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Commissioner of Income-tax Vs. Smt. M. Rajeswari Vedachalam - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 26 of 1967 (Reference No. 3 of 1967)
Judge
Reported in[1972]86ITR753(Mad)
ActsIncome Tax Act, 1922 - Sections 10(2); Income Tax Act, 1961 - Sections 32(1)
AppellantCommissioner of Income-tax
RespondentSmt. M. Rajeswari Vedachalam
Appellant AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Respondent AdvocateT. Srinivasamurthi, Adv.
Excerpt:
- .....of which depreciation is claimed should be the property of the partnership; and (2) that such assets and machinery should have been used by the partnership for the purpose of its business. the tribunal has taken the view that though the second condition was satisfied, the first condition had not been satisfied in this case and, therefore, the partnership was not entitled to the benefits of the depreciation under section 10(2)(vi) of the old act or section 32(1) of the new act. the tribunal, after holding that the partnership is not entitled to the depreciation as 'the relevant' conditions have not been satisfied, proceeded to consider the alternative claim of smt. rajeswari vedachalam, for depreciation in respect of the same assets for the same period and held that as she owned the.....
Judgment:

Ramanujam, J.

1. The following two questions have been referred under Section 66(1) of the Income-tax Act by the Income-tax Appellate Tribunal, Madras :

'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that Smt. Rajeswari Vedachalam was entitled to claim depreciation under Section 10(2)(vi) of the Income-tax Act, 1922, for, the assessment year 1960-61 in respect of the assets used in the partnership business

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee-firm was not entitled to claim depreciation under Section 10(2)(vi) of the Income-tax Act, 1922, for the assessment years 1960-63 to 1961-64 on the assets used in the partnership business ?'

2. The circumstances under which the reference has been made are these :

3. Smt. Rajeswari Vedachalam who became the absolute owner of the capital, deposits, outstandings and other properties in three Burmah Shell agencies run at Chingleput, Tindivanam and Pondicherry, took in six working partners and constituted a partnership for continuing the business at the said three places, and the relevant partnership deed was dated 25th August, 1957. Under the terms of the partnership deed, the working partners have only a right to share the profits or loss of the partnership business and they have no right or claim against the partnership assets. As already stated, the working partners did not bring in any asset or capital and the entire capital and assets were provided by the said Smt. Rajeswari Vedachalam. The said partnership continued the businesses in three places as mentioned in the partnership deed.

4. For the assessment years 1960-61, 1961-62 and 1962-63 the firm claimed depreciation for the machinery and other assets used by the partnership in running the partnership business under section 10(2)(vi) of the Income-tax Act, 1922, and Section 32(1) of the Income-tax Act, 1961. The Income-tax Officer took the view that the machinery and the assets in respect of which depreciation has been claimed by the firm were not owned by it though they might have been used for the purpose of its business, and that, therefore, the firm is not entitled to claim depreciation. The Appellate Assistant Commissioner also took the same view. The Income-tax Appellate Tribunal also agreed with the Income-tax Officer and the Appellate Assistant Commissioner and held that as the machinery and the assets in respect of which the depreciation was claimed were not the properties of the partnership, it is not entitled to claim depreciation. According to the Tribunal, before depreciation could be claimed under Section 10(2)(vi) of the old Act or Section 32(1) of the new Act, two conditions ought to be satisfied: (1) The machinery and the assets in respect of which depreciation is claimed should be the property of the partnership; and (2) that such assets and machinery should have been used by the partnership for the purpose of its business. The Tribunal has taken the view that though the second condition was satisfied, the first condition had not been satisfied in this case and, therefore, the partnership was not entitled to the benefits of the depreciation under Section 10(2)(vi) of the old Act or Section 32(1) of the new Act. The Tribunal, after holding that the partnership is not entitled to the depreciation as 'the relevant' conditions have not been satisfied, proceeded to consider the alternative claim of Smt. Rajeswari Vedachalam, for depreciation in respect of the same assets for the same period and held that as she owned the assets and made use of the same for the business of the partnership of which shewas a partner, she is entitled to the depreciation under the above provisions. This view of the Tribunal that the partnership is not entitled to depreciation in respect of the assets and machinery used by it in its business, and that the concerned partner, namely, Smt. Rajeswari Vedachalam, who owns the assets and the machinery is entitled to the said depreciation, is challenged in this reference.

5. We have been taken through the terms of the partnership deed which are material for considering the question as to whether the assets and the machinery in respect of which depreciation is claimed were the properties of the partnership or whether they continued to be the properties of the individual partner. Clause (3) of the partnership deed states that Smt. Rajeswari Vedachalam has taken in six persons as working partners to continue the existing business from April 11, 1957, and Clause (4) specifically states that the working partners will have no right or claim in the partnership assets and that they are entitled only to a share in the profits or loss of the partnership business. The Tribunal has construed these clauses in the partnership deed and has come to the conclusion that Smt. Rajeswari Vedachalam continued to be the absolute owner of the assets and the machinery and that the partnership has only used the said machinery and the assets. But, we are unable to agree with the Tribunal in its interpretation of the terms of the partnership deed so far as the ownership of the assets is concerned. Clause (3) of the partnership deed makes it clear that the intention of the partners is to carry on the existing business in partnership. It is true that the business was owned by Smt. Rajeswari Vedachalam. But, when she took in the other persons as wording partners to continue the existing business in partnership, she has naturally brought in all the assets of the business into the partnership for the purpose of continuing the business. This is made clear by Clause (4) of the partnership deed wherein it is specifically stated that all the existing assets will be partnership assets, but that the working partners will have no claim or right therein. The Tribunal's view, that because the working partners had no right or claim over the assets used by the partnership, the assets should have continued to be the property of one of the partners cannot be accepted. We are of the view that Clause (4) is specific in this respect and it makes all the assets of the business as the partnership assets. Even though the working partners had no right or claim therein, the assets and the machinery continue to be the partnership properties and that is what the parties contemplated. If the machinery and the assets in respect of which depreciation was claimed by the partnership are held to be the properties of the partnership and the partnership had made use of them for the purpose of its business, then straightaway Section 10(2)(vi) of the old Act or Section 32(1) of the new Act will be attracted and the partnership will be entitled to thedepreciation claimed. We, therefore, answer question No. 2 in the negative and in favour of the assessee. In view of our answer to the second question, the first question has to be answered technically in favour of the revenue and the depreciation allowed in respect of the same properties in the hands of Smt. Rajeswari Vedachalam has to be added back and brought to assessment. There will be no order as to costs.


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