Appeal No 41 of 1964
Appeal from the judgment and order dated April 10 1961 of the Madhya Pradesh High Court in Misc
Civil Case No 154 of 1959
ND Karkhanis Rameshwar Nath SN Andley and PL Vohra for the appellant
CK Daphtary Attorney General R Ganapathy Iyer and RN Sachthey for the respondent
643 The Judgment of Subba Rao and Sikri JJ was delivered by Subba Rao J Shah J delivered a dissenting Opinion
Subba Rao J
The appellant is a Hindu undivided family carrying on business at Jaora
It was a branch of a larger joint Hindu family composed of two branches one was Govindram and the members of his family and the other was Bachhulal and the members of his family
In the year 1942 there was a partition suit between the said two branches and under the decree made therein each item of the property was put up for sale by competitive bidding
One of the items of the said property the sugar factory at Jaora was knocked down in favour of Govindram for a sum of Rs 34 lakhs
After all the items of the property were sold to one or other of the parties final adjustments were made by cash payment
After the said partition Govindram and the members of his branch of the family continued to run the factory
For the assessment year 1950 51 the Income tax Officer Ratlam assessed the appellant in respect of the income from the said factory
The appellant contended that it was entitled to depreciation as provided under section 102 vi of the Income tax Act 1922 hereinafter called the Act on the said amount of Rs 34 lakhs being the amount for which it purchased the factory in the auction that was held pursuant to the partition decree
The Income tax Officer and on appeal the Appellate Assistant Commissioner rejected that contention and held that the value to be adopted for the purpose of depreciation would be the original cost of the said factory to the larger joint family
On a further appeal the Income tax Appellate Tribunal held that so far as the 1016th share in the factory which belonged to the appellant was concerned the cost to the appellant was the original cost to the larger branch and so far as the 616th share of Bachhulal s branch in the said factory was concerned the original cost was the amount for which the appellant s branch purchased the 616th share of the other branch ie Rs 1275000 
The following question was referred by the Tribunal to the High Court of Madhya Pradesh Whether on the facts and in the circumstances of this case the assessee Hindu Undivided Family is entitled to claim depreciation in respect of the assets of the old Hindu Undivided Family 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
The High Court held that the depreciation allowance should be computed on the basis of the original cost to the larger joint family and not on the basis of the valuation at which the assessee took over the assets
The assessee by certificate granted by the High Court has preferred the present appear to this Court against that order
The only question that arises in this appeal is whether the depreciation allowance should be computed in respect of the 644 1016th share in the factory on the basis of the original cost to the larger joint family or on the basis of the valuation at which the assessee took over the factory
The answer to this question turns upon the relevant provisions of the Act and they read Section 102 Such profits or gains shall be computed after making the following allowances namely vi in respect of depreciation of such buildings machinery plant or furniture being the property of the assessee a sum equivalent where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case to such percentage on the written down value thereof as may in any case or class of cases be prescribed Section 105 of the Act defines written down value thus written down value means a in the case of assets acquired in the previous year the actual cost to the assessee b in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act or any Act repealed thereby or under executive orders issued when the Indian Income tax Act 1886 II of 1886 was in force
It is not disputed that no previous depreciation was allowed under any Act repealed by the Indian Income tax Act 1922 or under any executive order issued under the Indian Income tax Act 1886
Therefore the appellant would be entitled to depreciation allowance on the original cost to it of the factory
What is the original cost of the 1016th share in the factory to the appellant  Two expressions in d vi of sub section
2 of section 10 give the clue to the answer and they are i being the property of the assessee and ii the original cost thereof
Therefore
depreciation is given in respect of property of an assessee on the original cost of the said property to him
The factory is the property of the assessee
What was the original cost of the property to the assessee  Admittedly Govindram purchased it in the auction for Rs 34 lakhs
Ordinarily that would be the cost of the factory to the assessee
It was conceded that it would be so if a third party had purchased it
But as the auction was only a step in the partitioning of the property of the larger family among the branches composing it Govindram did not purchase it but only got it in the partition
