Recoupment of depreciation required when sale proceeds exceed written down value, including sales of the whole undertaking.

Where lease terms fixed rent by reference to factory operation and conferred use of plant and vehicles, and the taxpayer made return admissions (loss claims, expenses, depreciation and carry forward of prior losses) implying ongoing trade, the Tribunal's finding that the company was carrying on business in 1948 49 is supportable on the evidence. The proviso requiring recoupment of previously claimed depreciation when sale proceeds exceed written down value applies to disposals of assets whether sold individually or as part of the sale of the whole undertaking; recoupment is therefore mandated on such sales.

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Issues: (i) Whether, on the facts and circumstances, the Tribunal's finding that the assessee company was carrying on business in the accounting year 1948-49 was justified; (ii) Whether the proviso to section 10(2)(vii) applies where the whole undertaking is sold.

Issue (i): Whether there was evidence to justify the Tribunal's finding that the assessee company was carrying on business in the accounting year 1948-49.

Analysis: The Tribunal relied on the terms of the lease which fixed rent by reference to the actual working of the factory and conferred on the hirer use of plant and vehicles, permitting an inference that the company conducted business through the hirer. The Tribunal also relied on admissions in the company's return and statements, including claims of business loss, expenses and depreciation under the provisions applicable to carrying on business, and the carrying forward of prior year losses-claims that presuppose that business was carried on in the year of account. The task is limited to whether evidence existed to support the Tribunal's finding, not to reassess the evidence.

Conclusion: The Tribunal's finding that the assessee company was carrying on business in 1948-49 is justified.

Issue (ii): Whether the proviso to section 10(2)(vii) is inapplicable when the whole undertaking is sold, as contended by the assessee.

Analysis: The proviso refers to any building, machinery or plant being sold and requires that where sale realises a price in excess of written down value, the amount of depreciation previously claimed and allowed should be made good. The proviso applies irrespective of whether assets are sold separately or together as part of a sale of the whole undertaking; limiting application to part-sales would contradict the underlying principle of recoupment of depreciation where sale proceeds exceed written down value.

Conclusion: The proviso to section 10(2)(vii) applies even where the whole undertaking is sold.

Final Conclusion: The reference questions are answered affirmatively: the Tribunal was justified in finding that the assessee carried on business in 1948-49, and the proviso to section 10(2)(vii) applies to sales of the whole undertaking; the decision favours the revenue.

Ratio Decidendi: Where lease terms and admissions in tax returns furnish evidence that business activities continued through a hirer and tax claims presuppose carrying on business, a tribunal's finding of continued business is supportable; the proviso to section 10(2)(vii) mandates recoupment of depreciation whenever sale proceeds of building, machinery or plant exceed written down value, irrespective of whether the sale is of part or the whole of an undertaking.

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