Business ownership and user over formal title supported depreciation, while strong room construction in rented premises was revenue expenditure.

Depreciation was allowed on a building financed by the firm and used exclusively for its business, despite title standing in the names of two partners, because the firm bore the cost and the substance of business ownership and user prevailed over formal title. Expenditure on constructing a strong room in rented premises was treated as revenue expenditure, as it was incurred to facilitate business operations and did not create a capital asset owned by the assessee. The appeal succeeded on both substantive issues, while the remaining ground was not pressed.

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Issues: (i) Whether depreciation was allowable on a building used exclusively for business but purchased in the names of two partners; (ii) Whether expenditure incurred on construction of a strong room in rented premises was capital or revenue expenditure.

Issue (i): Whether depreciation was allowable on a building used exclusively for business but purchased in the names of two partners.

Analysis: The building was financed by the firm, the cost was not debited to the partners' accounts, and the firm used the building exclusively for its business. The fact that the title stood in the names of two partners did not by itself defeat the firm's claim, since a partnership firm is assessed separately under the Income-tax Act though it is not a legal entity distinct from its partners in the same sense as a company. The authorities relied on by the Revenue were distinguished on their facts as involving different ownership situations and issues of registered conveyance.

Conclusion: Depreciation on the building was allowable in favour of the assessee.

Issue (ii): Whether expenditure incurred on construction of a strong room in rented premises was capital or revenue expenditure.

Analysis: The strong room was constructed for the assessee's business in rented premises. On the facts, the expenditure was incurred to facilitate the carrying on of business and did not result in acquisition of a capital asset by the assessee. The nature of the outlay was therefore treated as revenue expenditure rather than capital expenditure.

Conclusion: The expenditure on construction of the strong room was revenue expenditure and was allowable in favour of the assessee.

Final Conclusion: The appeal succeeded on the two substantive issues decided, with the remaining ground having been not pressed.

Ratio Decidendi: For depreciation and business allowance purposes, substance of business ownership and use may prevail over the formal title standing in partners' names, and expenditure on business modifications in rented premises may be revenue in nature where it does not bring into existence a capital asset of enduring ownership for the assessee.

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