TMI Blog1984 (10) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... icer on the ground that the cars were also used for the personal use by the partners, disallowed 1/3rd of the depreciation at Rs. 2,453. A copy of the order of the Income-tax Officer has been annexed and marked as annexure " A " forming part of the statement of the case. The assessee appealed before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner observed that the cars were utilised for personal purposes of the partners and so he confirmed the disallowance. A copy of the order of the Appellate Assistant Commissioner has been annexed and marked as annexure 'B' forming part of the statement of the case. On appeal before the Tribunal, the Tribunal held that the cars are owned by the assessee-firm and they are entitled to the entire depreciation claimed. It was further held that no deduction can be made on the ground that the cars were utilised partly for personal use. Accordingly, the Tribunal allowed the full depreciation claimed by the assessee and the assessee's appeal was allowed in part. A copy of the order of the Tribunal has been annexed and marked as annexure " C " forming part of the statement of the case. To understand the facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance of depreciation to the extent of 1/3rd cannot be considered to be excessive or unjustified. The order of the Appellate Tribunal, annexure " C ", shows in paragraph 4 that the assessee disputed the disallowance of Rs. 7,000 out of the motor car expenses claimed by the assessee. The Tribunal has also pointed out that the total claim in this account was Rs. 22,359 and about 1/3rd of the expenses was disallowed by the Income-tax Officer which was confirmed by the Appellate Assistant Commissioner. The Tribunal held that when a number of cars are being maintained, the use of partners would not be to the extent of 1/3rd in each of the cars. The Tribunal, therefore, allowed relief of Rs. 2,000 to the assessee. Thus, the disallowance out of the car expenses was, sustained at Rs. 5,000 out of Rs. 22,359 which will roughly come to slightly less than 1/4th which means that the Tribunal sustained a disallowance of (approximately) 1/4th out of the car expenses for six cars as mentioned in the statement of the case. However, the Tribunal considered depreciation in paragraph 8 of the order where 1/3rd of the depreciation on the vehicles maintained by the assessee had been disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are vehicles. As regards this argument, it cannot be doubted that the Tribunal has sustained a disallowance out of the motor car expenses to the extent of a little less than 1/4th for personal use of the cars by the partners. This portion of the order has become final. Section 254(4) of the Act lays down that save as provided in section 256, orders passed by the Appellate Tribunal on appeal shall be final. It cannot be doubted that no reference under section 256 of the Act has been made relating to the disallowance of motor car expenses and so it has to be held that the order of the Tribunal disallowing about 1/4th of the expenses relating to the motor cars in question has become final and a proportion has been fixed by the Tribunal. On that very basis, 1/4th of the depreciation should have been disallowed by the Tribunal in view of section 38(2) of the Act. Finding the position difficult in this respect, an ingenious argument has been advanced by Mr. K. N. Jain. He has referred to section 4(1) of the Act which lays down that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talks of the firm's property or firm's assets, all that is meant is the property or assets in which all the partners have joint and common interest. In the comments, reliance has been placed on the case of CIT v. G. P. Naidu and Sons [1980] 121 ITR 97 (AP) [FB] and also on the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC). It has also been held in the case of CIT/E.PT v. Official Liquidator [1973] 90 ITR 380 at p. 382 (Bom), that partnership is constituted under law if the following three requirements are fulfilled: (1) there is an agreement entered into by all the persons concerned ; (2) the agreement is to share the profits of a business; and (3) the business is carried on by all or any one of the persons concerned acting for all. It has been held in the case of S. Magnus v. CIT [1958] 33 ITR 538 (Bom), that a partner in a partnership cannot be an employee of that partnership. It has been clearly pointed out at pages 544 and 545 of this decision that in point of law, a partner cannot be employed by his firm for a man cannot be his own employer. It has been further held in this decision that an arrangement by which a partner himself works and receives money which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the view of the Appellate Assistant Commissioner. Section 10(3) of the Indian Income-tax Act, 1922, is similar to section 38(2) of the Act with slight modifications. Under such circumstances, this decision is binding on this court and it has to be held that the Appellate Tribunal was not justified in allowing the entire depreciation claimed by the assessee when the Tribunal had held in paragraph 4 that all the motor cars were used for business purposes as well as for private purposes. The view taken by the Division Bench of the Patna High Court has also been taken in the case of Allied Publishers Private Limited v. CIT[1968] 68 ITR 546 (Bom), where it has been held that on a proper construction of the provisions of sections 10(2)(vi), 10(3) and 10(5) of the Indian Income-tax Act, 1922, where an asset is partly used for the purposes of business and partly for non-business purposes, proportionate depreciation should be calculated, not by taking proportionate part of the cost of the assets, but by deducting from the original cost of the asset the actual depreciation allowed for part user. In the present case, there is no difficulty in fixing as to how much of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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