SHAIF-UR-REHMAN, J. This is an assessee's appeal challenging the decision on the following question of law referred to and answered by the High Court of Sind & Baluchistan in the negative by its judgment dated 5-12-1970.
"Whether on the facts and in the circumstances of the case the Tribunal was justified in law in holding that the cost of the building to the assessee was Rs. 25,00,000."
2. The petitioner, a private Limited Company, was engaged in carrying on the business of running hotels in Pakistan. As a part of that business on 21-8-1961 it offered the highest bid at a public auction held by the Settlement Department for the evacuee property, then known as Nedous Hotel, Lahore, and emerged as the successful bidder at Rs. 1,121,00,000 (Rupees one crore twenty-one lacs). The petitioner had been regularly employing what is known as the Mercantile system of accounting. It debited the entire price in its books of :.:count. However, as the deprecia--petition was allowable only on that part of the investment which concerned the building, the petitioner got valuation of the building done by Douglas Jackson &- Company, who certified that at the time of auction the value of the building was Rs. 25,00,000 prior to any repairs and 96 lacs was the value of 96 kanals of the land. In this manner the apportionment of the value of building to land came to be in the ratio of 25:96. According to the terms of the sale the petitioner was required to deposit Rs.
50,000 cash as earnest money, ~ another Rs. 5,00,000 cash at the fall of the hammer in the auction and was required to pay the balance thereafter in 36 instalments, either in cash or in the form of compensation books. It appears that during the assessment year 1962-63 apart from the cash payment of Rs. 5,50,OU0 the petitioner furnished and got adjusted compensa--petition books worth Rs. 25,29,485 and these cost the petitioner in the market at the then prevalent rate Rs.
13,46,315. In this manner the petitioner got adjusted Rs. 30,79,485 towards the price and in terms of cash the payment worked out to only Rs. 18,96,015. A question arose as to what was the cost of the building to the assessee for its cost alone, to the exclusion of the cost of the land was to be the basis for calculating the depreciation al--lowance. The petitioner in accordance with the mercantile system of accounting, which he regularly employed, debited the entire apportioned price of the building vii. 25 lacs and claimed depreciation on it.
3. The Income-tax Officer accepted the price and ratio of-apportion--ment of cost between building and the land and applying it calculated and apportioned the actual payment during the assessm ent year which he worked out at Rs. 2,78,100 (The figure has been recalculated in the concluding part of this judgment). He took this to be the cost to the assessee and allowed the necessary depreciation on it;-.
4. The appellant went in appeal reiterating his claim to depreciation on the entire apportioned price of the building, that is 25 lacs. The Appellate Assistant Commissioner dismissed the appeal taking it that the price of 25 lacs was the notional :price, which was the contractual price and the actual cost to the assessee in terms of cash payment during the assessment year alone was admissible.
5. The appellant approached the Income-tax Appellate Tribunal which by its order dated 15-1-1965 allowed the petitioner full relief as claimed. .
6. The Commissioner of Income-tax then made an application under section 66(I) of the Income- tax Act seeking reference of the following two questions of law to the High Court for determination:
(i) Whether on the facts and circumstances of the case the Tribunal was justified in law in holding that the cost of the building to the assessee was Rs. 25,00,000 when this amount was not the actual cost incurred by the assessee?
(ii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that depreciation should be allowed on the total cost of the building in the assessment year 1962-63 although the actual payment was made in three years extending over assessment years 1962-63 to 1964-65?
7. By its order dated 10-3-1965 the Income-tax Appellate Tribunal recast question No. I and referred it alone to the Sind High Court refusing the reference of the other question in spite of holding it to be a question of law, on the ground as given by the Tribunal that the legal aspect of this issue "is so simple and noticeable that we cannot prevail upon ourselves to refer the second question". `
8. The learned Judges in the High Court examined the question referred to them in all its depth. It was held that the admitted position of the law was that the cost to the assessee as disclosed by the assessee was not final and decisive and that the Assessing Authority could go behind such a disclosed figure. A distinction was then drawn between the price of the building, plant, machinery, and the cost thereof to the assessee. It was held that the two were different not only in concept and law but also in content and had to be determined differently and separately. Finally, it was held that it was not the actual cost in the technical sense which was cost to the assessee but the burden of cost which was to be determined in each individual case on the facts of that case and depreciation value of the asset was the burden of cost so calculated. Section 10 (3-A) of the Income-tax Act was also brought in for determining whether the cost to the assessee in this case could be taken to be 25 lacs or a lesser amount and the principle justifying a diminution or reduction was found contained in it. Hence the question was answered in the negative. The learned Judges further directed the Tribunal to refer the second question of law as well to the High Court.
