F.C. Rustagi, Judicial Member -
(1.) THE only controversy raised by the assessee in this appeal for the assessment year 1976-77, for which the relevant 'previous year' ended on 31-12-1975, is about the issue whether the assessee is entitled to depreciation on building and machinery at the cost assigned to the said assets in the course of dissolution of the earlier firm which was constituted by four partners of the assessee-firm and other five partners who elected to dissolve the old firm, the value of the said assets having been adopted by the newly constituted firm which comprised of the first four partners of the old firm who joined hands with other seven partners in the assessee-firm without any relations being there between them or on the written down value coming from year after year up to the date of dissolution and also so adopted by the revenue up to immediately preceding assessment year which is 1975-76.
(2.) In order to appreciate the issue, a brief backdrop of facts would be of immense assistance. There was a firm duly constituted under a partnership deed dated 1-12-1969 under the name and style of Bharat Cold Storage situated at Shahbad and doing its business with effect from 2-9-1969. The said firm was constituted of the following partners :
In the dissolution deed of this firm, first four partners were treated as partners of the first part whereas the next five partners were treated as partners of the second part. On 20-1-1972, the above said firm was dissolved and the said dissolution deed which is on the assessee's compilation contained Clauses 1 to 3 which are of importance to the issue and which read as under :
1. That this partnership firm is hereby dissolved today for all intents and purposes.
2. That the statement of profit and loss showing net profit at the rate of Rs. 2,08,545 and balance sheet prepared up to this date is verified by all the partners and the same is accepted as correct.
That in order to avoid any litigation, etc., between the partners, the valuation of the storage, land, building, machinery, etc., as it is where it is, has in internal bid by the partners been auctioned for Rs. 4 lakhs only (building Rs. 1,50,000, machinery Rs. 1,50,000, land Rs. 20,000 and wooden plate and racks Rs. 80,000) and the same has been taken over by partners of the 1st part with all rights of licences, etc. The other lock, stock and barrel assets and liabilities has also been taken over by the 1st party. The 1st party has agreed to pay the outstanding share capital of each partner of the 2nd part within one month up to 20-2-1972. In case of violation of this agreement and valuation, etc., shall be treated as cancelled.
As apparent from the above clauses of the dissolution deed, party, Nos. (v) to (ix) went out on dissolution and the entire business was carried on by the first four partners. Subsequently on 12-2-1972, another partnership deed was drawn between the first four partners of the old firm and seven new partners who had no connection or relation with the old partners. The new partnership, which is the assessee-appellant before us, was constituted of the following persons :
The last nine partners who joined the assessee-firm accepted the very same valuation assigned to building, machinery, wooden platforms-cum-racks and land, etc., which was adopted at the time of dissolution of the earlier firm and in respect of which the first four parties had paid out the outgoing partners, on dissolution, in respect of their capital investment including profit and appreciation of any cost of assets at the time of dissolution.Clause 9 of the newly constituted partnership, after dissolution, regarding the valuation of assets assigned in the course of dissolution and adopted by the new incoming partners read as under :
9. That the valuation of storage, building, machinery, wooden platforms- cum-racks and land beneath the store has been fixed at Rs. 4 lakhs in which all the partners to this deed shall have and enjoy their rights in title and ownership of these assets pro rata according to the share held by them.
Out of the total value of the assets amounting to Rs. 4 lakhs, the same were individually valued under :
The appellant-firm, in the course of the assessment year 1973-74, claimed depreciation on the cost of assets acquired from the outgoing partners but the ITO allowed depreciation only on the written down value (WDV) of the assets as in the hands of the firm before the above said dissolution was effected. The issue was carried before the AAC where the assessee did not meet with success and even when the matter came up before the Tribunal, the assessee's appeal was dismissed for default of non-appearance. The assessee attempted restoration of the said appeal through its miscellaneous petition but that too was not allowed by the Tribunal.
3. For the next year, i.e., the assessment year 1974-75, again the assessee came forward with its claim but the ITO adopted the WDV as determined in the immediately preceding assessment year 1973-74 in respect of which the assessee came before the ITO with its rectification application under Section 154 of the Income-tax Act, 1961 ('the Act'). For the next year, i.e., the assessment year 1975-76, again the assessee put in its claim of depreciation in respect of Rs. 3,80,000, being the value of assets as assigned on the point of dissolution and adopted by the new firm when it came into being, but for this year as well, the assessee neither succeeded before the ITO nor before the AAC and when the matter was carried before the Tribunal, the Tribunal vide its order dated 19-7-1979 in IT Appeal No. 414 of 1979 set aside the order of the AAC and restored the appeal to his file who again dismissed the appeal vide his order dated 29-2-1980. The assessee thereafter went in revision before the Commissioner, which is said to be pending.
(3.) AGAIN for the assessment year 1976-77, which is under consideration, the assessee put in its claim of depreciation to be allowed on actual cost after deduction of depreciation allowed in earlier years but this also did not find favour with the ITO and after the assessee's contentions were rejected by the ITO, when the issue was carried before the Commissioner (Appeals) he also confirmed the action of the ITO in allowing depreciation on WDV coming from year after year in respect of value of assets assigned from times of earlier firm.;