KALOORAM GOVINDRAM vs. COMMISSIONER OF INCOMETAX, MADHYA PRADESH, NAGPUR
What did the Supreme Court hold?
The Supreme Court, in a majority decision (Subba Rao and Sikri, JJ.), held that the cost of the property to a member at the date of partition, whether through auction or otherwise, should be the basis for depreciation. The Court reasoned that while partition might not be a transfer in strict legal theory, it results in an erstwhile member acquiring absolute title to specific property. The cost to the assessee should be the price paid at auction or the value ascertained otherwise. The Court drew an analogy with assessees acquiring property by purchase, gift, bequest, or succession, where the cost is the actual cost to the assessee, not the original cost to the predecessor. Therefore, even for the appellant's own 10/16th share, the valuation for depreciation should be based on the price bid at the auction. The appeal was allowed, setting aside the High Court's order and directing depreciation to be computed on the auction price for the entire asset. Shah, J. dissented, holding that depreciation on the appellant's 10/16th share should be on the original cost to the larger family, while depreciation on the 6/16th share of the other branch should be on the auction price.
What were the facts?
The appellant, a Hindu Undivided Family (HUF), was a branch of a larger joint Hindu family. Following a partition suit in 1942, assets of the erstwhile larger joint family that could not be physically divided were auctioned between the two branches. The appellant family purchased a sugar mill for Rs. 34 lakhs. For assessment year 1950-51, the appellant claimed depreciation under Section 10(2)(vi) of the Indian Income-tax Act, 1922, on the auction price of Rs. 34 lakhs. The Income-tax Officer and Appellate Assistant Commissioner rejected this, holding that depreciation should be based on the original cost to the larger joint family. The Income-tax Appellate Tribunal held that depreciation on the appellant's 10/16th share should be on the original cost, while depreciation on the other branch's 6/16th share should be on the auction price. The High Court, on reference, held that depreciation for both shares should be on the original cost to the larger family. The assessee appealed to the Supreme Court.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, the assessee HUF is entitled to claim depreciation in respect of the assets of the old HUF on the basis of the original cost to the family or on the basis of the valuation at which the assessee took over the assets, turning on Section 10(2)(vi) of the Indian Income-tax Act, 1922. Assessee's contentions: The appellant argued that depreciation should be allowed on the auction price of Rs. 34 lakhs, as this was the actual cost to the appellant family for acquiring the sugar mill. They relied on the principle that the cost to an assessee is the price paid at the time of acquisition, irrespective of the original cost to a predecessor, citing cases like Commissioner of Income-tax v. Bai Shirinbai K. Kooka. Revenue's contentions: The revenue contended that for the appellant's own 10/16th share, depreciation should be on the original cost to the larger joint family, as this share was not 'purchased' by the appellant. They argued that the acquisition of the other branch's share did not alter the fundamental value of the asset to the appellant for its own share. The High Court agreed with this position.
Which sections of the Income-tax Act were involved?
Section 10(2)(vi)
AI-generated summary — verify with the full judgment below
A B c D E F G H KALOORAM GOVINDRAM v COMMISSIONER OF INCOMETAX, MADHYA PRADESH, NAGPUR Ap;il 5, 1965 [K. SUBBA RAo, J. c. SHAH AND s·. M. SIKRI, JJ.] Indian Income-tax Act, 1922 (11 of 1922), s. 10(2! '.'i-P""1titioo, of Hindu joint fami!y-Asset auctioned between dividing branc~es -Value on which depre(!iation to be allowed-Whether on auction price or on original cost to the erstwroile larger family.
On partition being effected through a suit, a Hindu joint fami- ly who has only an interest in the entire joint family property_ ae>- family. The preliminary decree passed by the Court determmed 10/16 as the share of the appellant family and 6/16 as that of the other branch. Those assets of the erstwhile larger joint family which could not be physka!ly divided were auctioned between the two branches and in this manner a sugar mill was purchased for 34 lacs by the appellant family. In Income-tax proceedings depreciation under s. 10(2) (vi) of the Indian Income-tax Act, 1922 was claimed on the above valuation Qf 34 lacs. The claim was rejected by the In- come-tax Officer as well as the Appellate Assistant Commissioner. on the ground that the value for th,e purpo
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