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TMI Blog2005 (3) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding that the assessee is entitled to claim depreciation allowance under section 32 for the full year thereby granting depreciation twice on the same assets in one assessment year to the firm before the dissolution and to its partner after dissolution?" The assessment year is 1983-84. The relevant accounting period is from January 1, 1982 to July 31, 1982. During the previous year relevant to the assessment year under consideration, the assessee, a partnership firm, was dissolved on July 31, 1982, and its business was taken over by one M/s. Himalaya Machinery (P) Ltd., a partner, as a going concern along with all assets and liabilities with effect from August 1, 1982. The assessee-firm filed a return of income on June 30, 1983, showing total income of Rs. 2,92,500. At the first instance the assessee claimed depreciation proportionately for seven months period of accounting year i.e., up to July 30,1982. However, subsequently by a letter dated November 22, 1985, the assessee claimed full depreciation. The Income-tax Officer disallowed the claim of Rs. 1,76,382 towards depreciation, holding that the taking over of the running business of the partnership firm by the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax (Appeals) by way of second appeal before the Tribunal, and vide order dated March 16,1992, the Tribunal allowed the appeal and held that the assessee is entitled to claim depreciation allowance under section 32 of the Act at full depreciation rate. The Tribunal placed reliance upon a decision of the Chandigarh Bench of the Tribunal in the case of Sita Ram Salluja v. ITO reported in [1982] 1 ITD 754 wherein on a similar set of facts, the Tribunal had held that the claim for full depreciation on the same assets cannot be denied to the assessee on the ground that depreciation would not be allowed twice in the same year on the same assets. The Tribunal also relied upon the decision of the Supreme Court in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 as well as the decision of the Tribunal, Ahmedabad Bench "A" in the case of ITO v. Pratik Prints [1991] 37 ITD 159 while holding that allotment of all assets and liabilities to one of the partners upon dissolution of the firm could not be regarded as transfer of assets as contemplated in section 155 read with section 32A(1) of the Income-tax Act. The Tribunal held that after dissolution of the said firm, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repealed by that Act or under the Indian Income-tax Act, 1886 (2 of 1886), shall in no case, exceed the actual cost to the assessee of the building, machinery, plant, furniture, structure or work, as the case may be; ... (ii) nothing in clause (i) or clause (ii) or clause (iia) or clause (iv) or clause (v) or clause (vi) of sub-section (1) of section 32 shall be deemed to authorise the allowance for any previous year of any sum in respect of any building, machinery, plant or furniture sold, discarded, demolished or destroyed in that year;" A plain reading of the aforesaid provisions makes it clear that an assessee would be entitled to claim deduction in respect of depreciation of the buildings, machinery, plant or furniture, which are owned and used by the assessee for the purpose of his business or profession, which would be such percentage on the written down value thereof as may be prescribed. Such deduction would be subject to the provisions of section 34, namely, that (i) the assessee would be required to furnish the prescribed particulars, and (ii) such buildings, machinery, plant or furniture should not have been sold, discarded, demolished or destroyed in the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and used by the assessee at any time during the previous year, the assessee would be entitled to depreciation allowance as a percentage of the written down value prescribed in respect of the assets as provided in Part I of Appendix I to the Rules. The provisions do not circumscribe the rates of depreciation allowance in case the asset has been owned and used for the purpose of business or profession for a part of the previous year. Once the conditions laid down in section 32 and section 34 of the Act are satisfied for any part of the previous year, the assessee is entitled to full depreciation allowance on the assets. Under section 32(1) of the Act, the depreciation is allowable on buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business or profession and under rule 5 it is laid down that depreciation shall be calculated on the written down value of the assets as are owned by the assessee and used for the purpose of business or profession of the assessee at any time during the previous year. This means that depreciation allowance shall be allowable on buildings, machinery, etc., i.e., owned by the assessee and used for the purpose of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the distribution of surplus is for the purpose of adjustment of rights of partners in the assets of the partnership, it does not amount to transfer of assets. It was further observed that: "The expressions 'sale' and 'sold' are not defined in the Income-tax Act: those expressions are used in section 10(2)(vii) in their ordinary meaning. 'Sale', according to its ordinary meaning, is a transfer of property for a price, and adjustment of rights of the partners in a dissolved firm is not a transfer, nor it is for a price." This law laid down under the Indian Income-tax Act, 1922, has been reiterated and applied by the Supreme Court in cases arising under the Act, e.g., Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC). Thus, as per the law laid down by the apex court in the decision cited above, the adjustment of rights of the partners in a dissolved firm does not amount to a transfer, and nor is it for a price, hence the question of there being any sale of the assets of the partnership firm does not arise. Accordingly, the provisions of section 34(2)(ii) would not come into play to disentitle the assessee from claiming depreciation allowance as prescribed under the rules. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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