1991 (11) TMI 99 - AT - Income Tax

Summary

Issues:
Claim for depreciation on revalued cost.

Analysis:
The appeal before the Appellate Tribunal ITAT Bangalore centered around a claim for depreciation on revalued cost by the assessee, a private limited company that was one of the partners in a dissolved firm. The firm, which ran a nursing home, owned land and a building that were revalued at the time of dissolution. The dispute arose when the Assessing Officer and the CIT(A) disallowed the depreciation claim based on Explanation 3 to section 43(1) of the Income Tax Act. The crux of the issue was whether the revalued cost could be considered for depreciation purposes, given the transfer of assets from the firm to the assessee at the time of dissolution.

The assessee argued that there was no transfer of assets in favor of the partner taking over the assets at the time of dissolution, relying on the decision in Malabar Fisheries Co. vs. CIT. On the other hand, the Departmental Representative contended that the change of ownership from the firm to the partner constituted a transfer, citing the decision in Kungundi Industrial Works Pvt. Ltd. vs. CIT. The Tribunal noted that the assets were revalued for dissolution, and the revaluated cost formed the basis for adjusting the rights between the partners, as recognized by the Supreme Court in CIT vs. Bankey Lal Vaidya. The Tribunal emphasized that the distribution of assets on dissolution did not amount to a transfer, as explained in various Supreme Court judgments.

The Tribunal further referenced the decision in CIT vs. Dewas Cine Corporation, where the Supreme Court clarified the concept of transfer concerning the distribution of assets on firm dissolution. Additionally, the Tribunal highlighted the Supreme Court's rulings in Bankey Lal Vaidya's case and Malabar Fisheries Co., which reiterated that the distribution of assets among partners post-dissolution did not constitute a transfer for depreciation purposes. Based on these precedents, the Tribunal concluded that when assets are taken over by a partner at the time of dissolution, there is no transfer, rendering Explanation 3 to section 43(1) inapplicable. Consequently, the Tribunal ruled in favor of the assessee, allowing the appeal and upholding the claim for depreciation on the revalued figure.