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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 ..... e 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. Kala Silk Factory as the sole proprietor thereof. Such sole proprietary business was continued by him in that capacity up to October 23, 1937. Both these businesses were converted into partnerships with effect from October 24, 1957. For the assessment years 1957-58 and 1958-59 the assessee was, however, assessed in respect of these two businesses as the sole proprietor. For the assessment year 1957-58, the assessee suffered loss in the business and such loss was determined at Rs. 84,304 in his ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 concerned with the provisions of provisos (b) and (c) which are as under : " Provided that-...... (b) where, in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners, full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect 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 the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, according to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 ceased to be the personal property of the assessee and became the property of the partnership in which he was interested as a partner, is he entitled to claim set-off in respect of unabsorbed depreciation of the plant and machinery during the period that he was the sole proprietor of the business ? Such a claim can only be made if it is covered by the conditions laid down in proviso (b) to clause (vi) above referred to. In this proviso two types of persons are referred to who are entitled to claim a set-off or al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbed 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 assessee of the plant and machinery. It was suggested by way of illustration that if 99% of the original cost of plant and machinery was set off against the profits of the earlier year, but 1% of the original cost though permitted to be allowed as depreciation allowance could not be set off because there were insufficient profits ; in such a case, even though in the subsequent year the assessee is not entitled to claim any depreciation as such still he will be entitled to make a claim for allowance in respect of una ..... X X X X Extracts X X X X X X X X Extracts X X X X
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