9. The learned counsel for the appellant has urged that there are certain points on which the parties have never been at issue, not even in this Court. The first was that rupees one crore 21 lace was the real price of the land and the building payable by the assessee and debitable to its account. Secondly, that the apportionment of the price between the building and the land which was in the ratio of 25:96 was proper and fair, and not questioned at any stage. Thirdly, the petitioner has been regularly employing the mercantile system of accounting and that system of accoun--ting left no scope for the petitioner but to show in the books of account the entire apportioned liability of 25 lacs on that very day that 'the auction was finally approved in its favour.
It is not disputed by the learned counsel for the appellant that the assessing authorities could, in a proper care, go behind the disclosed price, if it was suspected or found that the price disclosed was fictitious, unreal or deceptive. What the learned counsel for the appellant has attempted to establish is that 25 lace was the cost of the building to the assessee, and what he actually paid for it, or, when he paid it, was altogether immaterial for arriving at the depreciation value. The- 4earned counsel for the appellant has heavily relied on the decision in Commissioner of Income- tax v. Smt. Singari Bai ((1945) 13 1 T R 225for bringing out the peculiarities of the Mercantile System of accounting and how such debits are to be treated for the purposes of determining the "actual cost" to the assessee. For establishing the irrelevance of the burden of cost, or the actual payments made, or the reimbursements received, the learned counsel for the appellant has relied on the decisions in Corporation of Birmingham v. Barnes (19 Tax Cas. 195) and C.
1. T. v. Poona Electric Supply Co. Ltd. ((1946) 141 T R 622The learned counsel for the appellant considers any reference to or reliance upon subsection (3-A) of section 10 of the Income-tax Act as wholly out of place. It is said that subsection (3-A) was introduced in the Income-tax Act in Pakistan in 1948 (Act XXIII of 1948).` At that time sale of compensa--petition books could not be visualized 'and this provision even in its extended application would not cover the variation in cost arising out of the price of Compensation Books. Besides, the learned counsel for the appellant contended that just as escalation in cost due to devaluation of currency had to be provided for during the period 1972 to 1975 by addition of subsection (3-BB) in section 10 of the Income-tax Act, any diminution in price on account of purchase price of compensation books could as well be taken care of by such an amendment and without such express legislation it should be ignored altogether. In saying so, the learned counsel is heavily relying on observations of Rowlatt, J. In Cape Brandy Syndicate v. Inland Revenue Commissioner ((1921) 1 K B 64That "in a taxing Act one has to look merely at what is clearly said". There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read, in, nothing is to be implied. One can only look fairly at the language used".
10. The learned counsel for the respondent Mr. Mansoor Alam has, on the other hand, adopted a position which on certain points of law does not yield a very clear answer. For example, his contention is that 25 lacs had to be entered in the books of account as the cost to the assessee, it had to be taken in this case as the actual price, but for arriving at its cost to the assessee the mode of payment should be seen so as to arrive at the actual burden of the cost. In answer to the question as to what would be the cost or burden of the cost to the assessee if no instalment of the price was actually paid during the assessment year, his reply was that in such a situation it should be taken to be the prevalent market price of compensation books as on the date of auction for the entire price of 25 lacs which should, going by the rates generally prevailing then, come to about half the nominal value. The learned counsel for the respondent did not wholly subscribe to the view adopted by the Income-tax Officer, of limiting the value for depreciation to the instalments actually paid during the year ignoring altogether the total liability incurred by the assessee during the assessm ent year. The learned a6unsel for the respondent was not in a position to indicate which of these two standards has been in fact approved in the order under appeal. However, very valuable assistance was rendered by the learned counsel by indicating the up-to-date develop--ment of case-law on the subject of computation of actual cost to assessee and by interpreting, that he considered, to be the true nature of the transac--petition of purchase of compensation books as appearing from Settlement.
Scheme No. 1 further clarified in Muhammad Saddiq and 2 others v. Chief Settlement and Rehabilitation Commissioner and 3 others (PLD 1965 SC 123and Haji Ghulam Hussain v. Hamid Hassan Khan and another (PLD 1969 Lah. 147The formula suggested by the learned counsel for the respondent for arriving at the actual cost to the assessee .Is different from that adopted in this case by the assessing authority or the Appellate Assistant Commissioner. The learned counsel tried to support the other conclusion of the assessing authorities that the price actually paid i.e. to the extent the cash holding of the petitioner was reduced during the assessment year towards the cost, should be taken to be the value for depreciation.
