TMI Blog1991 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... 144B(2) of the Act or if the assessee intimated his acceptance to the proposed variation, the assessment will be completed on the basis of the draft order. The draft order and the notice were served on the assessee on March 24, 1976. Subsequently, on March 25, 1976, the Income-tax Officer forwarded to the assessee a supplement to the draft assessment order already sent and called upon the assessee to prefer his objections, if any, within seven days and the attention of the assessee was also invited to the provisions of section 144B(1), (2) and (3) of the Act as in the earlier notice. This supplement to the draft order was served on the assessee on March 26, 1976. The draft orders and the notices so forwarded to the assessee did not evoke any response at all from the assessee within the period of seven days from the date of receipt of the draft order and the notice. However, by a letter dated April 6/10, 1976, received by the Department on April 14, 1976, the assessee purported to raise some objections to the proposal for variation as indicated in the draft order. The Income-tax Officer took the view that, as the assessee had not filed objections within seven days and had also not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under the head "Business". With reference to the rental income from Sarada Binding Works, the Appellate Assistant Commissioner, purporting to follow the decision of the Tribunal for the earlier assessment years, directed the Income-tax Officer to assess the rental income under the head " Other sources ". The claim made by the assessee in a sum of Rs. 14,000 as allowable deduction in respect of the amounts spent by the assessee for the production of two pictures which were subsequently given up was upheld. In the result, the appeal was partly allowed. The Income-tax Officer, while giving effect to the order of the Appellate Assistant Commissioner dated February 4, 1977, and working out the income of the assessee from Vijaya and Vauhini Studios, did not allow depreciation on the building, plant, machinery or furniture on the ground that, under section 34(2)(ii) of the Act, depreciation cannot be allowed as they were transferred by the assessee to the firm, Vijaya Productions. That formed the subject-matter of an appeal to the Appellate Assistant Commissioner who, by his order dated September 26, 1977, found that section 34(2)(ii) of the Act could not be invoked at all, as the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case, the Income-tax Officer's order under section 144B is illegal and barred by limitation ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the income received by the assessee from Vijaya and Vauhini Studios should be assessed in the hands of the assessee as 'business income'? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income derived from letting the studios is assessable under the head 'Business'? 4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income from the lease rent from Messrs. Sarada Binding Works should be assessed under the head 'Other sources'? 5. Whether, on the facts and in the circumstances of the case, the sum of Rs. 14,000 is a revenue expenditure and not a capital expenditure ? 6. Whether, on the facts and in the circumstances of the case, section 34(2)(ii) is not applicable, when the assets of a proprietary concern were converted into the assets of a partnership concern ? We proceed to consider the questions ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the notice and that had been served on the assessee on March 24, 1976. On March 25, 1976, the Income-tax Officer had sent to the assessee a notice in the following terms : " In addition to the variations proposed in the draft of the assessment order enclosed to my letter cited above, a further addition is also proposed to be made as indicated in the supplement to the draft of the assessment order herewith enclosed. . . . " From the aforesaid, it is clearly seen that the draft order sent along with the notice on March 25, 1976, was not in the nature of a second draft order as such, but was, in addition to or a supplement to the earlier draft assessment order sent to the assessee on March 23, 1976, along with the notice. In other words, the draft (supplement) sent on March 25, 1976, has to be regarded as forming an integral part and parcel of the earlier draft order sent to the assessee by the Income-tax Officer on March 23, 1976, and they have to be read together and considered as one single order and not as two distinct and separate orders. In that view, the very basis of the argument that there was a second order and the Income-tax Officer did not have jurisdiction to forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the contents of the notices and the terms of section 144B(2) of the Act to which the attention of the assessee had also been drawn in the notices, the assessee should have forwarded his objections to the proposed variation within seven days of the receipt by him of the draft order. If, for some reason, the assessee was unable to do so, then, he should have made an application to the Income-tax Officer praying for extension of time to forward his objections to the draft order. It is not in dispute that the assessee did not make any application for extension of time. All that had been done by the assessee in this case was to forward the so-called objections to the draft order on April 14, 1976. Clearly, that was not within seven days from the date of receipt of the draft order by the assessee. As the time for forwarding the objections to the draft order had not been extended by the Income-tax Officer in the manner contemplated under section 144B(2) of the Act, the assessee cannot take advantage of his inaction till April 14, 1976, and claim that there has been an automatic extension of time for forwarding objections. In the absence of extension of time by the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the assessee. It has earlier been seen that, in this case, the assessee did not forward any objection to the draft order as contemplated under section 144B(2) of the Act and that, in turn, attracted the first part of section 144B(3) of the Act enabling the Income-tax Officer to complete the assessment on the basis of the draft order, being a case where no objections were received either within the period of seven days or the extended period, as there was no extension. The period of thirty days has necessarily to be excluded from the period of two years provided under section 153(1)(a)(iii) of the Act and, if so done, the assessment in this case should have been completed by April 30, 1976, without attracting the bar of limitation. Actually, the assessment was completed on April 29, 1976. We are, therefore, of the view that the argument of learned counsel for the assessee that the assessment should have been completed within thirty days from March 23, 1976, deserves rejection. Thus, on a due consideration of the facts and circumstances and the relevant provisions of the Act, we answer the first question referred to us in the negative and in favour of the Revenue. We now proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as " Business income ". We, therefore, answer the second and the third questions referred to us, in the affirmative and against the Revenue. In regard to the fourth question, relating to the head under which the income from Sarada Binding Works should be assessed in the hands of the assessee, the Income-tax Officer took the view that the assessment should be made under the head " Income from property ". However, before the Appellate Assistant COMMISSIONER it was represented on behalf of the assessee that that issue had been settled by an order of the Tribunal for earlier years, wherein it had been held that the income should be assessed under the head " Other sources ". Accordingly, the Appellate Assistant Commissioner directed the assessment of the income from Sarada Binding Works under the head " Other sources ". The Tribunal also stated that it found that the matter is covered by an earlier decision of the Tribunal. With a view to ascertain the precise head under which the income from Sarada Binding Works has to be assessed as per the earlier order stated, to have been passed by the Tribunal in the case of the assessee, we called upon learned counsel for the assessee to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable one. We answer the fifth question in the affirmative and against the Revenue. That leaves for consideration the last question referred to us. The Income-tax Officer did not allow depreciation on building, machinery, plant or furniture on the ground that section 34(2)(ii) of the Act would apply, as they were transferred to the firm, Vijaya Productions, during the previous year relevant to the assessment year. However, on appeal, the Appellate Assistant Commissioner found that section 34(2)(ii) of the Act cannot be applied, as the assets were neither sold, discarded, demolished or destroyed, but were merely converted into the assets of a partnership firm. The Tribunal upheld the view of the Appellate Assistant Commissioner and, in so holding, the Tribunal was right. It is seen that the assets of the assessee, on the assessee becoming a partner in a firm, became converted as assets of the firm. There was no element of sale involved in that process. In order to deny the benefit of depreciation under section 34(2)(ii) of the Act, the building, machinery, plant or furniture should have been sold, discarded, demolished or destroyed in the previous year relevant to the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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