Depreciation on partner-owned vehicles used by a firm raised a statutory ownership question requiring reference under tax law.

Depreciation under section 32 of the Income-tax Act could be claimed only where the asset was owned wholly or partly by the assessee and used for business, and the dispute concerned whether vehicles registered in partners' names but used by the firm satisfied that ownership requirement. The matter raised a question of law on the statutory meaning of ownership in this context, not merely a factual dispute. The High Court held that the Tribunal had wrongly refused to state a case under section 256(2) and directed it to refer the question of law.

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Issues: Whether the Tribunal was justified in refusing to state a case under section 256(2) of the Income-tax Act, 1961 on the question whether depreciation could be allowed on vehicles registered in the name of one or more partners but used by the firm for its business.

Analysis: The application sought a reference on the legal effect of section 32 of the Income-tax Act, 1961, which allows depreciation on buildings, machinery, plant or furniture owned wholly or partly by the assessee and used for the purposes of business or profession. The controversy was not purely factual, because the claim turned on whether the Tribunal had correctly understood the statutory requirement of ownership in the context of vehicles standing in the name of partners but used by the firm.

Conclusion: The refusal to make a reference was erroneous. The application under section 256(2) was allowed and the Tribunal was directed to state the case and refer the question of law.

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