Law:

Section:

Section 41(2) of the Income-tax Act, 1961 (Corresponding to section 10(2)(vii) of Indian Income-tax Act, 1922) - Balancing charge - Assessment years 1950-51 to 1952-53 - 'S' and 'H' formed a partnership and brought their respective cinema theatres as its assets - ITO allowed depreciation in respect of two theatres to assessee partnership - Later on, dissolution, theatres were returned to respective owners and in books of partnership assets were shown as taken over at original price less depreciation allowed, depreciation being equally divided between two partners - Tribunal held that by restoring two theatres to two original owners "there was a transfer by firm and entries adjusting depreciation and writing off assets at original value amounted to total recoupment of entire depreciation by partnership and thus proviso 2 to section 10(2)(vii ) of Act, 1922, applied - High Court negatived Tribunal's findings - Whether on dissolution of partnership, each theatre must be deemed to be returned to original owner, in satisfaction partially or wholly of his claim to a share in residue of assets after discharging debts and other obligations, but thereby theatres were not in law sold by partnership to individual partners in consideration of their respective shares in residue - Held, yes - Whether expressions "sale" and "sold" are not defined in Act and those expressions are used in section 10(2)(vii) of 1922 Act in their ordinary meaning and "Sale", according to its ordinary meaning, is a transfer of property for a price, and adjustment of rights of partners in a dissolved firm is not a transfer, nor it is for a price - Held, yes - Whether, therefore, amount of depreciation could not be included in total income of assessee partnership under second proviso to section 10(2)(vii) of 1922 Act - Held, yes FACTS 'S' and 'H' having entered into an agreement to carry on business in partnership, brought their respective cinema theatres as its assets. For the assessment years 1950-51 to 1952-53, the ITO allowed depreciation in respect of the two theatres. Subsequently on dissolution, the theatres were returned to their respective owners, and in the books of account maintained by…

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