1978 (10) TMI 63 - AT - Income Tax

Summary

Issues:
1. Allocation of unabsorbed depreciation in the hands of partners of a registered firm.
2. Interpretation of Section 32(2) of the Income Tax Act, 1961 regarding allocation of unabsorbed depreciation in the case of a registered firm.

Detailed Analysis:

1. The appeal involved a dispute regarding the allocation of unabsorbed depreciation of Rs. 16,944 in the hands of partners of a registered firm for the assessment year 1973-74. The Income Tax Officer (ITO) had disallowed the assessee's claim of adjusting the unabsorbed depreciation in the partners' hands and ordered it to be carried forward for adjustment in the firm's hands only. The Appellate Tribunal (ITAT) was tasked with determining the correct allocation of the unabsorbed depreciation.

2. The Appellate Tribunal considered the provisions of Section 32(2) of the Income Tax Act, 1961, which govern the allocation of unabsorbed depreciation. The key contention revolved around the interpretation of this section, specifically whether the unabsorbed depreciation should be allocated in the hands of the partners of a registered firm. The Tribunal analyzed the language of Section 32(2) and referred to a decision by the Gujarat High Court in CIT vs. Garden Silk Wvg. Factory, which established that in the case of a registered firm, the unabsorbed depreciation should be allocated among the partners for set-off against their other income.

3. The Tribunal noted that Section 32(2) explicitly provides for the allocation of unabsorbed depreciation in the case of a registered firm to the partners only. By interpreting the language of the section and considering the precedent set by the Gujarat High Court, the Tribunal affirmed that the unabsorbed depreciation allowance should be allocated among the partners of the firm. This allocation ensures that the partners can carry forward the loss or depreciation allowance and set it off against their other income, thereby preventing the firm from carrying forward any unabsorbed depreciation.

4. In conclusion, the Tribunal upheld the decision of the Appellate Commissioner (AAC) to allocate the unabsorbed depreciation in the hands of the partners of the registered firm. The Tribunal dismissed the Revenue's appeal, stating that there was no merit in challenging the allocation decision made in favor of the assessee. Additionally, the cross objection, which did not seek any relief, was deemed infructuous and dismissed accordingly.