It was then 645 contended that partition did not involve any conveyance or transfer but it was only a process in and by which joint enjoyment was transformed into an enjoyment in severality and that therefore the
appellant did not get any new title to the factory or at any rate to the 1016th share therein but its title was traceable to the ownership of the larger joint family
On the said reasoning it was argued that the original cost of the factory to the larger joint family was the cost to the assessee within the meaning of the said provisions
The entire argument is based on a misapprehension of the scope of partition under Hindu Law
Coparcenery is a creature of Hindu law
The concept involves community of interest unity of possession and common enjoyment
Each coparcener s right extends to the whole joint family property though each one of them has interest in the whole family property he has no definite share therein
Partitioning is the ascertainment of individual shares and it can be brought about by an unambiguous declaration of their intention to divide ie by a conscious alteration of their status
Such a declaration brings about a division in status
At that stage  the members of an erstwhile joint family become tenants in common
The next step is the division by metes and bounds where under separate properties are allotted towards the said definite shares of the individuals
Whether the said process involves transfer or not within the meaning of the Transfer of Property Act it certainly confers on a divided member an absolute title to a specified property whereas before the partition he had only some interest in the entire joint family property
Though in one sense his interest in the property of the larger joint family has become crystallized into a specific property in substance he acquires a title to a specific property
Even from a practical standpoint the legal fiction of pre existing title cannot be stretched too far
Take the following illustration A and B were members of a joint Hindu family in 1930 and continued to be so till 1960 when a partition was effected between them
They had 4 houses in 4 villages and the original cost of each of the houses was Rs 100 
If a partition had taken place in 1930 or thereabout each one of the two brothers would have got 2 houses each and the partition would have been equitable and fair
But during these 30 years one village developed into a town and the value of the house therein had increased to Rs 500 
There was no appreciable rise in price in regard to the other 3 houses and they together would fetch only Rs 500 in the market
In the result at the partition that was effected in 1960 the house in the town was given to one of the brothers and the other three houses together were given to the other brother
What would be the cost of the house in the town to the brother to whom it was allotted Clearly it would be Rs 500  though the original cost of the house at the time it was built or purchased was only Rs 100 
Because of the uneven rise in prices of the different houses instead of two houses he got only one house at the partition
The cost to him therefore
would be the cost at which the 646 property was valued at the partition or at which it was auctioned for the purpose of partition
Take another illustration Instead of partitioning the properties by evaluation thereof the houses were sold to a third party
So far as the third party was concerned the cost price would be the price at which he purchased them
If instead the properties were sold by auction between the brothers and the difference in prices was adjusted by cash payment it would be incongruous to say that in the former the cost of the houses would be the cost actually paid by the third party purchaser and in the latter the cost of the houses would not be the price for which they were auctioned but the nominal price they bore in a remote past
Other illustrations may be visualized
Barring the cases of fraud collusion and inflation and deflation of values for ulterior purposes cost of an asset to a divided member must necessarily be its cost to him at the time of partition whether mentioned in the partition deed or ascertained aliunde
Analogy drawn from comparable cases may also throw some light on the question
In the case of an assessee acquiring a property by purchase gift bequest or succession courts have held that the cost of the property to the assessee was not the original cost of it to his predecessor but its actual cost to him at the time of the purchase gift bequest or succession as the case may be see Commissioner of Income tax Madras vs The Buckingham  Carnatic Company Ltd Madras 1 and Jagta Coal Co Ltd v Commissioner of Income tax West Bengal2 purchase Indian Iron  Steel Co Ltd vs Commissioner of Income tax Bengal and Francis Vallabarayar vs Commissioner of Income tax Madras4 succession and Commissioner of Income tax Burma vs Solomon  Sons5 bequest
A Division Bench of the Nagpur High Court in Commissioner of Income tax UP  CPv
Seth Mathuradas Mohta6 dealt with a case of partition
Therein it held that the cost to the assessee who was a divided member of a property was the cost of it to the original joint Hindu family at the time it was acquired
The learned Judges gave various illustrations in support of their conclusion
