Firm not dissolved, depreciation claimed on written down value, not revalued amount.

The Tribunal found no dissolution of the firm on September 30, 1964, but rather a reconstitution. As a result, the assessee could only claim depreciation on the written down value of Rs. 14,61,721.95, not the revalued amount of Rs. 33,50,000. The High Court affirmed this decision, ruling against the assessee and ordering them to pay the costs of the Revenue.

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Issues Involved:
1. Whether the alleged partition is true and genuine.
2. Whether the revaluation of the mill assets represents their correct market value at the time of partition.
3. Whether there was a dissolution of the firm as contended by the assessee.
4. Whether the continuing partners obtained release from the retiring partners by actually paying the enhanced value of the mill assets.
5. Whether the assessee is entitled to claim depreciation on the basis of the revaluation of the mill assets since the continuing partners are third parties and the cost of mill assets would be the price at which they were actually purchased.

Comprehensive, Issue-Wise Detailed Analysis:

Issue 1: Whether the alleged partition is true and genuine.
The AAC's remand report confirmed that the partition was true and genuine. The Tribunal accepted this finding, noting that the partition in the family of Shri Ramanathan Chettiar on September 30, 1964, was legitimate and resulted in the revaluation of the mill assets to Rs. 33,50,000.

Issue 2: Whether the revaluation of the mill assets represents their correct market value at the time of partition.
The AAC's remand report also confirmed that the revaluation of the mill assets represented the correct market value at the time of partition. The Tribunal accepted this finding, acknowledging that the revaluation was not notional but real, as it was done to equalize the shares of the minor sons.

Issue 3: Whether there was a dissolution of the firm as contended by the assessee.
The Tribunal held that there was no dissolution of the firm on September 30, 1964. Instead, it was a change in the constitution of the firm. The firm continued with the same partners, albeit with a change in the capacity of Shri Ramanathan Chettiar from "karta" of the HUF to an individual partner. The Tribunal concluded that this change did not constitute a dissolution but a reconstitution of the firm.

Issue 4: Whether the continuing partners obtained release from the retiring partners by actually paying the enhanced value of the mill assets.
The AAC's remand report confirmed that the continuing partners obtained release from the retiring partners by paying the enhanced value of the mill assets. The Tribunal accepted this finding, noting that the payments were made to equalize the shares of the minor sons, thus substantiating the revaluation.

Issue 5: Whether the assessee is entitled to claim depreciation on the basis of the revaluation of the mill assets since the continuing partners are third parties and the cost of mill assets would be the price at which they were actually purchased.
The Tribunal rejected the assessee's contention that depreciation should be allowed on the enhanced value of the mill assets. It followed the decision in Kaithari Lungi Stores v. CIT [1976] 104 ITR 160, which held that in a case of reconstitution, the old firm does not cease to exist but continues as reconstituted. Therefore, depreciation should be allowed only on the written down value and not on the revalued amount.

Conclusion:
The Tribunal concluded that there was no dissolution of the firm on September 30, 1964, and it was merely a reconstitution. Consequently, the assessee was entitled to claim depreciation only on the written down value of Rs. 14,61,721.95 and not on the revalued amount of Rs. 33,50,000. The High Court upheld this view, answering both questions in the negative and against the assessee. The assessee was ordered to pay the costs of the Revenue.

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