COMMISSIONER OF INCOME TAX MADHYA PRADESH NAGPUR AND BHANDARA Vs. DEWAS CINE CORPORATION

JUDGEMENT

(1.) S. G. Sanghi and Hari Prasad entered into an agreement to carry on business in partnership as exhibitors of cinematograph films in the name and style of "Dewas Cine Corporation" with effect from March 1, 1947. Each partner who was an owner of a cinematograph theatre brought his theatre into the books of the partnership as an asset of the partnership. For the assessment years 1950-51 to 1952-53 the Income-tax Officer allowed depreciation aggregating to Rs. 44,380 in respect of the two theatres. The partnership was dissolved on September 30, 1951, and on dissolution it was agreed between the partners, that the theatres should be returned to their original owners. In the books of account maintained by the partnership, the assets were shown as taken over on October 1, 1951 at the original price less the depreciation allowed-the depreciation being equally divided between the two partners.

(2.) In proceedings for assessment for the year 1952-53 the respondent was treated as a registered firm. The Appellate Tribunal held that by restoring the two theatres to the two original owners "there was a transfer by the firm and the entries adjusting the depreciation and writing off the assets at the original value amounted to total recoupment of the entire depreciation by the partnership and on that account" proviso 2 to Section 10 (2) (vii) of the Income-tax Act, 1922, applied. The High Court of Madhya Pradesh answered the following question referred to it by the Tribunal in the negative :

(3.) Section 10 (2) of the Income-tax Act permits certain allowances to be debited in the computation of profits or gains of the business, profession or vocation carried on by the assessee in the year of account one such allowance is prescribed by Clause (vii), the material part of which is :