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S. Murugappa Chettiar Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberI.T.R. Nos. 3 and 4 of 1979
Judge
Reported in[1992]197ITR586(Ker)
AppellantS. Murugappa Chettiar
RespondentCommissioner of Income-tax
Appellant Advocate C.M. Devan, Adv.
Respondent Advocate P.K. Ravindranatha Menon, Adv.
Excerpt:
- .....him, the books of account showed a different picture. they showed these assets as belonging to the firm. a question arose at the time of the assessment of the assessee as to whether the assessee could claim depreciation in respect of these assets as if they belonged to him. the income-tax officer treated these assets as belonging to the firm and, therefore, declined to give the benefit of depreciation in his assessment. the appellate assistant commissioner, considering the terms of the partnership deed, upheld the assessee's claim. according to him, if the firm prepared a balance-sheet taking the assets as those of the firm, that did not alter the correct legal position and, therefore, the assets continued to be those of the assessee. the appellate tribunal before whom the department.....
Judgment:

P. Subramonian Poti, Actg., C.J.

1. In these references which arise in respect of the assessment years 1973-74 and 1974-75, we are called upon to answer the following question :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee is not entitled to depreciation in respect of the assets shown in the books of account of the partnership as the assets of the partnership ?'

2. The assessee is an individual. Till the accounting year relevant to the assessment year 1972-73, the assessee was carrying on a business in tile works. For the assessment year 1973-74 for which the corresponding previous year was that commencing on 1-1 1147 (Malayalam era), corresponding to August 17, 1971, the assessee was a partner of a firm constituted by taking in the assessee's son in the business as a partner. The business in the tile factory was run by that partnership firm in the assessment years 1973-74 and 1974 75. The partnership deed was dated May 17, 1972. Evidently, therefore, the partnership deed was executed during the middle of the accounting year. In the partnership deed, there was a clause specifying that the assets of the business of the tile factory brought into the business of the firm by the assessee would continue to be the exclusive property of the assessee and the other partner will have no manner of right over the same by reason of his becoming a partner of the firm. But, in the books of account of the partnership, all the assets andliabilities of the assessee in the business he was running were brought in as assets and liabilities of the firm. The assessee was given full credit for Rs. 1,52,560 in his capital account which was the figure brought forward from the books of the business run as his proprietary concern. These assets consisted of building, machinery, press, etc., which had been taken at book value from the proprietary concern.

3. As indicated, while the partnership deed which came into existence during the middle of the year specified the assets brought in by the assessee as belonging to him, the books of account showed a different picture. They showed these assets as belonging to the firm. A question arose at the time of the assessment of the assessee as to whether the assessee could claim depreciation in respect of these assets as if they belonged to him. The Income-tax Officer treated these assets as belonging to the firm and, therefore, declined to give the benefit of depreciation in his assessment. The Appellate Assistant Commissioner, considering the terms of the partnership deed, upheld the assessee's claim. According to him, if the firm prepared a balance-sheet taking the assets as those of the firm, that did not alter the correct legal position and, therefore, the assets continued to be those of the assessee. The Appellate Tribunal before whom the Department took up the matter in appeal took a different view. It found that though the partnership deed stated that the assessee would be the owner of these assets, for the purpose of accounting, the firm had been treated as the owner in its books. There was no inconsistency between the provisions of Clause (2) of the partnership deed and the entries in the books of account. In this view, it held thus :

'So, the firm, and not the assessee, is the owner of the assets and entitled to depreciation.'

4. It was then submitted by the assessee's counsel that the inclusion of the assets in the books was a mistake. The Tribunal did not accept the case of mistake, and further found that, even assuming that it was a mistake, it appeared to have been perpetrated for a number of years and no attempt had been made to reverse the entries. Finally, it found that, on the finding that the assets were partnership property, the assessee was not entitled to depreciation.

5. The question referred to us does not concern the finding that the firm and not the assessee is the owner of the assets. It is concerned only with the question whether the assessee is entitled to depreciation, on the facts and circumstances of the case. The answer to that is simple. The Appellate Tribunal was justified in holding that the assessee was notentitled to depreciation in view of its finding that the assessee was not the owner of the assets. Whether the finding of the Tribunal that the assessee was not the owner of the assets was right or not is not the subject of any question referred to us. Perhaps, it could be said that had it been a question, it would have to be answered, for, it was not purely a question of fact but a question of law the answer to which depended on the inference from the facts found. There is no occasion to consider that question now because, despite a positive finding by the Tribunal that the assets were of the firm and not of the assessee and a further finding that, in that view, depreciation cannot be allowed, the question referred is only whether depreciation should be allowed. (See Md. Salih v. CIT [1973] Tax LR 775 (Ker)). Therefore, so long as there is no challenge to the basic finding, the answer can be only against the assessee. Hence, we answer the question in the affirmative, that is, in favour of the Department and against the assessee.

6. A copy of this judgment under the signature of the Registrar and the seal of the High Court will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.


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