribunal expressed the view that the assessee was entitled, on a reasonable basis, to an allowance of 50% of Rs. 59, 465 as expenditure (deduction)The Department's case before us wa