Sabyasachi Mukharji, J.
1. In this reference under Section 256(1) of the I.T. Act, 1961, the Tribunal has referred to this court, for the assessment year 1968-69, the following question :
' Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Sections 48, 49 and 50 of the Income-tax Act, 1961, the Tribunal was justified in holding that the cost of acquisition by the firm would be the cost of acquisition of the asset to the assessee and the written down value of the asset on the date of dissolution of the old firm cannot be taken as the cost of acquisition to the assessee for computing capital gains and the depreciation allowed in the case of the old firm cannot be taken as depreciation obtained by the assessee '
2. The assessment year, as we have mentioned before, was 1968-69 for which the accounting period was ending 30th September, 1967, for share in the firm and 31st March, 1968, for other incomes. There was a firm constituted under the partnership deed dated 3rd March, 1961, by name, M/s. G.S. Atwal & Co. (Asansol) with eight partners of whom the assesseewas one. There were certain disputes between the partners in the year 1967, particularly with the 8th partner, Sri Piara Singh Atwal. He served a notice dated 18th September, 1967, for the dissolution of the firm. In view of that, the firm was dissolved by a dissolution deed dated 23rd December, 1967, with effect from 23rd September, 1967. Under the dissolution deed a sum of Rs. 90,000, besides a car, was paid towards the share of the 8th partner, Sri Piara Singh Atwal, in full settlement in the distribution of the assets of the firm. The remaining assets of the firm belonged to the remaining 7 partners. After the dissolution of the firm, the remaining 7 partners agreed to carry on the business under a partnership deed dated 1st February, 1968, in the same name of the firm, that is, M/s. G.S. Atwal & Co. (Asansol). Under this partnership deed, all the assets of the old firm, except the plant and machinery, became the assets of the new firm. Clause (5) of this deed reads as follows :
' That all the assets except all plant and machinery received by the first to seventh parties hereto on the dissolution of the old partnership shall become the property and assets of the firm and all the debts, liabilities having fallen to the shares of the said parties shall become the debts and liabilities of the firm.'
3. The assessee was having a share of 13 per cent. in this firm. The seven partners, under the deed dated 1st February, 1968, agreed to convey the said plant and machinery to one M/s. G.S. Atwal & Co. (Engineers) Pvt. Ltd. as absolute owners in lieu of its allotting shares to the 7 partners. The said limited company was incorporated on 2nd January, 1967. The total value of the plant and machinery was determined at Rs. 35,78,000. The company allotted the shares on 8th August, 1968, to the seven partners to the extent of their shares in the value of the plant and machinery transferred to it. The total value of shares allotted to the assessee amounted to Rs. 4,65,000. It was urged before the ITO that the cost of acquisition of the plant and machinery should be taken at the cost of acquisition by the firm from which the partners got the assets on the dissolution of the firm. It was also urged that the assets were acquired by M/s. G.S. Atwal & Co. (Asansol) at a cost far exceeding the consideration received from M/s. G.S. Atwal & Co. (Engineers) Pvt. Ltd. and thus the transaction resulted in a capital loss and not gain. The ITO did not accept this contention. He was of the view that Section 49 was subject to the provisions of Section 50 of the I.T. Act, 1961, even though the assessee as a partner of the firm might not have directly, according to the ITO, obtained depreciation as a partner. He was, thus, of the view that the firm had no separate legal existence apart from its partners and so the depreciation obtained by the firm should be deemed to have been obtained by the partners as well and as such the written down value of those assets could be taken as the costof acquisition. He further held that as the agreement for sale of the plant and machinery to the limited company was entered into on 1st February, 1968, the sale should be deemed to have been entered into and effected on 1st February, 1968, the previous year for all income other than share of profit from the firm was the year ended 31st March, 1968, and so the income from capital gain had to be considered in this year. He was further of the opinion that the assessee had not furnished the cost of acquisition of the assets in the hands of the partners. He found that the written down value of those assets as on 30th September, 1967, amounted to Rs. 7,45,850. On the basis of the assessee's share of 13 per cent, in the firm, he determined the cost of acquisition by the assessee at Rs. 96,961. As the value of shares allotted to the assessee by the limited company amounted to Rs. 4,65,000, he determined the difference of Rs. 3,68,039 as income from capital gains from the sale of long-term capital assets.
