Written down value computation includes initial depreciation when applying the statutory recovery rule on sale of assets.

Initial depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922 was held to form part of the depreciation actually allowed for computing written down value under section 10(5)(b) and for applying the second proviso to section 10(2)(vii). The exclusion of initial depreciation operated only for calculating depreciation under section 10(2)(vi) and did not require it to be ignored when determining the statutory recovery on sale. The scheme treated the sale difference as a recovery of depreciation previously allowed, so the written down value had to include initial depreciation. The issue was answered in favour of the Revenue.

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Issues: Whether initial depreciation allowed under section 10(2)(vi) of the Indian Income-tax Act, 1922 was to be excluded while computing the written down value for charging profits under the second proviso to section 10(2)(vii) of the Act.

Analysis: The written down value under section 10(5)(b) means the actual cost less all depreciation actually allowed. The exclusion of initial depreciation in section 10(2)(vi) operates only for computing depreciation under that clause and preserves the assessee's right to normal depreciation in later years. When the asset is sold and the second proviso to section 10(2)(vii) applies, the written down value has to be computed by taking into account depreciation that was actually allowed, including initial depreciation. The scheme of the Act treats the sale difference as a statutory recovery of depreciation previously allowed.

Conclusion: Initial depreciation was not liable to be excluded from the written down value, and the question was answered in the negative in favour of the Revenue.

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