Original cost for depreciation may be reassessed from evidence when conveyance price appears unreliable or inflated.

Depreciation was required to be computed by reference to the assessee's original cost, which is a factual question to be determined from the evidence. A conveyance deed stating the consideration is only prima facie proof of cost and is not conclusive. Where the surrounding circumstances suggest fictitious pricing, fraud, collusion, inflation, deflation, or other ulterior purpose, the income-tax authorities may go behind the stated price, ascertain the actual cost, and determine whether goodwill formed part of the consideration. They may also apportion the price between depreciable and non-depreciable assets on the material available.

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Issues: Whether, for computing depreciation, the income-tax authorities were entitled to go beyond the conveyance and determine the actual original cost and allocation of the assets on the basis of the evidence.

Analysis: Under section 10(2)(vi) read with section 10(5) of the Indian Income-tax Act, 1922, depreciation is to be computed with reference to the original cost to the assessee, and that cost is a question of fact to be determined from the evidence. A formal deed mentioning the consideration is prima facie evidence of cost, but it is not conclusive. Where the surrounding circumstances indicate fictitious pricing, fraud, collusion, inflation, deflation, or other ulterior purpose, the income-tax authorities may refuse to accept the stated price and ascertain the actual cost. The authorities may also examine whether goodwill formed part of the consideration, and may determine the proper allocation between depreciable and non-depreciable assets on the material before them.

Conclusion: The income-tax authorities were competent to go behind the conveyance and fix the valuation on the basis of the evidence; the appeals failed.

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