PHARMED PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a limited company. It was carrying on a business in manufacture during a part of the previous year relevant to the assessment year 1972-73, which ended on June 30, 1971. Towards the end of that previous year, the assessee sold its factory along with machinery, plant and fittings. The price realized was allocated by it to the various assets according to what had been stated in the sale deed. In connection with the sale, the assessee had incurred expenditure in an aggregate sum of Rs. 1,60,661, the predominant part whereof was for registration and stamp fees in the sum of Rs. 1,29,425 and solicitors' fees in the sum of Rs. 28,926. The expenditure was proportionately allocated by the assessee to the various assets. In doing so, a sum of Rs. 1,15,267 was allocated to the factory building and Rs. 474 to the lift. The sale price in respect of the factory building and the lift was less than the cost thereof so that there was no capital gain. However, having regard to section 41 (2) of the Income-tax Act, 1961, the difference between the price realized for the factory building and the lift and their written down value was required to be included in the assessee's total income. The assessee claimed that the sums of Rs. 1,15,267 and rs. 474, respectively, allocated to the factory building and the lift ought to be deducted for the purposes of working out the profit includible in the total income under section 41 (2 ). The income-tax Officer declined to permit this. The Appellate Assistant Commissioner, in the assessee's appeal, accepted the assessee's contention. The Revenue filed an appeal against his order to the Income-tax Appellate Tribunal. The Tribunal allowed the Revenue's appeal upon its interpretation of section 41 (2 ).

(2.) FROM out of the Tribunal's order arise the questions we are required to answer. They read thus :

(3.) SECTION 41 (2) reads thus :