K.D. MADAN Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) The assessee is an individual carrying on business as a shipping agent. In the financial year relevant to assessment years 1999-00 and 2000-01, the assessee sold motor cars at a cumulative loss of Rs.51,6,108.00. In the course of assessment, the assessing authority adopted the view that the loss would be 'capital' in nature liable to be set off only against capital gains. On the other hand, the stand of the assessee was to the effect that the loss was 'business' in nature, liable to be set off against business profits. While initially a stand was taken to the effect that the assessee was also engaged in the trading of cars, it was not pursued. The assessee sought the benefit of the provisions of section 32(1)(iii) of the Income Tax Act (Act), that read as follows:

(2.) The appellant would contend that the provisions of sub-clause (iii) of Sec. 32(1) permitted a write off of the loss arising from the sale of the foreign cars to the extent to which such sale consideration falls short of the written down value (in short 'WDV')of the asset. The assessing authority did not agree with the said contention, applying the provisions of section 50 of the Act and concluding that the loss arising from the sale of foreign cars was a capital loss. An appeal was filed before the Commissioner of Income Tax (Appeals), (in short 'CIT(A)') that was allowed on the basis that the invocation of the provisions of section 50 of the Act by the assessing officer to the transaction in question was erroneous.

(3.) The arguments of the assessee were to the effect that no depreciation was provided for foreign cars for the relevant period and the written down value thus ought to be taken to be the cost of acquisition. The CIT(A) refers to the definition of 'written down value' (WDV) in section 43(6) and notes that the actual cost of an asset, would be the amount the asset actually cost, less depreciation actually allowed under the act. Upon examining the provisions of section 50 of the Act, the CIT(A) concludes that it would not be applicable to the transaction in question. Following the rationale of the decision of the Madras High Court in the case of the Guindy Machine Tools Private Limited Vs. Commissioner of Income Tax (254 ITR 780), the appeal of the assessee was allowed. We may also note that the definition of 'Plant' in Sec. 43(3) includes 'vehicles' and it was established as a fact before the CIT(A) that the foreign cars were indeed used in business during the relevant period. This finding of fact was not challenged by the Revenue before the Income Tax Appellate Tribunal ('tribunal' in short) though the conclusion arrived at by the CIT(A) in favour of the assessee was assailed in appeal.