COMMISSIONER OF INCOME TAX Vs. COMMONWEALTH TRUST LIMITED

JUDGEMENT

(1.) A Division Bench of this Court referred this case to the Full Bench since the Revenue pressed for an examination of the correctness of the decisions of several High Courts in India on the construction of S.40(a)(v) of the Income tax Act and the Division Bench thought it appropriate that the question be examined by a Full Bench.

(2.) The two references arise nut of the same order of the Income tax Appellate Tribunal, Cochin Bench. One of the references is at the instance of the Commissioner of Income tax and the other at the instance of the assessee. These arise from the order of the Tribunal disposing of the appeal for the assessment year 1971-72.

(3.) The assessee is a limited company. The company had considerable properties at Calicut and Mangalore. These were in the possession of the assessee from 1920 onwards. The assessee had claimed depreciation for the factory buildings and this had been allowed in the previous years. During the accounting year 1970-71 some properties were sold. The assessee showed capital gains computing the capital gains on the land and the capital gains on the factory buildings separately. The question of capital gains on the land is not relevant for the purpose of these references. The references concern only capital gains on the buildings. The sale price in respect of Calicut Weaving Factory was Rs. 20,000/-. The original value of the building was Rs. 10,000/- and there was an additional expenditure of Rs. 979/-. Depreciation had been allowed on the value of the buildings in the earlier years. The assessee showed a capita) loss of Rs. 78/- on the sale of the buildings at Calicut. This was by revaluing the buildings as on 1-1-1954. The stand taken by the assessee was that it bad the option under S.55(b) of the Income tax Act either to adopt the written down value of the building or the value of the building as on 1-1-1954 and it chose the latter. It is on this basis that the assessee showed a loss of Rs. 78/-. The Income tax Officer took the view that the assessee does not have the right to substitute the value as on 1-1-1954 because the assets were depreciable assets, that S.50(1) was a special provision in respect of depreciable assets and the provision allowing the option was not applicable to such depreciable assets. The Income tax Officer substituted the original value and arrived at a capital gain of Rs. 9021/-.