Actual use of seasonal factory must be shown from facts, not presumed from capacity to operate later.

For section 10(2)(vii) of the Indian Income-tax Act, 1922, the expression "used" was not confined to continuous actual working throughout the previous year, and the existing Supreme Court position supported treating the asset as used where the factual circumstances showed such use; the issue was answered for the assessee. A seasonal sugar factory could not, however, be treated as used merely because it was capable of seasonal operation when there was no finding of preliminary arrangements or actual crushing during the year; on those facts, the issue was again answered for the assessee and against the department. The surplus on sale of the factory was therefore not brought to tax on the Revenue's basis.

---

---

Issues: (i) Whether, for applying the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, the factory had to be used by the assessee during the previous year; (ii) whether a seasonal sugar factory could be treated as used during the relevant period even though crushing had not actually commenced.

Issue (i): Whether, for applying the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, the factory had to be used by the assessee during the previous year.

Analysis: The answer was governed by the Supreme Court decisions holding that the expression "used" in this context does not require actual working throughout the previous year in every case. The existing legal position treated the question of use for depreciation and the computation of surplus on sale of an asset under the proviso as having been settled by binding precedent.

Conclusion: The issue was answered in favour of the assessee.

Issue (ii): Whether a seasonal sugar factory could be treated as used during the relevant period even though crushing had not actually commenced.

Analysis: The factory was seasonal, but there was no finding that any preliminary arrangements for working the factory had been made during the previous year. On the facts found, the factory had not been in operation and it could not be presumed to have been used merely because it was capable of seasonal operation.

Conclusion: The issue was answered against the department and in favour of the assessee.

Final Conclusion: The reference was decided in favour of the assessee on both questions, and the surplus arising on sale of the factory was not brought to tax on the footing adopted by the Revenue.

Ratio Decidendi: For the purposes of section 10(2)(vii) of the Indian Income-tax Act, 1922, actual use of the asset during the relevant previous year must be determined from the factual operation of the asset and cannot be presumed merely from its seasonal character or its potential to be used later.

---