Taxability of unregistered business associations confirmed, while depreciation failed for assets not used in the assessed business.

An unregistered association of firms remained assessable to income tax because its taxable character under the Income Tax Act, 1922 depended on whether it answered the description of a firm or association of individuals, not on compliance with the Companies Act, 1913. Non-registration under company law might attract penalties or disabilities there, but it did not bar assessment on profits. Depreciation was denied because Section 10 allowed allowance only for assets used in the business in respect of which the assessment was made, and the machinery, plant and buildings belonged to or were used by constituent firms separately assessed, not the assessee.

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Issues: (i) whether an unregistered association of firms carrying on business could be assessed to income tax notwithstanding non-compliance with the Companies Act; (ii) whether depreciation allowance was admissible in respect of machinery, plant and buildings owned or leased by constituent firms.

Issue (i): whether an unregistered association of firms carrying on business could be assessed to income tax notwithstanding non-compliance with the Companies Act.

Analysis: Under Section 3 of the Income Tax Act, 1922, tax is leviable on the income, profits and gains of a company, firm and other association of individuals. The definition of company in Section 2(6) of the Income Tax Act, 1922 did not bring the assessee within that class, but the assessee answered to the description of a firm or association of individuals. Non-registration under Section 4 of the Companies Act, 1913 might entail penalties or disabilities under company law, but it did not prevent the entity from being treated as taxable under the income-tax law.

Conclusion: The question was answered in the affirmative. The assessee was liable to assessment to income tax on its profits.

Issue (ii): whether depreciation allowance was admissible in respect of machinery, plant and buildings owned or leased by constituent firms.

Analysis: Section 10 of the Income Tax Act, 1922 allows depreciation only in respect of buildings, machinery, plant or furniture used for the purposes of the business in respect of which the assessment is made. The assets in question belonged to, or were used by, the constituent firms, which were separately assessed, and were not shown to be used in the business of the assessee in respect of the assessed profits.

Conclusion: The question was answered in the negative. No depreciation allowance was admissible to the assessee.

Final Conclusion: The reference was disposed of by holding the assessee taxable on its profits and by rejecting its claim for depreciation allowance, with costs awarded against the assessee.

Ratio Decidendi: An entity may be assessed to income tax according to its taxable character under the income-tax statute even if it is not validly constituted under company law, and depreciation is allowable only for assets used in the business in respect of which the assessment is made.

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