Law:

Section:

Section 187 of the income-tax act, 1961-Firm-Change in constitution of-Assessee-firm consisted of two partners, C representing his HUF, and his wife in her individualc apacity-In partial partition of HUF on 30-9-1964, HUF's share in firm was allotted to C, but firm's assets were revalued at market value which was much more than book value for determining adjustment of shares of members-Firm continued with same partners having same shares except that C became partner in his individual capacity-From 1-10-1964 two new partners were admitted and enhanced value of assets was accepted as basis of accounting adjustments among partners-C and his wife retired on 1-11-1964-Assessee had all along proceeded on basis that there was only a reconstitution of firm on 1-10-1964-Whether there was only a change in constitution of assessee-firm on 1-10-1964 and not dissolution-Held, yes Section 32, read with section 43(1), of the 5income-tax act, 1961-Depreciation-Actual cost to assessee-Whether on facts stated under 'firm-Change in constitution of', assessee-firm as reconstituted on 1-10-1964, could claim depreciation allowance on enhanced value of assets instead of on written down value-Held, no Facts The assessee-firm, which owned a cotton mill, had two partners, the karta of a HUF, in his represen- tative capacity and his wife. In a partition of the HUF properties on 30-9-1964, the cotton mill with its building and machinery was exclusively allotted to C. At the time of the partition, the assets of the mill were revalued at their market value which was much higher than the book value. After the partition, which was found to be genuine, 'C', in his individual capacity continued the busi- ness of the assessee-firm with his wife as the other partner each continuing to have the same shares as before. By a partnership deed executed on 19-10-1964 but effectively from 1-10-1964, two more partners were taken in the firm and it was agreed that the trial balance of the assessee as on 30-9-1964, which showed the value of assets at their market value, would form the basis of finalisation of the accounts of the business. On 31-10-1964, C and his wife retired from the assessee-firm and…

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