P.H. HAMID Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) By this reference u/s. 256(1) of the Income-tax Act, 1961 ("the I. T. Act"), the Income-tax Appellate Tribunal ("the Tribunal" for short), Mumbai, has referred the following questions for the opinion of this Court. The assessment year involved is 1980-81.

(2.) In this case, the assessee was a partner of the firm, known and styled as M/s. Publicity Printers, with his wife. The said firm was dissolved by a dissolution deed dated December 26, 1978, with effect from December 15, 1978. On the dissolution of the firm, certain assets of the erstwhile firm were allotted to the assessee on which depreciation was claimed by the said firm of M/s. Publicity Printers prior to its dissolution. Out of certain assets allotted to the assessee, three machines were sold by him immediately after the dissolution of the firm to three different parties for a total consideration of Rs. 7,03,107. The cost of the said machines in the hands of the firm was Rs. 3,23,937 and the written down value of these machines, as on the date of dissolution, was Rs. 1,10,232. The assessee invested the sale proceeds in specified assets u/s. 54E of the Income-tax Act, 1961, and claimed exemption from payment of tax on long-term capital gain amounting to Rs. 3,79,170 (sale price Rs. 7,03,107 less cost Rs. 3,23,937). While completing the assessment, the Income-tax Officer ("the ITO"), taxed the assessee on a sum of Rs. 2,13,705 (cost Rs. 3,23,937 less written down value Rs. 1,10,232) treating it as profits earned by the assessee u/s. 41(2) of the Income-tax Act, 1961.

(3.) In appeal, the Commissioner of Income-tax (Appeals), ("the CIT(A)"), did not accept the contention of the assessee and confirmed the order of the Income-tax Officer. The Tribunal, in the appeal preferred by the assessee, upheld the order of the Commissioner of Income-tax (Appeals), relying on the analogy and the principles laid down by the Hon ble Supreme Court in the case of Malabar Fisheries Co. V/s. Commissioner of Income Tax . Statutory provisions :