4. The assessee went up in appeal before the AAC. The AAC upheld the order of the ITO. The assessee preferred a further appeal before the Appellate Tribunal and made respective submission. The Appellate Tribunal carefully considered the rival submissions. The Tribunal found that the plant and machinery, which was a capital asset of the assessee, had been transferred to M/s. G.S. Atwal & Co. (Engineers) Pvt. Ltd. during the previous year and any profit arising out of the aforesaid transfer of the capital asset was deemed to be the income of the previous year in which the transfer Itook place. Accordingly, the profit arising out of the transfer of the capital assets would be the income chargeable to tax under the head ' Capital gains'. The plant and machinery which the partners got was transferred to the limited company on 1st February, 1968, in lieu of which the shares were allotted. Thus, there was a transfer of the capital assets by the assessee to the limited company for the consideration which the partners got in the shape of shares. Thus, there was a sale of the plant and machinery by the partners of the limited company for a consideration and as such the profit arising out of the transaction was liable to capital gains tax. The Tribunal then considered the main dispute with regard to the determination of the cost of acquisition of assets and the computation of the capital gains. The Tribunal considered Sections 48, 49 and 50. The Tribunal was of the view that Section 49 dealt with cost of acquisition of the asset by the assessee and should be deemed to be the cost for which the previous owner acquired it and the cost of any improvements thereto. Section 50 deals with the computation of the cost of acquisition in the case of depreciable assets. Under this section, if the assessee had obtained any deduction on account of depreciation in respect of capital asset, the written down value was deemed to be the cost of acquisition of the asset. In this section the words used are ' depreciation has been obtained by the assessee'. The Tribunal found that during this year, no depreciation was either claimed or allowed to the assessee on the plant and machinery, which he got oh the dissolution of the firm, and was transferred to the limited company. Under Section 50, if the assessee had not obtained any depreciation then only the written down value should be taken as the cost of acquisition. The Tribunal found that, in the instant case, the assessee had not obtained any depreciation. It was the firm, the previous owner, which had obtained the depreciation but not the assessee. The depreciation obtained by the previous owner could not be treated as depreciation obtained by the assessee, according to the Tribunal. Several decisions were cited before the Tribunal, some of which we shall presently note, and the Tribunal was of the view that in view of the clear language used in Section 50, for the words ' the assessee ', the words 'the previous owner ' could not be substituted. Since the assessee had not obtained any depreciation, the written down value of the assets on the date of the dissolution of the old firm could not be taken as the cost of acquisition to the assessee. It was held, therefore, that the Revenue authorities were in error in taking the written down value of the assets on 30th September, 1967, at Rs, 7,45,850 as the cost of acquisition of the assets and computing the capital gains on that basis. The Tribunal, therefore, directed the ITO to recompute the capital gains taking the cost of acquisition of the assets, as indicated in its order. Upon these facts, the question, as indicated hereinbefore, has been referred to us.
5. It is necessary in order to answer this question to briefly refer to the scheme of the sections dealing with capital gains. But, before we do so, we may hurriedly refer to certain definitions to which our attention was drawn. Section 2(vii) provides the definition of ' assessee '. Section 2(xxxi) defines a ' person ' and it includes, inter alia, ' an individual as well as a firm '. Our attention was also drawn to Section 67 of the Act which provides for the mode of computing a partner's share in the income of the firm. Section 182 provides for assessment of registered firms. This is a firm, of which the assessee was previously a partner, and the firm in question was a registered firm. Our attention was also drawn to Section 43(6), which defines ' written down value ' and states as follows :
' 43. (6) ' Written down value ' means-
(a) in the case of assets acquired in the previous year, the actual cost to the assessee ;
(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922, or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886, was in force.......'
6. Section 32 deals with depreciation and Section 32(2) provides, inter alia, as follows :
' 32. (2) Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners), full effect cannot be given to any allowance under Clause (i) or Clause (ii) or Clause (iv) or Clause (v) or Clause (vi) of Sub-section (1) or under Clause (i) of Sub-section (1A) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. '
7. But the material sections, with which we are primarily concerned in answering this reference, are Sections 48, 49 and 50 of which Section 48 deals with the mode of computation and deduction. It provides that capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts, viz., normal expenditure in connection with the transfer as well as cost of acquisition of the capital asset and the cost of any improvement thereto. Section 49 deals with cost with reference to certain modes of acquisition. It provides that where the capital asset became the property of the assessee, inter alia, under Clause (iii)(b) on any distribution of assets on the dissolution of a firm, body of individuals or other association of persons, the cost of acquisition should be deemed to be the cost for which the previous owner of the property acquired it as increased by the cost of any improvement of the asset, incurred by the previous owner or the assessee, as the case might be. The Explanation to that section provides as follows :
' Explanation.--In this sub-section the expression ' previous owner of the property' in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in Clause (i) or Clause (ii) or Clause (iii) or Clause (iv) of this sub-section. '
8. Section 50 is a special provision for computing the cost of acquisition in the case of depreciable assets. Section 50 is as follows :
' 50. Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian Income-tax Act, 1922 (XI of 1922), or any Act repealed by that Act, or under executive orders issued when the Indian Income-tax Act, 1886 (11 of of 1886), was in force, the provisions of Sections 48 and 49 shall be subject to the following modifications;--
(1) The written down value, as denned in Clause (6) of Section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.
