Law:

Section:

Section 32 of the Income-tax Act, 1961 [Corresponding to section 10(2)(vii) of the Indian Income-tax Act, 1922] - Depreciation - Allowance/rate of - Assessment year 1960-61 - Whether where partnership itself has been dissolved and partners divided assets of dissolved partnership, such an allotment or transfer of assets cannot be termed to be sale within meaning of Sale of Goods Act and in such a case provisions of section 10(2)(vii) of 1922 Act would not apply - Held, yes FACTS The assessee was a registered firm of three partners carrying on business in bus transport. The assessment for the relevant assessment year was competed on 27-02-1963. The firm was dissolved with effect from 1-04-1960. As per the terms of the dissolution of the firm, two vehicles belonging to it, were taken over by two partners of the firm and thereafter, run on their own account. At the time of the division the value of those two vehicles was taken at the written down value arrived in at the order of assessment of the firm for the year in question. The ITO held that the value at which the partners took over the vehicles from the firm at the time of its dissolution represented a profit under the second proviso to section 10(2)(vii) of the 1922 Act as the written down value of the vehicles was nil if the initial depreciation allowed on them was also taken into account. The contention of the assessee that there was no sale of the vehicles by the firm to the two partners in order to attract the provisions of section 10(2)(vii) of the 1922 Act, did not find favour with the ITO and he, therefore, made addition on account of said profit. On appeal, the AAC held that there was no transfer of the two vehicles by the assessee to the two partners on 1-4-1960, when the firm was dissolved and, hence, the provisions of section 10(2)(vii) of the 1922 Act were not attracted. He, therefore, deleted the addition from the assessment. The Tribunal affirmed the decision of the AAC On reference: HELD Though clause (vii) of sub-section (2) of section 10 of the 1922 Act provides for the deduction of the difference between the written down value and the sale price of any building, machinery or plant which has…

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