11. The statutory law applicable to the case lies in a narrow compass. It is to be found in section 10(2)(iv) which shorn of the inapplicable portions reads as follows :-- Section 10.-(1) Subject to the provisions of this Act, the tax shall be payable by an assessee under the head Profits and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation carried on by him:
(2) Subject to the provisions of this Act such profits or gains shall be computed after making the following allowances namely,
(iv) In respect of depreciation of such buildings, to such precentage on the written down value thereof as may in any case or class of cases be prescribed.
Subsection (5) of section 19 in so far as is relevant for the present case defines written down value to mean--
(a) "In the case of assets acquired in the previous year, the actual cost to the assessee."
Section 3-A has a history of its own and will be considered later but it is reproduced hereunder for sake of facility.
"In computing the allowances provided for in clause (vi), clause (vii), clause (xiv) and clause (iv) of subsection (2) there shall be left out of account a proportion of the building, machinery or plant equal to the proportion of the cost thereof which is or is to be met directly or indirectly by any Government or local authority or by any person other than the assessee or 1n respect of which exemption is allowed under section 15-F and the computation of any excess under clause (vii), clause (xiv) and clause (viv), as the case may be, of that subsection shall be regulated accordingly."
12. As a part of the argument 'concerns the method or system of accounting regularly employed by the appellant it is necessary to mention briefly its relevance in this appeal. Section 13 of the Income-tax Act provides that "income, profits and gains shall be computed for the purposes of sections 10 and 12 in accordance with the method of accounting regularly employed by the assessee".
The provisos to the sections are not relevant for the decision of this appeal. In the case of Commissioner of Income-tax v. Sort. Singari Bai, Full Bench of the Allahabad High Court while examining the method of accounting known as mercantile accountancy system or the book profits system of accountancy or the complete double entry book-keeping held: "Under this system the not profit or loss is calculated after taking into account all the income and all the expenditure relating to the period. Whether such income has been actually received or not and, he--their such expenditure has been actually paid or not. That is to say, the profit computed under this system is the profits actually earned, though not necessarily realised in cash, or the loss computed under this system is the loss actually sustained, though not necessarily paid in cash. The distinguishing feature of this method of accountancy is. That it brings into credit what is due immediately it becomes legally due and before it is actually received; and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed.
The "mercantile accountancy system" is the opposite of the "cash system of book-keeping." under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed."
The decision of Indian Supreme Court in Calcutta Coal. Ltd. v. Commissioner of Income-tax ((1959)
37 1 T R 1_.Is more relevant to the point in issue in this appeal. In that case the assessee had sold land in plots, the price was realizable in instalments, and the assessee vendor had undertaken to develop the plots within six months of the sale, time being not of the essence. The assessee maintained its account in the mercantile method. Even though the assessee had not received the whole of the price, it entered on the credit side of its books of account the whole of the price. The assessee also debited the account by the estimated amount of expenditure likely to be incurred under the agree--ment to develop the plots. The assessing authorities disallowed the deduction of the expenditure on the ground that tile expenses had not been actually incurred in the year of account and also on the ground that the estimate had not been proved to be based on a consideration of the real expenses. The question which arose for decision in that case was whether having regard to the fact .That the appellant's method of accounting was mercantile and it was accepted by the Income-tax Officer and the receipts appearing in the books of account included the unpaid balance of the sale price of the plots in question, the amount of liability undertaken by the appellant to earn those receipts was to be deducted even if there had not been actual disbursement made by it during the accounting year. The decision followed the principle that "as in the case of assets received during the accounting year which could not be immediately realized in a commercial sense, so in the case of liabilities.- which have already incurred during the accounting year though they may not have to be discharged till a later date", the deduction of estimated expenditure as business expense was allowed.
Commissioner of Income-tax, Gujrat v. Hides and Leather Products Pvt. Ltd. ((1975) 1011 T R 61), the assessee ..Who had been regularly employing the mercantile of accounting system had purchased from a Swiss Firm machinery in 1955. The price of the machinery was Rs. 30,572 which was forthwith debited, in the -accounts books of assessee and credited to the Foreign supplier. No part of the amount was paid at all on the ground that there was some defect in the machinery. It was held that in the assessm ent year 1961-62 though there was a liability the assessee was entitled to have the benefit of the entire amount of Rs. 30,572 as the actual cost and depreciation was allowable to the assessee for the assessment year 1961-62 on the basis that the cost to it of the machinery was Rs. 30,572.
