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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 ..... 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 M/s. Himalaya Machinery (P) Ltd., which is a separate legal entity, amounted to transfer of the assets. That transfer includes sale and, therefore, the provisions of section 34(2)(ii) are applicable in the facts of the case. The Income-tax Officer also held that depreciation cannot be claimed on the same assets twice, and as full depreciation allowance was already claimed for the period which ended on December 31, 1982, by M/s. Himalaya Machinery (P) Ltd., depreciation cannot be allowed to the assessee-firm for a part period. Accordingly, the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assets were taken over by the company and thereafter, it owned and used the assets. According to the amended rule 5 of the Income-tax Rules, 1962 ("the Rules"), depreciation at the full prescribed rate is allowable in respect of the assets owned and used at any time even for a day. That there is no provision for splitting up depreciation allowable on the basis of number of months of its user and accordingly, held that the assessee is entitled to claim depreciation allowance under section 32 for the full year. Mr. Ketan Parikh, learned standing counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 year. As can be seen, section 32 of the Act makes a provision for deduction that can be allowed in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. In clause (ii) sub-section (1) of section 32, as it stood at the relevant time, it was provided that in the case of buildings, machinery, plant or furniture, depreciation was eligible at such percentage on the written down value thereof as may in any case or class of cases be prescribed. The mode of computation of deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled 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 business or profession of the assessee at any time during the relevant previous year. Though the term "owned by the assessee" is used in section 32(1), there is nothing to show that the assessee should have remained the owner of the assets in question for the entire previous year in question. Admittedly, the assessee, in the previous year was the owner of the assets in question, that is from January 1, 1982 to July 31, 1982. In fact, since the business of the assessee-firm came to an end upon its dissolution on July 31, 1982, the assessee had been using the assets in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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. The assessee-firm had remained the owner of the assets and had used the same for the purpose of its business during the previous year till its dissolution, hence, the assessee was entitled to claim full depreciation in respect of the said assets notwithstanding the fact that M/s Himalaya Machinery (P.) Ltd. had also claimed full depreciation in respect of the said assets. The contention of the Revenue that on the same assets for the same year depreciation cannot be allowed twice, loses sight of the fact that two different assessees are making a claim after satisfying the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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