1989 PLP 171 (PTD)

"(1) Whether, on the facts and in the circumtances of the case, the sums of Rs.16,000 and Rs.39,262 received from Kanshi Ram and Devi Chand, respectively, were assessable as income of the assessee? (2) Whether, on the facts and in the circumstances of the case, depreciation is allowable on the 1/6th share in S.B. Sugar Mills, Bijnore, which the assessee had acquired from Seth Shiv Prasad?" So far as the first question was concerned, the High Court referred to the arrangement entered into by the- parties as also the terms of compromise and referred to certain decisions and came to the conclusion that the sum of Rs. 16,000 received as a part of the total sum of Rs. 68,000 constituted an assessable receipt. On the same reasoning, the High Court held that the amount of Rs. 39,262 received from Devi Chand was also liable to tax. So far as the other question was concerned, the High Court held [1971] 81 I T R 170, 176 (All): "The question, however, remains whether the assessee is entitled to claim depreciation on the ground that it has acquired 1/6th share in the S.B. Sugar Mills. It is to be noted that the assessee does not claim to be full owner of the property. All that the assessee claims is 1 /6th share in S.B. Sugar Mills. The assessee claims allowance under clause (vi) of subsection (2) of section 10 of the Indian Income Tax Act, 1922. Clause (Vi) is: In respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee...:' In order to qualify for an allowance under clause (vi) the assessee has to make out that the building, machinery, plant or furniture is the property of the assessee. Mr. Shanti Bhushan appearing for the assessee urged that clause (vi) is attracted even where an assessee owns a fractional share in the machinery. On the other hand, Mr. Brij Lal Gupta appearing for the Department urged that ownership of a fractional share in machinery does not attract clause (vi). 'The point is not free from difficulty." The High Court ultimately came to hold (at p.177 of 81 I T R): "In order to qualify for an allowance under clause (vi), the claimant must make out that the machinery is the property of the assessee. That test is not satisfied by the present assessee. The assessee does not claim to be the full owner of the machinery in question. All that is claimed for the assessee is 1/6th share in the machinery. Such a fractional share will not suffice for granting an allowance for depreciation under section 10 (2) (vi) of the Act." We have heard learned counsel for the assessee-appellant at length. He has referred to several authorities in support of the assessee's stand of admissibility of the claim on both scores. According to him, the proper test to be adopted should have been to find out whether the arrangement constituted an apparatus to earn profit, whether .the arrangement was one in the course of business activity and whether what was received constituted a part of the circulating capital or was a part of the fixed asset. We have considered the submissions of learned counsel for the appellant but are not in a position to accept the same. There is hardly any scope for doubt that the benefit of section 10 (2) (vi) of the Act would be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim. Similarly, we are of the view, in agreement with the High Court, that the amounts which the assessee received under the compromise or by an amicable arrangement was in the nature of profits to be received by the assessee for the interest held in the business and, therefore, constituted taxable income,. No other point was canvassed before us. This appeal has to fail and is hereby dismissed. Parties are directed to bear their own costs throughout. This appeal between the parties is also by certificate granted by the Allahabad High Court and relates to the assessment year 1955-56 (the accounting period ending on 30th June, 1954). Leave has been confined to two questions as would appear from the order granting the certificate namely, as to whether one of the instalments received from the assessee out of the said amount of Rs.68,000, as referred to above, in respect of an earlier assessment year constituted a taxable receipt. The second -question relates to acquisition of the 1/6th share under a deed of exchange from Devi Chand under the exchange deed dated July 16, 1948, which indicated that the valuation of that interest was shown to. be Rs:4,50,000 and depreciation was claimed in regard to it. Both the questions raised here are covered by our aforesaid judgment: The appeal of the assessee has, therefore, to fail. The appeal is accordingly., dismissed. Parties are directed to bear their own costs. The relevant assessment year in this case is 1954-55 corresponding to the accounting period ending June 30, 1953. Three questions survive for consideration: One relating to the receipt of Rs.16,000 and Rs. 42,957 in the same manner as already indicated, and the other, depreciation in regard to the 1/6th share, said to have been valued at Rs.4,50,

000. Both the questions have to be answered against the assessee for the reasons already indicated., In this case, there is a third question which is relevant, namely, whether on the facts and circumstances of the case, the unabsorbed carried forward loss of Rs.78,084 was liable to be set-off against the share of the rent received by the assessee from the receiver. Dealing with this question, the High Court observed ([1977) 106 I T R 559, 566 (All): "During the previous year relevant to the assessment year 1953-54, the assessee, had suffered a loss in sugar business. After setting off the loss against other heads of income there remained an unabsorbed loss of Rs.78,

084. In the assessment year in dispute, the assessee claimed that the unabsorbed loss of the preceding year should be brought forward and set-off against its share in lease money received from, the receiver in respect of. S.B. Sugar Mills. This claim of the assessee has been disallowed and the question arises as to whether the assessee was entitled to carry forward and set-off the loss as claimed by it." The High Court referred to section 24 of the Income Tax Act of 1922 and indicated that two conditions had to be fulfilled before the claim of set-off of carried forward loss could be admitted: firstly, the income against which the loss has to be set-off should be income from business and, secondly, the business should be the same in which the loss was suffered. The High Court referred to certain decisions including the one of this Court in Narain Swadeshi Weaving Mills v. CEPT [1954] 26 I T R 765 and ultimately negatived the claim of the assessee by saying that the question would not arise because the letting out of the sugar mill was not the business of the assessee. In fact, the receiver was appointed for dissolution of the firm and the main reason, as found by the High Court, for allowing the sugar factory to work was to dispose of it- as a running mill so that a proper price would be fetched. Having heard learned counsel for the parties, we are satisfied that there is no merit in the assessee's stand and the same has got to be dismissed. The appeal is accordingly dismissed. Parties are directed to bear their own costs throughout. Civil Appeal No. 941 of 1975: This appeal is by certificate from the judgment of the Allahabad High Court. The assessee is the sugar mill which during the relevant assessment year, 1960-61 corresponding to the accounting period ending June 30,1959, was in the hands of Court receiver. The sugar mill was being assessed as an association of persons. Banarsi Dass, a partner, had 1/6th share therein. He had acquired under a deed of exchange dated July 16, 1948, 1/6th share of Sheo Prasad in exchange of shares held by Banarsi Dass in Lord Krishna Sugar Mills valued at Rs.4,50,

000. In this assessment year, the receiver claimed that .for the purposes of computing the depreciation allowance, the written down value of the business assets be enhanced so as to -reflect the sum of Rs.4,50,000 in place of 1/6th share representing the share of Sheo Prasad. Similar claim had been raised by Banarsi Dass in his own assessment. The Income-Tax Officer rejected the claim and such rejection has been upheld throughout. We have already turned down the claim of Banarsi Dass. This claim has, therefore, to be rejected. We may additionally point out that under the scheme. of the Act, it is the assessee who alone is entitled to maintain such claim of depreciation and it would indeed be difficult, with in the framework of the scheme contained in the statute, to maintain a separate value of a part of the asset to work out depreciation. The book value as shown must be applicable to the entire assets of the firm including the 1/6th share which Sheo Prasad had given to Banarsi Dass. The claim has rightly been rejected in the forms below including the High Court. The appeal has no merit and is dismissed. Parties will bear their own costs. M.BA./497/T?????????????????????????????????????????????????????????????????????????????????????? Appeals dismissed.