Actual depreciation allowed is essential before balancing-charge income can arise on sale of an asset.

Section 41(2) could not be invoked where no depreciation had actually been allowed in earlier assessments, because "depreciation actually allowed" means depreciation computed and permitted in assessment, not merely notional depreciation. In the absence of any prior allowance, the written down value of the truck remained its actual cost for the charging provision, so no deemed balancing-charge income arose on sale. The addition based on hypothetical depreciation was therefore deleted, confirming that deemed profit cannot be brought to tax unless depreciation was actually allowed in computing earlier business income.

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Issues: Whether section 41(2) could be invoked on sale of a truck when no depreciation had actually been allowed in earlier assessments, and whether the written down value had to be computed on the basis of notional depreciation.

Analysis: The relevant rule is that "depreciation actually allowed" means depreciation actually computed and allowed in the assessment of business income, and not depreciation deemed to have been allowed merely on a notional basis. Where no depreciation was worked out or allowed in earlier years, the written down value for the asset remains its actual cost for the purpose of the corresponding charging provision. On the facts, no depreciation on the truck had been allowed in any earlier assessment, so the sale could not generate deemed profit under section 41(2) by applying hypothetical depreciation.

Conclusion: Section 41(2) was not applicable, and the addition based on notional depreciation was rightly deleted; the appeal failed.

Final Conclusion: The decision confirms that deemed balancing-charge income cannot be brought to tax unless depreciation was actually allowed in computing earlier business income.

Ratio Decidendi: For invoking section 41(2), depreciation must have been actually allowed in assessment, and not merely allowable on a notional basis; absent such actual allowance, the written down value is not reduced by hypothetical depreciation.

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