It is true that if the valuation of the properties was given nationally as a mode of choosing properties there will be some plausibility in the contention that there is no change in the valuation between the date the property was purchased and the date when it was allotted to one of the members of the family
But if the valuation of a property was not notional but was real and that was the basis for allocating properties to different shares we do not see how the cost of a property allocated to a member would be that at which it was purchased in the remote past
We cannot agree with the view expressed by the Nagpur High Court
1 2 3 5 4 6 647 In substance we do not see any difference in the matter of ascertaining the cost of an asset to an assessee whether he is a donee purchaser legatee successor or a divided member of a joint Hindu family
It may be that in strict legal theory partion may not involve transfer but the substance of the transaction is that an erstwhile member of a joint Hindu family who has only an interest in the entire joint family property acquires an absolute title to a specific property
The cost of the property to the member at the date of partition would be the value given to it for the purpose of allotment provided it was real or the price at which he purchased it in auction or the value of it ascertained otherwise
It is nobody s case in the present appeal that the valuation given to the property was notional and not a real one indeed the property was sold in open auction between the members of the larger joint family and the value fetched thereunder entered into the scheme of the partition
We therefore answer the question as follows That depreciation allowance should be computed on the basis of the valuation at which the assessee took over the assets
In the result the appeal is allowed with costs here and in the High Court
Shah J A sugar factory in the former Indian State of Jaora belonged to a Hindu undivided family of Govindram and his nephew Bachhulal
In a suit filed by Bachhulal in 1942 in the Civil Court at Jaora against Govindram for partition of the properties of the undivided family Govindram was declared entitled to a 1016th share in the property of the family and Bachhulal to the remaining 616th share
A Commissioner was appointed for dividing the properties
Certain properties of the family were incapable of division by metes and bounds and by order of the Court in which the suit was instituted those properties were put up for sale by competitive bidding between the parties
A sugar factory at Jaora called the Govindram Sugar Factory  was put up for competitive bidding and the bid of Govindram for Rs 34 lakhs being accepted the sugar factory was allotted to his share
Other assets of the family were similarly allotted to Govindram or to Bachhulal according as he offered the higher bid
Account was then made between Govindram and Bachhulal of properties allotted on the basis of the bids accepted at the competitive bidding and Govindram was found liable to pay Rs 1126200 after taking into account a debit item of Rs 1275000 being the value of the 616th share of Bachhulal in the sugar factory
Govindram died in 1943 and the appellant is the Hindu undivided family which represents the branch of Govindram
648 The Indian Income tax Act 9 of 1922 was applied to Part B  States by the Finance Act 25 of 1950
In the assessment year 1950 51 which was the first year of assessment after the State of Jaora became part of the Indian Union the appellant Hindu undivided family claimed depreciation allowance under section 102 vi of the Indian Income tax Act in respect of the sugar factory computed on a valuation of Rs 34 lakhs
The Income tax Officer rejected the claim of the appellant and allowed depreciation only on the actual cost to the Hindu family of Govindram and Bachhulal before it was divided
The order of the Income tax Officer was confirmed by the Appellate Assistant Commissioner in appeal
The Income tax Appellate Tribunal held that the value for purposes of depreciation should be 1016th share of the original cost to the larger Hindu undivided family plus Rs 1275000 paid by Govindram on behalf of the assessee to Bachhulal for the latter s 616th share in the sugar factory
At the instance of the appellant the Tribunal referred the following question to the High Court of Madhya Pradesh under section 661 of the Income tax Act Whether on the facts and in the circumstances of this case the assessee Hindu Undivided Family is entitled to claim depreciation in respect of the assets of the old Hindu Undivided Family 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 The High Court of Madhya Pradesh recorded the following answer that the depreciation allowance should be computed on the basis of the original cost to the joint family and not on the basis of the valuation at which the assessee took over the assets
In so answering the question the High Court committed a clear error of law
The Commissioner had acquiesced in the order of the Tribunal and had not claimed that the original value to the larger Hindu Undivided Family was the only amount on which depreciation allowance was to be computed
