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TMI Blog1967 (9) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... to the firm, the proprietary right vesting in the three partners jointly. The rent paid by the firm to the three individuals was debited in the books of the firm and the firm claimed the amount as a deduction in the years 1946-47 and 1947-48, and the deduction was allowed. Thus the property was treated as the private property of the three persons who had purchased it, although they were partners in that firm. This position, however, was not accepted by the department in the assessment year 1948-49. The Income-tax Officer held that the premises in which the business of Messrs. London Hotel was being run were really a business asset of that firm and was liable to assessment as such in the hands of the firm. Consequent upon this order, depreciation on the property was being granted to the firm from the assessment year 1948-49 onwards under section 10 as a business asset of the assessee. However, so far as the account books of the assessee-firm were concerned, the asset was not shown as part of their assets, because the three partners of the firm always regarded it as their personal asset. During the financial year ending 31st March, 1957, a portion of the building, which has been fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secondly, the Income-tax Officer held that the loss was not one which fell under section 10(2)(vii) for the reason that the building had not been fully demolished and only two thirds of it had been demolished. The reasoning on this part of the case of the Income-tax Officer was : " The assessee-firm has not completely demolished the whole building. But some part is pulled down in order to let out the ground to Burmah Shell. Exact portion of the building so pulled down is also not determinable. In order to earn more income the same has been done and hence it cannot be said that there is a loss under section 10(2)(vii). While computing the total income, this amount of Rs. 48,754 claimed as loss under section 10(2)(vii) is disallowed. " The assessee appealed, and the Appellate Assistant Commissioner negatived both the above grounds raised by the Income-tax Officer. As to the second ground mentioned in his order, he observed : " Regarding the contention of the Income-tax Officer that the demolition of a part of the property does not entitle the appellant to claim loss under section 10(2)(vii), I have not been able to find any provision to this effect in the Income-tax Act. If any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10(2)(vii) would not come into operation at all. They also referred to the provisions of section 10(3) in this connection and observed : " It was faintly suggested that only a part of the ' building ' is demolished and it will be extremely difficult to ascertain the written down value attributable to it so as to arrive at the correct amount of allowance to be made under the substantive part of section 10(2)(vii). If that is the grievance of the department, it is a factual one and can only mean that the amount of Rs. 33,000 odd as determined by the Appellate Assistant Commissioner was not correctly determined by him. " As to the first point in the order of the Income-tax Officer that the figure of loss was not shown in the books of the assessee, the Tribunal observed somewhat harshly : " We believe that in taking this contention, the department is trying to strain at a gnat when it had already swallowed a camel. It was the partners' case all along in the past that particular building that was used for the partnership hotel business did not belong to the partnership as such though there was identity amongst the co-owners of the property and the three partners of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole is mentioned the part would be included in it, but since this is a taxing statute it is necessary to go a little further and examine this clause in the context of its total provisions. The clause speaks of the balancing allowance " in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed ". In the context there is no distinction made so far as the grant of this allowance is concerned between building, machinery or plant and whether it is sold, discarded, demolished or destroyed. It is plain that machinery or plant in use in a business is never wholly discarded but, in almost every case, is discarded piece-meal. Indeed the very purpose of this allowance is to compensate the assessee when machinery becomes old and has to be discarded and it is clear that all machinery cannot become obsolete or unusable and be discarded at one and the same time. Yet the clause makes no distinction in the generality of its words between building, machinery and plant, which has been sold, discarded, demolished or destroyed. In the context of machinery or plant to be discarded, obviously, the clause can have no meaning if it is confined to the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if a part of a machine be destroyed or discarded, it would still be machinery that was destroyed or discarded. Some reference was also made to a decision of this court in Akbar Manufacturing & Press Co. Ltd. v. Commissioner of Income-tax, but there the contention raised by counsel was of a different nature. The contention there raised was that under the relevant proviso to section 10(2)(vii) if the undertaking is sold as a whole, then the proviso has no application. That contention was not accepted. We do not think that that decision can be of much use here. We have referred to these authorities merely by way of analogy. We have no doubt, however, upon a plain construction of section 10(2)(vii) and considering that section 10(2) refers to allowances to be made in computing acts of profits and gains of business that the word " building " in clause (vii) of section 10(2) would include a part of the building. The Appellate Assistant Commissioner and the Tribunal, therefore, were right so far as this point was concerned. Then we turn to the second ground upon which it is said that the assessee is disentitled to deduct the balancing allowance, namely, that he has not complied with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table entries in the account books if the assessee-firm was so minded ". That was clearly not a relevant consideration, when judging whether the requirements of section 10(2) had been fulfilled or not. It seems to us that the conclusion which the Appellate Assistant Commissioner came to was the more appropriate that such entries could not be made in the books of the assessee-firm for the simple reason that the premises were never the asset of the assessee-firm and never regarded