Written down value and balancing charge must be based only on depreciation actually allowed, not merely estimated allowances.

Written down value for business assets under section 10(5)(b), and the balancing charge under the second proviso to section 10(2)(vii), must be computed only with reference to depreciation actually allowed in earlier assessments. Depreciation that was merely estimated or notionally considered while income was assessed year to year under section 13 is not equivalent to depreciation actually allowed under the Act. The balancing charge mechanism therefore applies only to depreciation reflected in assessment orders, not to hypothetical or computed allowances. On that basis, only the depreciation actually allowed in the relevant years could enter the computation, and the issue was answered in favour of the assessee.

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Issues: Whether, for computing the written down value of business assets and the balancing charge under the second proviso to section 10(2)(vii), only depreciation actually allowed in earlier assessments could be taken into account when the assessee's income had been estimated year to year.

Analysis: The statutory definition of written down value in section 10(5)(b) tied it to the actual cost less depreciation actually allowed under the Act. Depreciation merely worked out on an estimated basis, or notionally taken into account while estimating income under the proviso to section 13, was not the same as depreciation actually allowed in assessment orders. Since the balancing charge mechanism is intended to adjust the equities between the department and the assessee, it can operate only where depreciation has in fact been allowed in earlier years. On the facts, only the depreciation figures actually allowed in the relevant assessment years could be brought into the computation.

Conclusion: Only depreciation actually allowed could be considered in determining the written down value and the excess profit under the second proviso to section 10(2)(vii); the question was answered in favour of the assessee.

Ratio Decidendi: For the purposes of section 10(5)(b) and the balancing charge under section 10(2)(vii), written down value must be computed only with reference to depreciation actually allowed in assessment, not depreciation merely estimated or notionally taken into account.

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