The Income tax authorities had held  that for the purpose of computing the depreciation allowance the original cost to the joint family had to be the basis but the Tribunal did not accept that view and held that the depreciation allowance in respect of the sugar factory was to be computed on the basis of 1016th of the original value plus Rs 1275000 
The Commissioner having acquiesced in the order of the Tribunal the only question on which the High Court was called upon to advise was whether in respect of the 1016th share which fell to the share of Govindram depreciation aIlowance may be computed on the basis of the original cost to the larger undivided family or on the basis of Rs 34 lakhs being the value of the factory offered at the auction
649 In the computation of profits and gains of any business carried on by an assessee under the head Profits and gains of business by section 10 sub section
2 the assessee is entitled to an allowance for depreciation under el
The material part of sub section
2 cl
vi provides 2 Such profits or gains shall be computed after making the following allowances namely  vi in respect of depreciation of such buildings machinery plant or furniture being the property of the assessee a sum equivalent where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case to such percentage on the written down value thereof as may in any case or class of cases be prescribed The assets in respect of which the depreciation allowance is claimed being a factory a percentage on the written down value as may be prescribed in respect of the buildings machinery plant and furniture therein is admissible as allowance
Sub section 5 of section 10 defines written down value
It provided insofar as it was material at the relevant time written down value  means a in the case of assets acquired in the previous year the actual cost to the assessee Provided Provided further b in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act or any Act repealed thereby or under executive orders issued when the Indian Income tax Act 1886 II of 1886 was in force The depreciation allowance under section 102vi in respect of a factory has to be allowed in the manner prescribed on the actual value to the assessee limited to the buildings machinery plant and furniture
No previous depreciation has been allowed under any Act repealed by the Indian Income tax Act 1922 or under any executive order issued under the Indian Incometax Act 1886 and therefore the appellant is entitled to depreciation allowance under section 10 2 vi on the actual cost to the assessee of assets for which depreciation is admissible
650 The factory originally belonged to a larger Hindu undivided family
In the scheme of partition devised under the preliminary decree the factory was allotted to Govindram his bid of Rs 34 lakhs having been accepted by the Court
The true effect of the scheme under which the properties were put up for competitive bidding under the order of the Court was that the interest of the other member was to be conveyed at a value based on the offer made by the higher bidder
In other words each party was given an option to purchase the share of the other but the option was exercisable only by the person who offered the higher bid for the asset
By the preliminary decree the share of Govindram was defined at 1016th and he became entitled to that share in every item of property and Bachhulal became entitled to the remaining 616th share in each such item
But some of the properties were found incapable of physical division and a scheme was devised under which one of the sharers was entitled to purchase the share of the other on a valuation based on the bid offered by him provided it was the higher of the two bids
Value of the bid was however taken into account only for making up accounts
In substance the appellant purchased by being declared the higher bidder the 616th share belonging to Bachhulal in the sugar factory for Rs 1275000 
He was and remained the owner of the 1016th share and that share was neither sold nor conveyed to him he merely purchased the share of Bachhulal for Rs 1275000 
The Tribunal was therefore right in holding that in respect of the 6 16th share Rs 1275000 paid by Govindram was the actual cost to him
On this part of the case apparently no dispute was or could be raised before the High Court
But the appellant contends that even for the purpose of the 1016th share the depreciation allowance should be computed on the basis of a valuation of Rs 34 lakhs bid by Govindram for the factory
Our attention was invited to a large number of authorities in support of the contention raised by the appellant that the price of the sugar factory on the basis of which the share of Bachhulal was valued should be regarded as decisive of the value of the asset on which depreciation allowance is admissible
The argument in substance is that the actual cost of the sugar factory is Rs 34 lakhs that being the price at which the factory was acquired by Govindram
An asset which is admissible to depreciation allowance may be obtained by gift inheritance or succession
In such a case the person who acquires an interest in the asset pays no price for it but on that account it cannot be said that he is not entitled to depreciation allowance
In respect of such an asset in the absence of any statutory provision depreciation would be computed on the market value on the date of acquisition of interest
