1986 (10) TMI 94 - AT - Income Tax

Summary

Issues:
- Determination of the cost of assets introduced in a firm for depreciation purposes.

Detailed Analysis:

1. Background:
The case involved an appeal by the revenue concerning the cost of assets introduced in a firm through one of the partners for depreciation purposes. The firm, comprising four partners, was dissolved, with Mr. Narain M. Punjabi interested to the extent of 50%. Following the dissolution, an agreement was made for Mr. Narain M. Punjabi to bring in the assets of the dissolved firm to the present firm for depreciation claims.

2. Initial Assessment by ITO and IAC:
The Income Tax Officer (ITO) considered the claim and referred to Explanation 3 of section 43 of the Income-tax Act, stating that depreciation would be allowed based on the actual cost to the earlier firm less depreciation allowed. The IAC supported this view. The written down value ultimately determined was Rs. 76,931.

3. Appeal to Commissioner (Appeals):
The assessee appealed to the Commissioner (Appeals), who found factual inaccuracies in the initial order and directed a reevaluation. The Commissioner (Appeals) considered the increase in the cost of assets due to payments made to retiring partners and the details of the assets involved in the dissolution.

4. Tribunal's Decision:
The department appealed the Commissioner (Appeals) decision, emphasizing that Explanation 3 of section 43 negated the assessee's claim. The Tribunal analyzed the issue extensively, concluding that the cost of assets does not increase due to liabilities taken over and that the actual cost remains unchanged unless a sale occurs. Citing relevant case law, the Tribunal determined the written down value to be Rs. 76,931, quashing the Commissioner (Appeals) order and reinstating that of the ITO.

In summary, the Tribunal held that the cost of assets introduced in the firm remains unchanged unless a sale occurs, rejecting the claim that liabilities taken over increase the cost. The decision was based on a thorough analysis of relevant provisions and case law, ultimately upholding the ITO's assessment and overturning the Commissioner (Appeals) decision.