LexD.S. BIST & SONS, NAINITAL versus COMMISSIONER OF INCOME TAX, DELHI CENTRAL, NEW DELHI
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A B 224 D.S. BIST & SONS, NAINITAL v. COMMISSIONER OF INCOME TAX, DELHI CENTRAL, NEW DELHI [P. N. BHAGWATI, V. D. TuLZAPURKAR AND R. S. PAmAK, JJ.] November 3, 1978 Income Tax Act 1922-S. 3, 10(2) (vii)-Firm lvhether a separate taxable entity-Whether same as partners-Balancing charge-Whether depreciation allowed to a disrupted HUF. to be taken into consideration in determining the C balancing charge of a firm which takes over the HUF business as a going con... cern. D E F G H A Hindu Undivided Family consisting of Thakur Dan Singh and his son Thakur Mohan Singh was carrying on business as forest contractors. There was a total disruption of the family in March, 1956. On that day, the written down value of three trucks owned by the Hindu Undivided Family Wai nil on account of depreciation allowance granted under the Income Tax Act, 1922. On the same day when the joint family was disrupted, Thakur Dan Singh and his son Thakur Mohan Singh constituted a partnership firm. The business of Hindu Undivided Family was taken over as a running concern by the firm. The firm sold the three trucks for Rs. 24,252/-. The Income Tax Officer held that the entire sale proceeds should be deemed to be profits of the firm by virtue of the second proviso to s. 10(2)(vii) of the Income Tax Act, 1922 and he included that amount in the total income of the appellant. The decision of the Income Tax Officer was confirmed by the Appellate Assistant C-Ommissioner, the Income Tax Appellate Tribunar and the High Court. The High Court took the view that inasmuch as the pertners of the appellants were the same indivi- duals who were the members of the Hindu Undivided Family and as the business was taken over as a running <;oncem by the appellants from the faimly, there was merely a change in the style and nature of the Hindu Undivided Family. According to the High Court, the original cost of the trucks to the appellant would be the same as it was to the Hindu Undivided Family. Allowing the appeal by the assessee, HELD: The second proviso to section 10(2) (vii) seeks to recover back from the assessee the benefit allowed to him by way of depreciation allowance earlier. It does so by imposing a balancing charge on the excess of the sale, price over the written down value to the extent of the total depreciation allow- ance granted to the assessee in the past. In the present case, the appellant could not have been aJJowed any depreciation allowance for the reason that from the outset when the three trucks became his property the written down value was nil. No question of imposing a balancing charge, therefore, can arise in this case. It is immaterial that the business was taken over as a run- ning concern. It is also immaterial that the partners of the firm are the same as the members of the Hindu Undivided Family. Under s. 2 of the Income Tax Act, a firm is a distinct assessable entity. [226G·H, 227 A, B·CJ >--· f D.S. BIST V. C. I. T. (Pathak, J.) 225 Commissioner of Income Tax, West Bengal v. A. W. Figgies &: Co. and Ors., [1953] 24 !TR 405 S.C.; Raja Bejoy Singh Dudhuria v. Commissioner of lncorn< Tax, Bt11gal, (1933] I ITR 135 (P.C); relied upon. When depreciation allowance was allowed to the Hindu Undivided· Family in its assessment proceedjngs, it was a step taken in determining the taxable Income of the family. The depreciation allowance allowed to the family cannot A 'be regarded as depreciation allowed to the appellant firm. [227GH, 228A] B ~ CrvIL APPELLATE JURISDICTION : Civil Appeal No. 1727 of 1972. --v-- • • (Appeal from the Judgment and Order dt. 8.12.71 of the Delhi High Court in Income Tax Reference No. 30 / 67). · T. A. Ramachandran for the appellant. B. B. Ahuja and Miss A. Subhashini for the respondent. The Judgment of the Court was delivered by PATHAK, J.-This appeal by special leave is directed against the judgment of the High Court of Delhi disposing of a reference made to it c ·by the. Income Tax Appellate Tribunal on the following question :- D "Whether on the facts and in the circumstances of the case the sum of Rs. 24,252/- is an item taxable in the previous year under the provisions of section 10 ( 2) (vii) ?" The appellant is a partnership firm carrying on business as forest con- tractors. The partners are Thakur Dan Singh and his 'son, Thakur E Moh~n Singh. The appeal relates to the assessment year 1958-59, for which the previous year is t
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