(2) Where under any provision of Section 49, read with Sub-section (2) of Section 55, the fair market value of the asset on the first day of January, 1954, is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset, shall, at the option of the assessee, be the fair market value of the asset, on the said date, as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted.'
9. In this case, we have to bear in mind that, on the dissolution, the partners got the plant and machinery transferred to them. There was no transfer to the association or firm or any company or by the firm to the company. Thereafter, the partners transferred their shares in the plant and machinery which they obtained on dissolution to the company in exchange for the shares, the value of which we have indicated hereinbefore. This aspect has to be borne in mind in deciding the controversy in this case. It is also to be borne in mind that before the Tribunal on behalf of the Revenue it was conceded that it was not the association or individual who got the property but it was transferred to the limited company and that is noted by the Tribunal in its order in para. 5 at p. 64 of the paper-book. Therefore, the question is how the cost will be computed. That has to be done in accordance with Section 49. It provides that in case of obtaining the asset on the dissolution of a firm, by which process the present assessee got the grant of plant and machinery, that is, the cost of acquisition and the cost of acquisition of the property by the previous owner. The previous owner was the firm. Therefore, the cost of that property should be taken as the cost when the assessee got the property. The question is whether the depreciation that the firm had obtained, this being a depreciable asset, is the value to be deducted in computing the cost of acquisition of the property by the assessee. Section 50 specifically provides for computing cost of acquisition in the case of depreciable assets where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by ' the assessee ' in any previous year. Therefore, the section makes it quite clear that in order to reduce the cost of acquisition to the written down value, the depreciation must be obtained by the assessee and not by the previous owner. Now, the assessee in this case, indisputably, did not obtain any depreciation,but, the firm undoubtedly got it. But the previous owner and the assessee are not synonymous in the scheme of Sections 49 and 50. Though Section 50 is subject to the provisions of Sections 48 and 49, that must be in the sense that after acquisition if the assessee had obtained depreciation and got the written down value reduced and thereafter the assessee got it transferred then the cost of acquisition should have been taken as the written down value because the depreciation had been obtained by the assessee itself. In that sense, Section 50 was subject to the provisions of Sections 48 and 49. In the present case, there is no dispute that the assessee had not obtained any deduction on account of depreciation. Unless one makes the expression ' previous owner ' to mean the assessee in Sections 49 and 50, it would not be possible to deduct the depreciation obtained by the firm in computing the cost of acquisition by the assessee.
10. Section 32 also makes it clear that a person can enjoy the benefit of depreciation if the assessee or the person concerned was the owner and had used it in the business. The firm in this case was the owner at the relevant time and had used it. Therefore, the firm obtained depreciation. But the present assessee, who was a partner of the erstwhile firm, was not the owner and as such had not used it in the business. It is well settled in the scheme of the Act and general law in describing the different partners of a firm and the partners comprising the firm that they are not the same. In this connection reference may be made to the principles laid down by the Supreme Court in the case of CIT v. A.W. Figgies and Co., : 24ITR405(SC) , and the decision of this court in the case of Sarvamangala Properties Ltd. v. CIT : 90ITR267(Cal) . We have further to bear in mind that capital gain is an artificial income (created) by the provisions of the I.T. Act and the section should be strictly construed. In case of doubt the assessee would be entitled to the benefit of doubt. In this connection reliance may be placed on the observations of the Supreme Court in the case of Shekhawati General Traders Ltd. v. ITO : 82ITR788(SC) and also on the observations of the Assam High Court in the case of CIT v. Bordubi Rice, Flour and Oil Mills, . Learned advocate for the Revenue drew our attention to Section 245M of the I.T. Act where certain procedural section came up for construction and the Supreme Court in the case of CIT v. B.N. Bhattachargee, : 118ITR461(SC) , indicated the circumstances in which the expression used in such procedural section shall be construed in order to fulfil the purpose of the section. That was entirely in a different context and cannot have any application in the facts and circumstances of the present case. In aid of the proposition that the partners and the firm were different in the scheme of the I.T. Act for the purpose of certain deduction, reference may be made to the observations in the case of CIT v. Dewan Chand Dholan Dass, : 132ITR790(Delhi) . Learned advocate for the Revenue also drew our attention to the observations of the Supreme Court in the case of Kalooram Govindram v. CIT, : 57ITR335(SC) . There, in a different context, the Supreme Court made certain observations about the HUF and members thereof. In the facts of the present case in view of the language used, and in view of the fact that we are construing the application of capital gain, which must, in our opinion, be an artificial income, the said decision would have no relevance in the facts and circumstances of the present case.
11. In the view we have taken and in view of the construction of the section we are of the opinion that the Tribunal had arrived at the correct conclusion. Therefore, the question must be answered in the affirmative and in favour of the assessee.
12. In the facts and circumstances of the case, parties will pay and bear their own costs.
Suhas Chandra Sen, J.
13. I agree.