An asset may be acquired by purchase in which case in the absence of evidence to show that the valuation was unduly inflated the value 651 paid by the assessee is the actual cost to him and not the value paid by his vendor for acquiring it
Again property which is owned jointly by more persons than one by the acquisition of the interest of the other joint owners becomes the property of a single owner
In Francis Vallabarayar vs Commissioner of Income tax Madras1 a Division Bench of the Madras High Court held that an assessee is entitled in assessment of tax under section 10 of the Income tax Act to depreciation allowance in respect of machinery or plant which he acquires by inheritance on the market value of such property at the date of inheritance
The same principle would apply to cases of gift and succession
The Legislature has by adding cl
c in sub section
5 of section 10 by section 8 of the Indian Income tax Amendment Act 25 of 1953 defined written down value  in the case of assets acquired by the assessee by way of gift or inheritance as being the written down value as in the case of previous owner or the market value thereof whichever is less
In the case of purchase as we have already observed in the absence of fraudulent over valuation with a view to obtain an unfair advantage the price paid by the purchaser would be regarded for the purpose of depreciation allowance as the actual cost to him and not the original cost to the vendor Commissioner of Income tax vs The Buckingham Carnatic Company Ltd C Jogta Coal Company Ltd vs Commissioner of Income tax West Bengal C
Cases in which full title to an asset in respect of which depreciation is claimed is obtained in consequence of partition of a Hindu undivided family introduce a complication which is a peculiar product of the rules of Hindu law
Under the Mitakshara system the essence of a coparcenary is unity of ownership and so long as the family remains joint no individual member can claim that he has a definite share in the joint property
Until partition takes place there is community of interest and unity of possession between all the members it is only on partition that the interest of each member becomes definite Partition    is really a process in and by which a joint enjoyment is transferred into an enjoyment in severalty
Each one of the sharers had an antecedent title and therefore no conveyance is involved in the process  Gutta Radha kristnayya vs Gutta Sarasamma4
By the preliminary decree Govindram and BachhuIal acquired definite interest in the sugar factory proportionate to the shares declared by the decree in the entirety of the estate and
the scheme by which Govindram became owner of the sugar factory was in truth one by which he purchased 616th share of Bachhulal
He was by the decree which recognised his pre existing title entitled to 1016th share and he purchased the remainder
The 1 40TR 426
2 3TR 385
3 36TR 521
4ILR 5scI 3 652 scheme of competitive bidding was adopted only for the purpose of valuing the interest of the other sharer at which the first sharer was to purchase it
The highest bidder took the entire asset and paid a share of the value bid by him equal to the share of the other sharer in the family estate
Govindram was the owner of 1016th share by offering the bid for Rs 34 lakhs he did not purchase the 1016th share
He merely purchased the 616th share of Bachhulal at a price based on total valuation of the sugar factory at Rs 34 lakhs
The dicta to the contrary in Commissioner of Income tax UP  CPv
Seth Mathuradas Mohta 1 on which the High Court relied do not in my judgment lay down the correct rule
In that case coparceners of a Hindu family consisting of two members owning a Ginning Factory which was originally purchased for Rs 23 lakhs decided to separate and as the Ginning Factory could not be divided it was put to auction and purchased by A  for Rs 28 lakhs A  was debited in taking account with half the amount offered by him
Subsequently A  claimed depreciation allowance on the basis of Rs 28 lakhs which he had paid alleging that that was the original cost to him
The Income tax authorities rejected the claim and adopted the original value to the joint family as the actual value to A  for computing depreciation allowance under section 102vi
In dealing with a reference made by the Tribunal on the question whether the Income tax Officer had the power to ignore the valuation made by the parties in ascertaining the original cost of the machinery and building to the assessee the High Court observed   the original cost is the cost of acquiring title
The cost of acquiring title is to be ascertained at the time when the property is acquired by the coparcenary
Thereafter one is not concerned with cost strictly so called but one is concerned with a mode of partition
As a result of the partition each fraud over reaching and the like being put on one side is to be regarded as having got half by the mode of division adopted whether that mode be through Court arbitration private auction or drawing lots or any other mode agreed upon
The original cost of the property is not increased though one side might in the result get what a third person would regard as less than half though what the person concerned at least in the case of private auction thought at the time was at least equal to half otherwise he would not have bid so much
