1954 (8) TMI 44 - HC - Income Tax

High Court rules excess machinery sale not taxable under section 10(2)(vii) due to non-usage.

Nathmal Sriniwas Versus Commissioner of Income Tax, Bihar and Orissa.

Nathmal Sriniwas Versus Commissioner of Income Tax, Bihar and Orissa. - [1955] 28 ITR 473 (Patna) Issues:Assessment under section 10(2)(vii) of the Income Tax Act on the difference between the written down value of machinery and the actual sale price. Interpretation of section 10(2)(vii) regarding the necessity of machinery usage during the accounting year for taxation. Application of the Supreme Court decision in Liquidators of Pursa Limited v. Commissioner of Income Tax, Bihar to determine tax liability.Analysis:The case involved the assessment of a registered firm engaged in various activities, including rice milling and commission agency, for the year 1946-47. The firm sold its rice mills for a sum exceeding the written down value of the machinery, leading to an assessment under section 10(2)(vii) of the Income Tax Act by the Income Tax Officer. The Appellate Tribunal held that even though the rice milling business ceased during the accounting year, the firm was still liable to be taxed under section 10(2)(vii) as its other business activities continued in a reduced form. This decision was based on the integration of all business activities as one unit in the firm's accounts.The main legal issue revolved around the interpretation of section 10(2)(vii) and the requirement for machinery usage during the accounting year to attract taxation. The assessee argued, citing the Supreme Court decision in Liquidators of Pursa Limited case, that if machinery was not used at any time during the accounting year, no tax liability should arise under section 10(2)(vii). The High Court agreed with this argument, emphasizing that the machinery of the rice mill was not used at any point during the accounting year, as per the findings of the Appellate Tribunal. Therefore, the excess amount realized from the sale of machinery over its written down value was not subject to taxation under section 10(2)(vii).Ultimately, the High Court ruled in favor of the assessee, stating that the excess amount from the machinery sale was not taxable under section 10(2)(vii) due to the non-usage of machinery during the accounting year. The decision aligned with the interpretation of the Supreme Court's ruling and the factual findings regarding the cessation of rice milling business. The assessee was awarded costs of the reference, and the question was resolved in favor of the assessee against the Income Tax Department.