1969 (7) TMI 28 - HC - Income Tax

Four out of five partners bring a building into the partnership on the condition that on dissolution the building was to go to the four partners only - whether the building can said to be belonging to the partnership - whether, on the facts and in the circumstances of the case, the assessee was entitled to depreciation under section. 10(2)(vi) of the Indian Income-tax Act, 1922, in rest of the building - Question answered in the affirmative

Summary

Issues:
- Entitlement to depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922 for a building known as Rambagh Palace.

Analysis:
The case involved a dispute regarding the entitlement of the assessee, a partnership firm, to claim depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922 for the Rambagh Palace building. The firm claimed that the palace was contributed as capital by the partners and, therefore, qualified for depreciation. The Income-tax Officer rejected the claim based on a stipulation in the partnership deed that the Maharaja would have no share in the building upon dissolution. The Appellate Assistant Commissioner accepted the firm's contention, leading to an appeal by the Income-tax Officer before the Tribunal. The Tribunal upheld the Commissioner's decision, prompting a reference to the High Court for opinion under section 66(1) of the Act.

The partnership deed specified that the Rambagh Palace was part of the capital contributed by the partners, making it partnership property. The court referred to legal principles stating that property brought into a partnership becomes partnership property, regardless of individual ownership. The clause in the deed regarding the Maharaja's share post-dissolution did not negate the palace's status as partnership property during operation. The court emphasized that the palace was contributed as capital and, therefore, was an asset of the firm eligible for depreciation.

Regarding the argument that the partnership deed was unregistered, the court noted that the statement of the case explicitly stated the palace was contributed as capital by the Maharaja's sons. The absence of registration did not invalidate the contribution, as supported by legal precedents. Ignoring the registration issue, the court affirmed the Tribunal's decision on allowing depreciation for the Rambagh Palace. The court concluded that the Tribunal's interpretation aligned with the legal principles governing partnership property and depreciation entitlement.

In conclusion, the High Court affirmed the Tribunal's decision, ruling in favor of the assessee's entitlement to depreciation under section 10(2)(vi) of the Income-tax Act for the Rambagh Palace building. The court's analysis emphasized the partnership deed's provisions, the nature of partnership property, and the legal principles governing such contributions, ultimately upholding the firm's claim for depreciation on the palace.