Deeming provision for machinery sale gains cannot be imported into another income head absent clear statutory language.

The second proviso to section 10(2)(vii) deemed excess realised on sale of depreciable machinery over written down value as profits for section 10, but the Bombay HC treated that deeming rule as confined to income computed under that head. It held that the proviso was not a condition for granting depreciation and could not be imported into assessment of income under section 12 absent clear statutory language. On that basis, profit on sale of machinery was not liable to tax under the second proviso read with section 12 of the Indian Income-tax Act, 1922.

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Issues: Whether the profit arising from sale of machinery was taxable under the second proviso to section 10(2)(vii) read with section 12 of the Indian Income-tax Act, 1922.

Analysis: The question turned on the scope of the second proviso to section 10(2)(vii). That proviso deems the excess realised on sale of depreciable machinery over its written down value to be profits for the purposes of section 10. The Court accepted the view that, although the main part of section 10(2)(vii) governing depreciation could operate in the statutory scheme, the second proviso was not intended to govern income assessed under section 12. The proviso was treated as not being a condition upon which depreciation is granted, and therefore could not be imported into the computation of income under a different head.

Conclusion: The profit on sale of machinery was not liable to tax under the second proviso to section 10(2)(vii) read with section 12.

Ratio Decidendi: A deeming provision tied to the computation of income under one head cannot be applied to income assessable under another head unless the statute clearly so provides.

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