Unused machinery sale proceeds not taxable under section 10(2)(vii) where the asset was not used during the accounting year.

Machinery sold after remaining unused throughout the accounting year did not attract tax on the excess over written down value under section 10(2)(vii) of the Income-tax Act, 1922. The High Court noted that the rice-milling business had not been carried on during any part of the relevant year, so the machinery was treated as unused for the whole year. Because the provision applies only where the machinery or plant has been used for part of the accounting year, no charge arose where there was no user at all. The existence of other business activities did not alter the position for the rice-mill machinery, and the sale proceeds were held not taxable.

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Issues: Whether the excess realised on sale of machinery over its written down value was chargeable to tax under section 10(2)(vii) of the Income-tax Act, 1922 where the machinery had not been used during any part of the accounting year.

Analysis: The assessment year was 1946-47 and the finding accepted by the appellate Tribunal was that the rice-milling business had not been carried on for any part of the accounting year. On that footing, the machinery of the rice mill must be taken to have remained unused throughout the relevant year. The provision invoked applies only where the machinery or plant has been used for a part of the accounting year, and if there has been no user at all, the charge under the provision does not arise. The continued existence of other business activities did not alter the position in relation to the rice-mill machinery.

Conclusion: The amount realised on sale of the machinery was not taxable under section 10(2)(vii) of the Income-tax Act, 1922, and the answer was in favour of the assessee.

Ratio Decidendi: Section 10(2)(vii) applies only to machinery or plant that has been used for a part of the accounting year; where there is no user at all during that year, the provision is not attracted.

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