Pathak, J. -
(1.) THIS is a reference under Section 256(1) of the Income Tax Act, 1961. The question of law referred is as under :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the direction of the Appellate Assistant Commissioner that the benefit of depreciation should be given to Shrimati Lachmi Devi Choukhani and Shri Banwarilal Choukhani, two out of the three partners of the assessee -firm -
(2.) THE Income Tax Officer while making assessments relating to the asses -see, M/s. Bordubi Rice, Flour and Oil Mills, Hoogrijan, made certain additions in the income of the firm and also allowed certain amounts towards depreciation in the assessment orders relating to assessment years 1962 -63 and 1963 -64. The assessee -firm preferred an appeal against the assessment orders for the two assessment years before the Appellate Assistant Commissioner of Income Tax, who by his common order dated July 29, 1968, relating to these two assessment years held that out of three partners of the firm, Mangtulal Choukhani by himself or through his younger brother, Mahabir Prasad Choukhani, was only a working partner and the benefit of depreciation should be given to Lachmi Devi Choukhani and Banwarilal Choukhani only in both the years. Thereafter, the department filed two appeals before the Income Tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner. The Tribunal by its order dated May 4, 1972, upheld the order of the Appellate Assistant Commissioner and hence this reference. It is common case that the firm, M/s. Bordubi Rice, Flour and Oil Mills, the assessee in the instant case, was constituted by a partnership deed executed on March 29, 1958, between Banwarilal Choukhani and Musammat Lachmi Devi Choukhani, partners of the first part, and Mangtulal Choukhani, partner of the second part. It is found from the deed of partnership, which is annexure "C" of the brief, that the partnership styled as M/s. Bordubi Rice, Flour and Oil Mills, consisted of three partners, namely, Banwarilal Choukhani, Smt. Lachmi Devi Choukhani and Mangtulal Choukhani. In paragraph 14 of the partnership deed it has been stated as below:
"That the partners hereto of the 1st part are the owners of the mill and will not charge any interest or rent from the partnership business for the use and working of the said Bordubi Rice Mills unless so determined and the partnership firm will keep and maintain all machineries, buildings, in a perfect condition and running order and will effect all repairs, alterations and improvement in the mill and the partnership business will bear all taxes, fees and other taxes in respect of the same."
(3.) IT is submitted on behalf of the assessee that according to the terms of the partnership deed ownership of the rice mill in question, which is used by the assessee -firm, lies with the two partners, namely, Banwarilal Choukhani and Smt. Lachmi Devi Choukhani, and the third partner, Mangtulal Choukhani, is not an owner of the mill in question. That being so, depreciation allowance as allowable under Section 32 of the Income Tax Act, 1961, cannot be allowed to the assessee -firm, inasmuch as the assessee -firm is not the owner of the mill in respect of which the Income Tax Officer has allowed depreciation allowance. Since depreciation allowance has been allowed in the instant case by the Income Tax Officer and the department has not challenged that aspect of the matter in appeal before the Tribunal, it is submitted on behalf of the assessee that the Tribunal correctly upheld the order of the Appellate Assistant Commissioner by which the depreciation allowance allowed by the Income Tax Officer in the instant case was distributed between the two partners owning the mill equally. The Tribunal also observed in its judgment as follows:
"It cannot be doubted that the Income Tax Officer in this case could not have allowed depreciation to the firm and the proper course would have been to allow depreciation in the case of assessment of individual persons. However, the department has not challenged before us that the depreciation should not be allowed and that the Income Tax Officer was not justified in allowing depreciation. Once depreciation is allowed, the Appellate Assistant Commissioner has no course left but to direct that the benefit of the depreciation should be given only to Shri Banwarilal Choukhani and Smt. Lachmi Devi Choukhani. In view of the peculiar circumstances of the case, we hold that the Appellate Assistant Commissioner took a reasonable view in the matter which was the only course for him.";