13. It follows, therefore, that the question of cost to assessee involves the determination of two questions; the first being what is the system of accounting regularly adopted by the assessee and where the system o accounting is mercantile the second being when had the right to receive accrued or the liability to pay has been incurred. Applying these two tests, the liability apportioned to the building viz. 20 lacs, no part of which was found to be tainted with fraud, collusion, inflation or deflation, was incurred during the assessment year in question and irrespective of the fact whether the whole of it had been paid during that assessment year or not, it had to be accepted as the liability incurred.
14. Coming now to the interplay of other relevant controlling features on computation of actual cost particularly that one contained in sub--section (3-A) of our Income-tax Act, or as introduced by adding clause (c) and Explanation in subsection (5) of section 10 by Indian Amending Income-tax Act in 1953, or the modified concept of it in section 43(1) of Indian Income-tax Act, 1961 it is enlightening to view the problem in it 4 historical context. Such an examination of the law can as well be justified on the well-known principle of construction of statutes as has been indicated in North Central Wagon Co. Ltd. v. Fifield ((1953) 1 A E R 1009in the following words :- "It is legitimate for the purpose of construing amending or remedial legislation to consider the law as it stood before the change was made and to deduce from that consideration the defect or omission in the existing law which it was designed 'to correct."
There is, however, a word of caution, a reservation to be kept in view in all such historical and comparative studies. Not much help call directly obtained in construing a particular provision of our Income-tax Act, by reference to interpretation of similarly, or analogous provisions, ' in Income- tax legislation in England or India. However, on analogous provisions, fundamental concepts and general principles, unaffected by the specialities of either, the authorities may be helpful as guides.
15. The decision in the case of Corporation of Birmingham v. Barnes H. M. Inspector of Taxes (19 Tax Cas. 193), is said to contain the general rule of law that in computing the actual cost to the assessee for the purposes of computing depreciation it is immaterial whether some one else recouped the assessee what he had spent on the assets. In that case after the expenditure had been laid out on tramway track contribution came from two sources, viz. Dunlop Rubber Company and Unemployment Grant Committee, and the question in issue was whether cost to the assessee meant the cost as reduced by these contributions or without them as and when the liability was incurred. Two important points were made out in the House of Lords' judgment which are of importance for understanding subsequent decisions and the amendments in the Income-tax law on the sub-continent. The first point is reflected in the following observations "I do not read "actual cost" to mean anything more than cost accurately ascertained. But it is said that the words to that person" in the phrase actual cost to that person" plainly indicate that the section is intending to confine the relief to an aggregate equal to the sum of money which the person has defrayed out of his own resources, the cost of the burden which has ultimately fallen upon him. My Lords, I confess I do not think that this is the natural meaning of the words. What a man pays for construction or for the purchase of a work seems to me to be the cost to him; and that whethersomeone has given him the money to construct or purchase for himself, or before the event has promised to give him the money after he has paid for the work, or after the event has promised or given the money which recoups him what he has spent. Here there are no qualifying words and I think the phrase guides one to the conclusion that expenditure on capital improvements by the person regardless of source will be the same as actual cost to the person also regardless of source."
The other point is contained in the following observation in the same judgment: "I do not think that it is necessary for the purpose of this case to discuss the question which may arise where the person carrying on the business has acquired the plant by gift, a question that will arise probably, if at all, in respect of a gift under a will. Various problems arise involving, amongst others, the possible contention that where there has been no cost there is no measure, no yardstick, by which to restrict at all the allowance granted by sub-rule(1). I prefer, therefore, to say nothing on this topic."
The principle enunciated in the case of Corporation of Birmingham was followed on the sub- continent and following is the list, of some of such cases:
(i) Commissioner of Income-tax v. Poona Electric Co. Ltd. (1946) 14 1 T R 622 (Bom.)
(ii) C.
1. T. v. Renchi Electric Supply Co., Ltd. (1954) 26 I T R 89 (Pat.)
(iii) Francis Vallabarayar v. C.
1. T. (1960) 40 I T R 426 (Mad.)
(iv) Habib Hussain v. C. I. T. (1963) 48 I T R 859 (Bom.)
(v) C. I. T. v. Ambala Cant Electric Supply Co. (1971) 82 I T R 21'1 (Pry).
