Capital gains computation turns on written down value rules under Section 10(5), not the Section 10(2)(vi) exclusion.

Capital gains taxation under the 1947 amendment was upheld as valid, following the Supreme Court's ruling in Navinchandra Mafatlal, so the challenge to the provision failed. In computing capital gains under Section 12-B, the written down value had to be determined under Section 10(5): for assets acquired in the previous year, initial depreciation under Section 10(2)(vi) was not deductible and Rs. 11,506 was excluded; for assets acquired before the previous year, all depreciation actually allowed had to be deducted and Rs. 25,970 was included. The exclusion in Section 10(2)(vi) operated only for that clause's computation and did not govern Section 12-B.

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Issues: (i) Whether the provision imposing income tax on capital gains, made by the Indian Income Tax and Excess Profits Tax (Amendment) Act, 1947, was ultra vires; (ii) whether, in computing capital gains under Section 12-B, the initial depreciation allowed under Section 10(2)(vi) had to be deducted in arriving at the written down value of the assets.

Issue (i): Whether the provision imposing income tax on capital gains, made by the Indian Income Tax and Excess Profits Tax (Amendment) Act, 1947, was ultra vires.

Analysis: The point stood concluded by the decision of the Supreme Court in Navinchandra Mafatlal, which held the capital gains provision to be valid. That binding ruling governed the reference on this question.

Conclusion: The question was answered in the negative and against the assessee.

Issue (ii): Whether, in computing capital gains under Section 12-B, the initial depreciation allowed under Section 10(2)(vi) had to be deducted in arriving at the written down value of the assets.

Analysis: For assets acquired in the previous year, Section 10(5)(a) treated written down value as the actual cost, so the later initial depreciation of Rs. 11,506 could not be deducted. For assets acquired before the previous year, Section 10(5)(b) required deduction of all depreciation actually allowed under the Act, so the earlier allowance of Rs. 25,970 formed part of the reduction in written down value. The exclusion in Section 10(2)(vi) was confined to the computation of written down value for that clause and did not control the separate computation under Section 12-B.

Conclusion: The sum of Rs. 11,506 was to be excluded and the sum of Rs. 25,970 was to be included in computing the written down value.

Final Conclusion: The reference was answered partly for the assessee and partly for the revenue, with no order as to costs.

Ratio Decidendi: The written down value for capital gains under Section 12-B is determined by Section 10(5), and the exclusion in Section 10(2)(vi) affects only the computation under that clause unless the asset falls within the statutory rule requiring all depreciation actually allowed to be deducted.

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