1972 (6) TMI 6 - HC - Income Tax

Whether in computing the assessed share of profit from the firm, depreciation on the building owned by the assessee, in which the business of the firm was run, was an admissible deduction section 37 is in the same terms as the provisions contained in section 10(2)(xv) of the Act of 1922 and the decisions on section 10(2)(xv) of the Act of 1922 have a direct bearing on the interpretation of section 37(1) - held that, there is nothing which precludes the application of sections 30 to 37 to a partner s share income from the firm - in computing the assessee s share of profit from the firm, New Taj Mahal Hotel, Hyderabad, the depreciation on the building owned by the assessee in which the business of the firm was run was an admissible deduction

Summary

Issues:
Whether depreciation on a building owned by a partner and used for the firm's business is an admissible deduction in computing the partner's share of profit from the firm.

Analysis:
The case involved an assessee and her minor son who owned a building in Hyderabad and were partners in a hotel business. The total share income was assessed in the assessee's hands, including the minor son's share. The assessee claimed deduction of depreciation and property tax on the building, which was disallowed initially.

The main question referred to the court was whether depreciation on the building owned by the assessee and used for the firm's business was an admissible deduction. The relevant provisions were section 32 for depreciation and section 37 for general expenditure in the Income-tax Act, 1961.

The court referred to past judgments like Commissioner of Income-tax v. Parvathaneni Chandrasekhara Rao and Commissioner of Income-tax v. Ramniklal Kothari, which supported the deduction of expenses incurred for earning income from a partnership business. The court emphasized that the business of a firm is the business of each partner, allowing for deductions related to the partnership business.

The department argued that section 67 of the Act was exhaustive in computing a partner's share in the firm's income and only allowed deduction of interest paid on capital borrowed. However, the court disagreed, noting that the legislative history showed that section 67 was not intended to be exhaustive, allowing for deductions under other provisions like sections 30 to 37.

The court cited cases like Commissioner of Income-tax v. Atma Ram Modi and Commissioner of Income-tax v. Jabarmal Dugar, where deductions beyond section 67(3) were allowed. Additionally, in Matubai Chunilal Patel v. Commissioner of Income-tax, it was held that motor expenses, including depreciation, could be deducted in computing share income from a partnership.

Ultimately, the court held that depreciation on the building owned by the assessee and used for the firm's business was an admissible deduction in computing the assessee's share of profit from the firm. The Commissioner of Income-tax was directed to pay the costs of the reference to the assessee, including the advocate's fee.