(vi) Gurdar Kajora Coal Mines v. C. I. T. (1972) 85 1 T R 599 (SC).
(vii) C. I. T. Gujrat v. Hides & Leather Products Pvt. Ltd. (1975) 1011TR61.
The Parliament in United Kingdom, the Legislature in Pakistan and India, took their own time, and proceeded in their own manner, to adopt remedial measures with a view to whittle down the generality of the principle approved in Corporation of Birmingham case. In United Kingdom section 66 was introduced in the Income-tax Act of 1945, and re-enacted as section 332(1) of Income-tax Act, 1952 in the following words: "Expenditure shall not be regarded for any of the purposes of this Part of this Act as having been incurred by any person in so far as it has been 'or is to - be met directly or indirectly by the ,Crown or by. Any Government or public or local authority whether in the United Kingdom or elsewhere or by any person other than the first named person." in extenso) was added in section 10 of the Income-tax in 1948 by Act 23 of 1948.
1953 two amendments relevant to the present study were made in the Income-tax Act which wereto take effect from 1-4-1952.
The first was an addition of clause (c) to subsection (5) of section 10 which dealt with the second point touched upon the Corporation of Birmingham's case. This clause is as follows :.-.
"(c) In the case of assets acquired by way of gift or inheritance, the "written down value" as in the case of the previous owner or the market value thereof whichever is less."
As regards the first point dealt with in the House of Lords judgment, an explanation at the end of subsection (5) of section 10 was added which was in the following words : "for the purposes of this subsection the expression "actual cost" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by Government or by any public or local authority and any allowance in respect of any depreciation carried-forward under clause (b) of the proviso to clause (iv) of subsection (2) shall be deemed to be depreciation actually allowed."
It was in 1961 when the entire Income-tax Act was redrafted in India, that a consolidated provision on the subject was made in section 43(1) in the following words: "Actual cost" means the cost of the assets to the assessee reduced by that portion of the cost, if any, as has been met directly or indirectly by any other person or authority."
The amendment made in the United Kingdom in section 66 of the Income---tax of 1945 and re- enacted as section 332(1) of Income-tax Act of 1952 came up for interpretation in Cyril Lord Carpets Ltd. y. Schofield (H. M. Inspector of Taxes) 48 Tax Cas. 637. The assessee in that case had received discretionary grants under Capital Grants Act and the assessee's plea was that as that part of the grant was entirely discretionary and had been made subsequent to the expenditure incurred it could not be excluded from the expenditure incurred by the assessee. The argument of the assessee and the Revenue was summarised by the Court of appeal in Ireland in the following words: "For the Company it was said that the payment of a discretionary grant, after the Company had discharged by payment its liability in respect . Of the expenditure incurred, could not be deducted on the true meaning of the subsection. What had already been thus met by the tax-payer could not be "met" again by such a grant. That word "met", the argument proceeded, was not apt to connote reimbursement unless the grant was made, not as a matter of discretion, but pursuant to some statutory or contractual obligation preceding or contemporaneous with the incurring 'of the relevant expenditure. For the Crown, on the ocher hand, it was submitted that section 332(1) when read according to the ordinary and natural meaning of the language used, and particularly of the words "so far as it has been or is to be met directly or indirectly", called for no contractual or statutory obligation on the part of the authority or person making the grant in aid or reimbursement of the expenditure incurred, and was capable of applying to the grants made in the present case without any straining or distortion of the terms of the subsection."
The point in controversy was decided as follows; "The subject of this enactment is expenditure which has been incurred, and in my view this includes clearly, and beyond question, expenditure which has, as well as expenditure which has not been discharged by payment. That brings me to the words" in so far as it has been or is to be met". The weakness of the Company's contention seems to lie in the fact that it ascribes a meaning to the word "met" which is narrower than its ordinary meaning. In common parlance a liability which has been discharged may be "met" by a payment no less than a liability which has not been discharged. In its natural signification the word connotes something set against or opposed to something else, and in pecuniary transaction it is, I think, as aptly used of a payment to be set against the cost of a debt discharged as it is of the payment made in actually discharging the debt."
Products Pvt. Ltd. already referred to while discussing the mercantile system of accounting. The decision given was as follows :- "As pointed out above, under the Act of 1922, which was applicable to assessment year 1961-62 it was only if there was any contribution from Government or public or local authority, that those contribu--tions could be deducted while ascertaining the actual cost. The Swiss suppliers were neither Government nor any public or local authority and, therefore, for the assessment year 1961- 62 even though there was cessation of liability, the assessee-company was entitled to have the benefit of the entire amount of Rs. 30,572 as the actual costs to the assessee for that particular assessm ent year and to have the written down value for assessment year 1961-62 worked out on the footing that for that particular year the cost to the assessee of this particular piece of machinery was Rs. 30,572.
