S RAJAGOPALA VANDAYAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the following question of law has been referred to this court for its opinion "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant is not entitled to claim of loss of Rs. 3, 613 under section 32(1)(iii) ?" * The assessee carried on business as a highway contractor. During the previous year ended on March 31, 1972, relevant to the assessment year 1972-73, the assessee sold two cars, on which depreciation had already been allowed, and this resulted in a total loss of Rs. 3, 613 which in the course of the assessment proceedings was claimed by the assessee to be allowable under section 32(1)(iii) of the Act on the basis only of a profit and loss account, but the Income-tax Officer disallowed the same on the ground that the assessee had not maintained accounts. Before the Appellate Assistant Commissioner, the assessee disputed the disallowance of loss on the sale of the cars contending that it is not absolutely essential that the loss on the sale of the cars should be written off in any account and relying upon CIT v. A. S. Kuppa Ammal 1972 (85) ITR 633 (Mad), the Appellate Assistant Commissioner took the view that the loss on the sale of cars had been written off in the profit and loss account and that would suffice to enable the assessee to claim allowance of the loss under section 32(1)(iii) of the Act. On further appeal at the instance of the Revenue, the Tribunal took the view that the profit and loss account, on which alone reliance was placed by the assessee, cannot be said to be a book of account and a write-off of the loss in such an account would not satisfy the requirements of the proviso to section 32(1)(iii) of the Act, and therefore, the Appellate Assistant Commissioner was in error in having granted the relief to the assessee.

(2.) THAT is how the question of law set out earlier has been referred for the opinion of this courtLearned counsel for the assessee submitted that the profit and loss account produced by the assessee before the assessing authorities established that the loss was written off and that that would suffice for purposes of supporting a claim for allowance under section 32(1)(iii) of the Act. Reliance, in this connection, was also placed on CIT v. London Hotel 1968 (68) ITR 62 (Bom), CIT v. Kartar Singh 1970 (77) ITR 338 (P & H), CIT v. A. S. Kuppa Ammal 1972 (85) ITR 633 Mad) and Circular No. 212, dated February 26, 1977 108 ITR(St) 3). On the other hand, learned counsel for the Revenue contended that section 32(1)(iii) of the Act corresponds to section 10(2)(vii) of the Indian Income-tax Act, 1922, and the requirement of the proviso is that the loss should have been brought into the books of the assessee and written off and, therefore, mere write off in the profit and loss account would not entitle the assessee to claim the allowance of loss on the sale of the cars. Our attention in this connection was also drawn to the decisions in CIT v. National Syndicate 1961 AIR(SC) 398, 1961 (41) ITR 225, 1962 (2) SCJ 640, 1961 (2) SCR 229 (SC), P. Appavu Pillai v. CIT 1965 (58) ITR 622 (Mad) and CIT v. Aruna Sizing Mills 1981 (127) ITR 186, 1980 (17) CTR 329, 5 TAXMAN 279 (Mad). Referring to the circular relied on, learned counsel for the Revenue contended that it related to the question whether the amount actually written off only should be allowed or whether the amount arrived at on the basis of the written down value as per the income-tax records should be allowed and that has nothing whatever to do with the requirements of writing off in the books of account contemplated under the proviso to section 32(1)(iii) of the Act.Before proceeding to consider the submissions so made, we may refer to the relevant provision under section 32 of the Act. While providing for deduction by way of depreciation in respect of any building, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, it has been provided under section 32(1)(iii) of the Act that, in the case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture together with the amount of scrap value, if any, fall short of the written down value thereof, shall be allowed as a deduction.

(3.) THAT circular, in our view, has no relevance whatever in the context of the fulfilment of the requirements under the proviso referred to earlier. The circular clarifies whether the amount actually written off only should be allowed or whether the amount arrived at on the basis of the written down value as per the income-tax records should be allowed and that does not in any manner touch upon the requirement of the proviso to the effect that the loss must be brought in the books of account and written off in order that the benefit of section 32(1)(iii) of the Act could be claimed. For the foregoing reasons, we answer the question referred to us in the affirmative and against the assessee. The Revenue will be entitled to the costs of this reference. Counsel fee Rs. 500.