These observations were not necessary for the purpose of answering the question posed before the Court
The question posed before the High Court related not to what the true value for computing the allowance for depreciation was
but to the power of the 1 7 ITR160
653 Income tax Officer to ignore the valuation placed by the parties in the deed of partition in ascertaining the true value for the purpose of such computation
Death or birth of coparceners does not alter the identity of the Hindu undivided family which utilizes an asset for earning income or profit
Death of a coparcener merely extinguishes an existing interest but there is no devolution of that interest
But where the joint family status is severed and the rights of the parties are crystalised and a member acquires the interest of the other in any item of property though arbitration agreement decree of the Court or a private auction there is a transfer of interest from one to the other in that property and the value paid or taken into account for acquisition of that interest would normally be regarded qua that share as the actual cost to the acquirer for the purpose of section 102vi but the value of his own share is determined by the actual cost to the family
Counsel for the appellant placed strong reliance upon Commissioner of Income tax vs Bai Shirinbai K Kooka 1 which belongs to a different branch of the law of Income tax
Where an assessee brings his investments into his business the question arises whether in assessing income tax payable on income earned by sale or disposition of such investment the original value at which they were acquired or the market value as at the date on which they were brought into the business has to be taken into account
In Shirinbai s case1 the assessee who held by way of investment several shares in different companies commenced a business in shares by converting the shares into stock in trade of the business
The assessee subsequently sold those shares in the course of the business at a profit
A majority of this Court held that the assessee s assessable profits on the sale of the shares was the difference between the sale price of the shares and the market price of the shares prevailing on the date when the shares were converted into stock in trade of the business and not the difference between the sale price and the price at which the shares were originally purchased by the assessee
The Court in that case distinguished the earlier case decided by this Court Sir Kikabhai Premchand vs Commissioner of Income tax2 in which it was held that the assessee was entitled to value at cost price certain business assets which were after withdrawal from the business settled upon trust
But neither of these cases has a bearing on the computation of depreciation allowance which is qua building machinery plant not being ships or furniture to be a percentage of the written down value
A person who transfers his investments which are not part of his business into the stream of his business may value the investments at the prevailing market rate on the date on which they are brought into the business
In Shirinbai s case1 the Court was 1 2 654 called upon to ascertain commercial profits earned by sale of stockin trade and in so doing regarded the owner as investor and as businessman as two different entities
SK Das J speaking for the majority observed that normally the commercial profits out of a transaction of sale of an article must be the difference between
what the article cost the business and what it fetched on sale
But it is difficult to appreciate how that principle would apply in the computation of depreciation allowance
The asset viz the sugar factory at all material times remained a business asset
It was at one time owned by Govindram and Bachhulal and if the Income tax Act 1922 had then applied depreciation allowance would have been computed on the basis of the value to the family
Acquisition of the interest of Bachhulal by Govindram did not alter the character or use of the asset nor did it make any fundamental alteration in its value to the appellant so as wholly to displace its original value even in respect of the share which Govindram continued to own
Superficial analogies are often misleading and more so in taxation laws
In computing profits assets brought into the business and subsequently sold may be regarded as inducted at the prevailing market rates for the taxing authority is concerned to deal with the business profits arising out of a transaction of sale to the business
When depreciation allowance is to be computed the taxing authorities have to consider what the original cost to the assessee was and valuation of a business asset adopted for the purpose of valuing the share of one of the owners from whom his share was purchased cannot be regarded by any principle of commercial accounting as notionally altering the original cost of his own share in the asset to the acquirer
The assessee does not purchase his own share at the valuation put by him at the private auction he merely purchases the share of the other sharer at a valuation made on the bid offered by him
I am unable therefore to agree with counsel for the appellant that for the purpose of valuing 1016th share of Govindram the basis should be the valuation of Rs 34 lakhs which was adopted for valuing Bachhulal s share