As regards assessm ent years 1962-63 to 1965-66 we have to proceed, as pointed out above, under the provisions of section 43, subsection (1) of the Act of 1961. Under the definition as set. Out in section 43, subsection (1) as pointed out above, even if the cost has been met directly or indirectly by any other person or authority, that direct or indirect meeting of the cost has to be deducted in order to ascertain the actual cost to the assessee. Since we have come to the conclu--sion that there was cessation of liability. Particularly in the light of the omission of the Swiss supplier to take any legal action against the assessee, the actual cost to the assessee must be reduced for assessm ent years 1962-63 to 1964-65. The actual cost would be reduced by Rs. 30,572. That is the only conclusion one can come to in the light of section 43, subsection (1) of the Act of 1961."
If follows from the principle enunciated in those two decisions that such portion of the liability as is or has been met by sources other than that of the assessee has to be excluded from the cost to the assessee.
16. Compensation Books which were utilized by the assessee in this case were prepared on the basis of verified claims as were registered under the Registration of Claims (Displaced Persons)
Act. 1956. As the instruc--tions of the Chief Settlement Commissioner appearing at p. 134 of the Old Settlement Manual show, it was stipulated that the transferee of the property who associates a claimant and utilises his compensation book will have to include him as a shareholder in the property. The restrictions of making him a share-holder was then removed. The transferee and the associating claimants were to be jointly and severally responsible for they payment of the transfer price and where the compensation book was not for the entire amount the payment of balance in cash remained the respon--sibility of the original transferee. With the restrictions removed, the compensation books became Trading Commodity. The compensation books were not quoted on the stock exchange and their prices varied from individual to individual from place to place, though the margin of variance in price was small. In such a case where the compensation books were purchased at about half their nominal value or even less and utilized for payment of the price the question will be whether section (3-A) will proportionately reduce the cost to the assessee of that particular asset. It is true that when sub--section (3-A) was introduced such transactions in compensation books were no in view, All the same to be fair to such a remedial or curative legisla--petition, its object was to take care of the defect not related to any particular mode or method of escape or avoidance. The principles contained I subsection (3-A) were directed at depriving the assessee of proportionate benefit in respect of a liability incurred but discharged in part or who directly or indirectly--- under a settled arrangement or otherwise, by a person or authority other than the assessee. In the present case, the assessee was as a fart relieved of the liability in part in so far as the associate surrendering the compensation book charged the assessee less than the nominal value of such compensation books. It is in this context that a discretionary grant purely ex gratia, or, even a cessation of the liability may be sufficient to deprive the assessee of the proportionate benefit of the cost to the assessee for the purposes of depreciation. Our conclusions, therefore, is that the difference in the nominal value of the compensation book and the price paid by the assessee for obtaining it has to be excluded from the cost to the assessee of the asset and this has to be done on the strength of subsection (3-A) of section 10 of the Income-tax Act.
The question still remains what in figures would be the liability of the appellant for the assessment year 1962-63. His liability as under the mercantile system worked out at 25 lacs. He paid Rs. 5,50,000 in cash of which amount share apportionable to building account in the ratio of 25:96 will be Rs.
1,13,636. As regards the price of compensation books of the nominal value of Rs. 25,29,485 the assessee paid only Rs. 13,46,015 in cash. The nominal value of the compensation book apportionable to the building in the ratio of 25:96 would be Rs. 5,22,620 and the price actually paid for such a noninal value apportionable to building in the same ratio will be Rs. 2,78,102. In this manner the appellant had obtained during the assessment year a benefit of Rs. 2,44,518 (the difference between the nominal value adjusted for the building and the amount actually paid for it during the assessm ent year). This amount of Rs. 2,44,518 has been in fact met by the compensation book holder. This difference would have to be deducted from rupees 25 lacs and on such deduction the cost to the assessee during that assessment year for purposes of depreviation will come to Rs. 22,55.482. Thus on facts stated and law applicable for the assess--ment year 1962-63, depreciation . Allowance would be admissible to the appellant not on the cost incurred (25 lacs) but on Rs. 22,55,482. The appeal is accordingly allowed with costs to the appellant.