as such by its three partners who claimed that asset as their own personal property. If the asset was not the property of the assessee-firm at all and was never entered in the books, we wonder how it could be possible for the assessee-firm to write off part of it or claim the allowance under clause (vii) of section 10(2). On behalf of the Commissioner another point of construction of the relevant provisions of clause (vii) has been raised. It is urged that when the proviso says : " Provided that such amount is actually written off in the books of the assessee " it amounts to a condition precedent to the grant of the balancing payment contemplated by the parent provision in sub-clause (vii) of section 10(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new, which has been installed after the 31st day of March, 1954, and which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of installation equivalent to twenty-five per cent. of the actual cost of such machinery or plant to the assessee : Provided that no allowance under this clause shall be made unless the particulars prescribed for the purpose of clause (vi) have been furnished by the assessee in respect of such machinery or plant. " The development rebate and the balancing allowance are both allowances and the different grounds upon which those allowances are granted by the law should not for the purpose of the point before us make any difference. The contrast between the proviso to clause (vib), and the proviso to clause (vii) is noticeable. In the case of clause (vib) the legislature has by the use of the words " no allowance under this clause shall be made unless " made its intention clear beyond doubt that, if the particulars prescribed by the parent clause (vib) are not furnished, " no allowance under this clause shall be made ", but such is not the case in clause (vii). There is no ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance under the clause unless the requirements of the proviso were fulfilled, but by the contrast the proviso to clause (vii) merely states a qualification and the injunction or direction is totally absent. In other words, the difference in the language used shows that it is merely a qualification or term of the allowance granted. This construction which commends itself to us is a construction which is in consonance with the accepted rules of construction. In section 9 entitled " Construction of provisos " of Chapter 10 of Craies on Statute Law, 6th edition, the rule as to construction of provisos is thus stated : " The effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it. " Therefore, the purpose of a proviso is two-fold. It may in the first place be truly what a proviso is intended to be, namely, an exception carved out of the preceding portion of the proviso or it may merely be an additional qualification upon something enacted in the parent clause to which it is an exception. It seems to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of the assessee, the question was considered whether it could be granted or not. See Muthukaruppan Chettiar v. Commissioner of Income-tax. In that case no entry was made in the relevant year of account in respect of certain mortgaged property which had been sold in the year 1930-31, but the mortgage debts were written off as bad only in March 1934. The question was whether the assessee was entitled to the initial depreciation allowance contemplated in clause (vi) of section 10(2). The clause (a) to the proviso to that clause was : " Provided that, (a) the prescribed particulars have been duly furnished ; " The Full Bench held that, when claiming an allowance in respect of the depreciation, the assessee must give the particulars required by clause (a) of the proviso to section 10(2)(vi) and if he does not do so, the authorities would be justified in disallowing the claim. The Madras High Court held that the disallowance was proper. The fact that the question of the propriety of the allowance was gone into itself shows that it is not as a matter of law that the assessee would be disentitled to the allowance in every case where no entry is made in the books of account. On beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the requirements of the clause were fulfilled. In analysing the clause, however, the Supreme Court used a particular expression-the word " condition " in the following passage on which great reliance was placed on behalf of the department. The passage occurs at page 234 : " If the profits or gains of a business for a particular year are to be taxed they must be computed for the whole year taking into account losses incurred during the same year. Now, the first condition precedent appears to be that the business must have been 'carried on by the assessee.' This is to be found in the first sub-section of section 10. The second condition is that the building, machinery or plant must have been 'used for the purposes of the business.' This is to be found in clause (iv) of the second sub-section of section 10. The third condition is that, the sale, etc., should have taken place during the year of account. This follows from the nature of the tax which is assessed and levied on the profits of the working of the previous year. The fourth condition is that the loss should have been brought into the books of the assessee and written off. This is provided by the first proviso. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally written off in the books of the assessee, the allowance of the balancing payment under clause (vii) can never be granted. There is little or nothing to be found in the authorities as to what was the true object or purpose of incorporating this proviso in clause (vii) of section 10(2), but it was pointed out by Mr. Joshi on behalf of the department that by insisting upon the writing off of " such amount " (that is to say the difference between the written down value and the scrap value), the legislature intended to crystallise or fix two facts pertaining to the grant of the allowance, namely, (a) the time at which the balancing payment has to be made ; and (b) the amount, so that the assessee cannot claim more than that amount. Even assuming that that is the purpose or object of this proviso, we cannot see this particular object or purpose being served by its being held that where the amount is not actually written off in the books of the assessee in every case the allowance of the balancing payment should not be allowed to the assessee. In fact, the present is a remarkable instance where upon the findings of the authorities it was impossible for the assessee to have made the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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