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TMI Blog1973 (7) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act including unabsorbed depreciation of Rs. 37,103 relating to the assessment years 1957-58 and 1958-59 and pertaining to the business carried on by him as sole proprietor against his share of income for assessment years 1959-60 and 1960-61 from the same business converted into partnership firms, consisting of himself and his sons ? 2. Whether, on the facts and in the circumstances of the case, the assessee was entitled to a set-off in respect of the loss determined under section 10 of the Act including therein unabsorbed development rebate of Rs. 65,484 relating to the assessment years 1957-58 and 1958-59 and pertaining to the business carried on by him as sole proprietor against his share of income for assessment years 1959-60 and 1960-61 from the same business converted into partnership firms, consisting of himself and his sons ? " So far as question No. 2 is concerned, it has not been pressed by the assessee and accordingly it is unnecessary for us to answer the same. We will briefly state the facts which are necessary for consideration of question No. 1 only. The assessee originally carried on business in the name and style of Messrs. Kumandas Kishandas and Messrs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against his share of income for assessment years 1959-60 and 1960-61 from the same business converted into partnership firms, consisting of himself and his sons. Under section 10 of the Act tax is payable by an assessee under the head " profits or gains of business, profession or vocation " in respect of the profits or gains of business, profession or vocation carried on by him. What allowances are to be taken into account for computing such profits or gains are enumerated in sub-section (2) thereof. We are concerned with the relevant provision relating to depreciation and the appropriate part thereof relevant for the present purpose is as under :-- "10. (2) Such profits or gains shall be computed after making the following allowances, namely :--... (vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee ...... to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed ;... " There are three provisos to this clause (vi) and we are conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The claim for set-off is in respect of unabsorbed depreciation for the assessment years 1957-58 and 1958-59, when the assessee was the sole proprietor of both the businesses. With effect from October 24, 1957, a partnership was formed of the assessee and his sons and for the two assessment years in question, namely, 1959-60 and 1960-61, it is this firm which is assessed and so far as the assessee is concerned his share in the profits of these two businesses carried on as partnership has been determined as subject to tax. The question to be considered is whether at any time during the assessment year 1959-60 and/or 1960-61 the assessee could be regarded as the owner of the plant and machinery or whether such plant or machinery could be regarded as his property. Answer to this question is concluded by a decision of the Supreme Court in Narayanappa v. Bhaskara Krishnappa. In this case, the Supreme Court has, inter alia, taken the view that the provisions of sections 14, 15, 29, 32, 37, 38 and 48 of the Partnership Act, 1932, make it clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment years the plant and machinery was not the property of the assessee. Simply on that ground the allowance for depreciation permitted under the main paragraph of clause (vi) of sub-section (2) of section 10 will not be available to the assessee in respect of any of the two assessment years. Further, it should not be overlooked that the depreciation allowance permitted is a sum equivalent to a percentage on the original cost of the plant and machinery to the assessee himself. Once the plant and machinery cease to be the property of the assessee and became the assets of the partnership in which all partners have interest, it cannot be said that in respect of such plant and machinery the assessee bore any original cost as they ceased to be his personal property as owner. Thus, it will not be permissible to the assessee to claim any depreciation for any of the two assessment years in question for the plant and machinery which were used in the partnership business during the relevant accounting periods. The question, however, arises whether notwithstanding the fact that during the relevant accounting periods for the two assessment years in question, the plant and machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership alone that will be entitled to claim depreciation during both the relevant assessment years and there is no question of the assessee being entitled to claim any depreciation allowance. The benefit of proviso (b) of carrying forward of unabsorbed depreciation is available to only those assessees who under the main paragraph of clause (vi) above referred to will be entitled to claim depreciation. Clearly, the assessee is not one of those types of persons and, therefore, he is not entitled to set off the unabsorbed depreciation for the two earlier years against his share of profits in the partnership business for the assessment years 1959-60 and 1960-61. A contention was, however, urged by Mr. Mehta that a claim to carry forward unabsorbed depreciation in respect of the earlier years can possibly arise even though during the year in question the assessee may not be entitled to claim any depreciation in respect of the plant and machinery used in the business. Such a contingency is hypothetically possible. The language of proviso (c) to this clause makes it clear that the aggregate of all allowances in respect of depreciation, shall, in no case, exceed the original cost to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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