Civil Appeal No 1727 of 1972
Appeal from the Judgment and order dt
81271 of the Delhi High Court in Income Tax Reference No 3067
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 its by the Income Tax Appellate Tribunal on the following question Whether on the facts and in the circumstances of the case the sum of Rs 24252 is an item taxable in the previous year under the Provisions of section 102 vii The appellant is a partnership firm carrying on business as forest contractors
The partners are Thakur Dan Singh and his son Thakur Mohan Singh
The appeal relates to the assessment year 1958 59 for which the previous year is the financial year ending March 31 1958
The business was originally carried on by a Hindu undivided family consisting of the aforesaid father and son
There was a total disruption of the family on March 22 1956 and on the same day the separated members of the family constituted a partnership firm under the name and style of Messrs D section Bist  Sons
The business was taken over as a running concern by the firm
At the time when the business was owned by the family it included three trucks
On account of depreciation allowed in earlier years the written down value of two trucks came to nil in the assessment year 1952 53
As regards the third truck according to what is stated in the judgment of the High Court the written down value stood reduced to nil by the date of disruption of the Hindu undivided family
During the previous year ending March 31 1958 relevant to the assessment year 1958 59 two trucks were sold for a total of Rs 12000 while the third truck was sold for Rs 12252 
During the assessment proceeding for the assessment year 1958 59 the Income Tax Officer held that the entire sum of Rs 24252  representing the sale proceeds of the three trucks should be deemed to be 226 Profits of the previous year ending March 31 1958 by virtue of the second proviso to section 102 vii of the Indian Income Tax Act 1922 and he included that amount in the total income of the appellant
Before the Appellate Assistant Commissioner the appellant contended  that as no depreciation was allowed to the appellant in respect of the three trucks no question arose of computing any profit in its hands but the contention was rejected
The appellant was unsuccessful before the Income Tax Appellate Tribunal also
At the instance of the appellant a reference was made to the High Court of Delhi
The High Court took the view that inasmuch as the partners of the appellant were the same individuals who were members of the Hindu undivided family and as the business was taken over as a running concern by the appellant from the family there was merely a change in the style and nature of the Hindu undivided family on March 22 1956
In the opinion of the High Court the original cost of the trucks to the appellant would be the same as it was to the Hindu undivided family and it rejected the contention that the original cost of the three trucks in the hands of the appellant must be taken as nil
In the result the High Court affirmed  that the sum of Rs 24252 was taxable in the hands of the appellant by virtue of the second proviso to section 102 vii
It appears from the judgment of the High Court that the written down value of the three trucks exhausted while they were still the assets of the Hindu undivided family business the written down value of two trucks having been exhausted in the assessment year 1952 53 and that of the third truck having been exhausted in the assessment year 1956 57
Accordingly when the business was taken over by the appellant the written down value of the three trucks was nil
In defining the expression written down value section 105 b declares that in the case of assets acquired before the previous year the written down value means  the actual cost of the assessee less all depreciation actually allowed to him under the Act
 It is urged on behalf of the appellant that the actual cost to the appellant of the three trucks was nil inasmuch as the written down value had already been exhausted when the business was taken over by the appellant
It is urged that as no depreciation could possibly have been allowed to the appellant no question arises of applying the second proviso to section 102 vii
Now in enacting the second proviso to section 102 vii the Legislature sought to recover back from the assessee the benefit allowed to him by way of depreciation allowance earlier and it did 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 allowance granted to the assessee in the past
In the present case the appellant could not have been allowed any depre 227 ciation allowance for the reason that from the outset when the three trucks became its property the written down value was nil
No question can arise of imposing balancing charge under the second proviso to section 102vii
It is contended by the Revenue that the business was taken over as a running concern by the appellant and therefore account should be taken of the depreciation allowed in the hands of the Hindu undivided family
In our opinion it is immaterial that the business was taken over as a running concern
Where a business is taken over as a running concern by an assessee the cost to it of the assets must ordinarily turn on the value of the assets as on the date of acquisition
There is no material before us evidencing an intention to the contrary
It cannot be disputed that the actual cost to the appellant of the three trucks must be regarded as nil and that being so no depreciation can be said to have been ever actually allowed to the appellant
It is pointed out by the Revenue that the partners of the appellant are the same two individuals who constituted the Hindu undivided family and reliance has been placed on the observation of the High Court that in the constitution of the firm there was merely a change in the style and nature of the Hindu undivided family
Now we must remember that we are dealing with a case under the Income Tax Act
We are concerned with provisions for the computation of income of an assessee for the purpose of determining its income tax liability
It may be as is quite often said that a firm is merely a compendious description of the individuals who carry on the partnership business
But under the Income Tax Act a firm is a distinct assessable entity
Section 3 of the Indian Income Tax Act 1922 treats it as such and the entire process of computation of the income of a firm proceeds on the basis that it is a distinct assessable entity
In that respect it is distinct even from its partners
Commissioner of Income Tax West Bengal vs A W Figgies and Company and others1 As an assessable entity it is also distinct from a Hindu undivided family which in itself is regarded as a separate unit of assessment under Section 3
Raja Bejoy Singh Dudhuria vs Commissioner of Income Tax BengalD
For the purposes of the question before us it recks little that the very individuals who constituted the Hindu undivided family now constitute the appellant firm
When depreciation allowance was allowed to the Hindu undivided family in its assessment proceedings it was a step taken in determining the taxable income of the family
The depreciation allowed to the family 1 2 228 cannot be regarded as depreciation allowed to the appellant
We must ignore entirely the circumstance that depreciation has been allowed to the Hindu undivided family in the past
On these considerations it is not possible to say that the second proviso to section 102 vii is attracted
Accordingly we hold that the sum of Rs 24252 is not taxable in the hands of the appellant for the assessment year 1957 58 by virtue of the second proviso to section 102 vii of the Indian Income Tax Act 1922 and we answer the question referred in favour of the appellant and against the Revenue
It was strenuously contended on behalf of the Revenue that the sum of Rs 24252 should be considered as capital gains under section 12B of the Act and that it could be brought to tax under that head
There was some debate before us whether that point can be regarded as an aspect of the question specifically referred by the Tribunal for the opinion of the High Court
We consider it unnecessary to enter into the matter because it is open to the Tribunal to consider whether the assessment should be confirmed on any other ground now that the case will be before it again for disposal conformably to this judgment
The appellant is entitled to its costs of this appeal
PHP Appeal allowed
 Case remitted


Summary:
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 was 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 24252 
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 section 102vii of the Income Tax Act 1922 and 1 he included that amount in the total income of the appellant
The decision of the Income Tax officer was confirmed by the Appellate Assistant Commissioner the Income Tax Appellate Tribunal and the High Court
The High Court took the view that inasmuch as the partners of the appellants were the same individuals who were the members of the Hindu Undivided Family and as the business was taken over as a running concern by the appellants from the family 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 102vii 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 allowance granted to the assessee in the past
In the present case the appellant could not have been allowed 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 running concern
It is also immaterial that the partners of the firm are the same as the members of the Hindu Undivided Family
Under s2 of the Income Tax Act a firm is a distinct assessable entity
226G H 227A B C 225 Commissioner of Income Tax Bengal vs A W Figgics  Co and Ors SCI Raja Bejoy Singh Dudhuria vs Commissioner of Income Tax Bengal  relied upon
When depreciation allowance was allowed to the Hindu Undivided Family in its assessment proceedings it was a step taken in determining the taxable Income of the family
The depreciation allowance allowed to the family cannot be regarded as depreciation allowed to the appellant firm
227GH 228A