JUDGMENT

1. This is a reference under Section 66(1) of the Income-tax Act and arises in the circumstances that follow. In the year 1944, five business concerns which were carrying on the business of road transport were amalgamated and formed into the Pindi Kashmir Transport Company Limited, (hereinafter called the assessee company), on account of nationalization scheme. At the time of the incorporation of this company the business concerns that were amalgamated handed over to the company their vehicles as well as their route permits. In lieu of these vehicles, they were allotted fully paid-up shares. Some of these vehicles, which had been purchased from the shareholders for sum of Rs. 89,731 were sold for Rs. 53,650 in the following year. For the assessment year 1945-46, the assessee company claimed the benefit of this loss of Rs. 36,081 under Section 10(2) (vii) of the Income-tax Act. At the same time, it claimed depreciation on the cost of vehicles, which were in business used and which, according to the company, was Rs. 5,73,211. Out of this sum Rs. 1,66,968 represents the cost of vehicles purchased from outsiders while Rs. 4,06,243 represents the cost of vehicles purchased from