D.S. BIST & SONS, NAINITAL vs. COMMISSIONER OF INCOME TAX, DELHI CENTRAL, NEW DELHI

CIVIL APPEAL No. 1727/1972Supreme Court[1979] 2 S.C.R. 22403 November 1978Bench: 3 JudgesAuthor: P.N. BHAGWATI, V.D. TULZAPURKAR, R.S. PATHAK B5 pages
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What were the facts?

The assessee, a partnership firm named D.S. Bist & Sons, was engaged in the business of forest contractors. The firm was constituted by Thakur Dan Singh and his son Thakur Mohan Singh, who were previously members of a Hindu Undivided Family (HUF) that carried on the same business. The HUF business was disrupted on March 22, 1956, and the firm took over the business as a running concern on the same day. At the time of disruption, the written down value of three trucks owned by the HUF was nil due to depreciation allowances granted. The firm later sold these three trucks for Rs. 24,252/-. The Income Tax Officer treated the entire sale proceeds as profit under the second proviso to Section 10(2)(vii) of the Income Tax Act, 1922. This view was upheld by the Appellate Assistant Commissioner, the Income Tax Appellate Tribunal, and the High Court.

What did the Supreme Court hold?

The Supreme Court allowed the appeal, holding that the sum of Rs. 24,252/- was not taxable in the hands of the appellant under the second proviso to Section 10(2)(vii) of the Indian Income Tax Act, 1922. The Court reasoned that the second proviso to Section 10(2)(vii) aims to recover the benefit of depreciation previously allowed to an assessee. In this case, the written down value of the trucks was nil when the firm acquired them, meaning no depreciation allowance could have been granted to the firm itself. Therefore, the condition for imposing a balancing charge was not met. The Court emphasized that a firm is a distinct assessable entity under the Income Tax Act, separate from its partners and also from an HUF. Consequently, depreciation allowed to the HUF could not be regarded as depreciation allowed to the appellant firm. The fact that the business was taken over as a running concern or that the partners were the same individuals as the HUF members was immaterial. The Court noted that the Revenue also contended that the sum should be considered capital gains under Section 12B, but deemed it unnecessary to enter into this matter, leaving it open for the Tribunal to consider on remand.

What were the issues?

1. 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) of the Indian Income Tax Act, 1922? Assessee's arguments: The assessee contended that since no depreciation was allowed to the firm in respect of the three trucks, there was no question of computing any profit in its hands under the second proviso to Section 10(2)(vii). The actual cost to the appellant of the trucks was nil, and as no depreciation could have been allowed to the appellant, the proviso was not attracted. Revenue's arguments: The Revenue argued that the business was taken over as a running concern by the appellant, and therefore, the depreciation allowed in the hands of the HUF should be taken into account. The Revenue also pointed out that the partners of the firm were the same individuals who constituted the HUF, suggesting a continuity of the entity. The High Court had viewed it as merely a change in the style and nature of the HUF.

Which sections of the Income-tax Act were involved?

Section 10(2)(vii),Section 3,Section 10(5)(b),Section 12B

AI-generated summary — verify with the full judgment below

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 pro

The order continues below.

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