therefore answer the question as follows That depreciation allowance should be computed on the basis of 1016th share of the original cost to the joint family of the assets which are admissible to depreciation allowance plus an appropriate amount attributable to the assets admissible to depreciation allowance on the footing that the value of 616th share of Bachhulal in the factory was Rs 1275000 
The order passed by the High Court will accordingly be modified
There will be no order as to costs
ORDER In accordance with the majority judgment the appeal is allowed with costs here and in the High Court


Summary:
On partition being effected through a suit a Hindu joint family who has only an interest in the entire joint family property acfamily
The preliminary decree passed by the Court determined 1016 as the share of the appellant family and 616 as that of the other branch
Those assets of the erstwhile larger joint family which could not be physically 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 section 102 vi of the Indian Income tax Act 1922 was claimed on the above valuation of 34 lacs
The claim was rejected by the Income tax Officer as well as the Appellate Assistant Commissioner on the ground that the value for the purpose of depreciation was not the price determined at the family auction but the original cost to erstwhile larger joint family
The Tribunal held that the 616 share of the other branch was purchased at the auction and its value had to be taken as the basis of the price determined at the auction but the appellant family s own share of 1016 was not purchased at the auction and therefore had to be valued at the original cost to the larger joint family
In reference the High Court held that the distinction made by the Tribunal was wrong and that the shares of both branches had to be valued on the basis of the original cost to the larger family
Appeal was filed before this Court with certificate
HELD Per Subba Rao and Sikri JJ
It may be that in strict legal theory partition may not involve a transfer but the substance of the transaction is that an erstwhile member of a joint Hindu family who has only an interest in the entire joint family property acquires an absolute title to a specific property
The cost of the property to the member at the date of partition would be the value given to it for the purpose of allotment
provided it was real or the price at which he purchased it in auction or the value of it ascertained otherwise
647A C In the case of assessees acquiring a property by purchase gift bequest or succession courts have held that the cost of the property to the assessee was not the original cost of it to his predecessor but its actual cost to him at the time of the purchase gift bequest or succession
In substance there is no difference in the matter of ascertaining the cost of an asset to an assessee whether he is a donee purchaser legatee successor or a divided member ef a joint Hindu family
646D 647A 642 Commissioner of Income tax Madras vs The Buckingham  Carnatic Company Ltd Madras 19353 ITR 384PC Jagata Coal Co Ltd vs Commissioner of Income tax West Bengal  Indian Iron  Steel Co Ltd vs Commissioner of Income tax Bengal 1943 11 ITR 328 PC Francis Vallabaravar vs Commissioner of Income tax Madras and Commissioner of Income tax Bombay vs Solomon  Sons  referred to
Commissioner of Income tax UP  CPv
Seth Mathuradas Mohta 19397 ITR 160 disapproved
In the present case the valuation given to the property was not notional but a real one indeed the property was sold in the open auction between the members of the larger joint family and the value fetched thereunder entered into the scheme of partition
647 C D Therefore even in respect of the appellant s own share of 1016 the valuation for the purposes of section 102vi had to be on the basis the price which the appellant bid at the auction
Per Shah J dissenting
By the preliminary decree the appellant family became entitled to a 1016th share in every item of the property of the larger joint family the other branch became entitle to the remaining ie 616th share in each item
The appellant being already owner of 1016th share could not purchase the same at the auction
In substance the appellant purchased by being declared the highest bidder the remaining 616th share belonging to the other branch
650 C E The asset in question viz the sugar factory at all material times remained a business asset
Acquisition of the interest of the other branch by the appellant did not alter the character or use of the asset nor did it make any fundamental alteration in its value to the appellant so as wholly to displace its original value even in respect of its share which it continued to own
654 B D The Tribunal therefore had rightly held that in respect of the 616th share of the other branch depreciation had to be allowed to the appellant on the basis of the auction price
The High Court wrongly interfered with this finding the Revenue not having appealed against it
On the appellant s 1016th share which the appellant could not be said to have purchased depreciation had to be calculated on the basis of original cost to the larger family
654 E G Case law discussed