Balancing charge on sold trucks requires depreciation allowed to the same assessee; prior owner's depreciation was irrelevant.

The second proviso to section 10(2)(vii) of the Income-tax Act, 1922 applies only to the extent depreciation has actually been allowed to the assessee. Where a firm acquired trucks from a Hindu undivided family after the written down value had already been exhausted in the family's hands, the firm's actual cost was nil and no depreciation could have been allowed to it. Because the firm and the Hindu undivided family were distinct assessable entities, depreciation allowed to the earlier owner could not be treated as depreciation allowed to the firm. The surplus on sale was therefore outside the balancing charge provision and was not taxable on that footing.

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Issues: Whether the surplus realised on sale of trucks, whose written down value had already become nil before the firm took over the business from the Hindu undivided family, was taxable under the second proviso to section 10(2)(vii) of the Income-tax Act, 1922.

Analysis: The statutory scheme of the second proviso to section 10(2)(vii) fastens a balancing charge only to the extent depreciation had actually been allowed to the assessee. The trucks were acquired by the firm when their written down value had already been exhausted in the hands of the earlier owner. On that footing, the actual cost to the firm was nil and no depreciation could ever have been allowed to it. The fact that the business was taken over as a running concern did not alter the position, because the firm and the Hindu undivided family were distinct assessable entities under the Act, and depreciation allowed to the family could not be treated as depreciation allowed to the firm.

Conclusion: The second proviso to section 10(2)(vii) was not attracted, and the amount of Rs. 24,252 was not taxable in the assessee's hands on that footing.

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