1982 (2) TMI 115 - AT - Income Tax

Summary

Issues:
1. Disallowance of depreciation to the assessee in relation to assets received on dissolution of a firm.
2. Interpretation of ownership of assets received on dissolution of a firm.
3. Allowance of depreciation on assets owned and used by the assessee in the business.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Chandigarh involved the disallowance of depreciation to the assessee in relation to assets received on the dissolution of a firm. The primary issue was whether the assessee, who received assets on dissolution of a partnership firm and continued the business as a proprietor, was entitled to claim depreciation on those assets. The AAC had upheld the disallowance of depreciation in relation to assets received on dissolution but directed the allowance of depreciation for additions made after the dissolution. The main contention was whether the assessee, as the owner of the assets received on dissolution, could claim depreciation for the assets used in the business as a proprietor.

The Tribunal considered the arguments presented by both sides. The assessee argued that as the owner of the assets received on dissolution, he was entitled to claim depreciation for assets used in the business. On the other hand, the departmental representative contended that since the firm is a compendious name for its partners, the partner continued to be the owner of the assets received on dissolution. The department relied on the judgment of the Karnataka High Court in a similar case to support their position.

The Tribunal analyzed the legal position regarding ownership of assets received on dissolution of a firm. They emphasized that under the Income-tax Act, a firm is treated as a separate entity independent of its partners. In this case, after the dissolution of the firm, the business was taken over by the assessee as a sole proprietor. The Tribunal highlighted that the partner becomes the owner of the assets received on dissolution and used in the business carried on by him as a proprietor. They referenced a judgment of the Andhra Pradesh High Court to support this legal position.

Further, the Tribunal referred to Rule 5 of the Income-tax Rules, 1962, which governs the allowance of depreciation. Rule 5 specifies that depreciation will be allowed if the assets are owned by the assessee and used in the business. Since the assessee used the assets owned by him in the business carried on after the dissolution of the firm, the Tribunal concluded that the assessee was entitled to claim depreciation. They dismissed the argument that allowing depreciation would amount to double benefit, emphasizing that the law clearly provides for the allowance of depreciation to the assessee in such circumstances.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the Income Tax Officer to consider the claim of depreciation for all assets owned and used by the assessee in the business, including those received on dissolution of the firm.