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TMI Blog1978 (2) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of passenger transport. On 29th Feb., 1972 Sri S. Manickam retired from the partnership and thereafter the assessee firm was constituted by two partners. For the assessment year under consideration the assessee filed a return disclosing income of Rs. 89,341 for the period from 1st Oct., 1971 to 28th Feb., 1972 and income of Rs. 28,963 for the period from 1st March, 1972 to 30th Sept., 1972. The ITO noticed that during the relevant previous year the assessee had sold 10 buses owned by it to third parties and in computing the income assessable under s. 41(2), it had deducted Rs. 1,400 claimed to have been paid as brokerage. He was of the view that the brokerage so claimed was not allowable. He, therefore, disallowed the same. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ITO, namely, (1) that the brokerage of Rs. 1,400 paid in connection with the sales of the buses to third parties was an admissible expenditure, (ii) that five buses were given to the retiring partner only in satisfaction of his rights arising on his retirement and consequently there was no question of bringing to tax the difference between the value for which they were transferred and the written down value under s. 41(2) of the IT Act, 1961 and (iii) that the unabsorbed depreciation of the earlier year should have been set off against the income of the assessment year under consideration. The AAC accepted the above contention. Regarding the second contention, he observed that the same was to be accepted, in view of the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court held agreeing with the Tribunal, that the brokerage paid was not deductible in computing the profit chargeable under s. 41(2). The Court pointed out that though the surplus was treated as business income by reason of fiction created by s. 41(2), it was really a capital asset and hence, no question of deduction of any amount under s. 37 of the Act could arise. But, it is to be noted that in that case, the assessee had wound-up her business. The position does not appear to be similar in the instant case. We were informed at the time of the hearing of the appeal, that the assessees had 23 buses at the commencement of the relevant previous year. But the departmental representative and the assessee's learned counsel were not able to tel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Sri. S. Manickam, who, as already stated, retired on 29th Feb., 1972. The assessee's contention was that the buses were transferred along with certain building from the assets of the assessee firm to the retiring partner in satisfaction of the claim arising out of such retirement and hence, the same could not be considered as transfer, with the result that there was no question of bringing to tax the difference between the value for which the buses were transferred and their written down value under s. 41(2) of the IT Act, 1961. The ITO did not accept the above contention because he was of the view that the retiring partner was indebted to the assessee-firm both on the opening date of the relevant previous year and the date of retirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers that theatres should be returned to its original owners. In the books of accounts of the partnership the assets were shown as taken over at the original price less the depreciation allowed, the depreciation being equally divided between the partners. The question arose whether there was a transfer of the assessee firm of the theaters to the two partners and consequently the second proviso to s. 10(2)(vii) of the IT Act, 1922 applied (which correspond to s. 41(2) of the IT Act, 1961). The Tribunal answered the question in the affirmative. But the Madhya Pradesh High Court did not agree with the Tribunal's view. On appeal by the Commissioner, the Supreme Court upheld the decision of the High Court. The Supreme Court pointed out that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e next point in this appeal is as regards the assessee's claim for setting off unabsorbed depreciation of the earlier years against the income of this year. In support of this claim the assessee has relied upon the decision of the Bombay High Court in Ballarpur Collieries Co., CIT, Poona (4). The departmental representative has, on the other hand, relied upon the decision of the Allahabad High Court in K.T.Wire Products vs. Union of Indian and Ors. (5) and of the Gujarat High Court in CIT vs. Garden Silk Wvg. Factory (6). In the above decisions relied upon by the departmental representative, it has been clearly held that the unabsorbed depreciation of the firm is to be allocated to the partners and after such allocation there is no question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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