Court affirms depreciation assessment under Income-tax Act. Sale of assets pre-dissolution not distribution.

The court confirmed the assessment under section 41(2) of the Income-tax Act, 1961, regarding depreciation allowed to the assessee. It held that the sale of assets before the dissolution of the partnership justified the assessment. The bidding among partners was not considered a distribution of assets on dissolution, as the sale occurred prior to dissolution. No rectification was found necessary in the Tribunal's order. The court ruled in favor of the Revenue on all issues, with no costs awarded.

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Issues Involved:
1. Justification of assessment u/s 41(2) of the Income-tax Act, 1961.
2. Determination of whether the bidding amounted to a distribution of assets on dissolution.
3. Existence of any mistake apparent in the Tribunal's order liable to rectification u/s 254(2) of the Act.

Summary:

Issue 1: Justification of Assessment u/s 41(2)
The Tribunal confirmed the assessment of Rs. 60,840 u/s 41(2) of the Income-tax Act, 1961, on account of depreciation allowed to the assessee. The Tribunal held that the sale of assets was not a realization sale after the dissolution of the partnership but a transfer before the dissolution. This finding was based on the fact that the transfer of assets took place before the dissolution of the firm, making the addition of Rs. 60,840 under s. 41(2) proper.

Issue 2: Distribution of Assets on Dissolution
The Tribunal concluded that the bidding among the partners did not amount to a distribution of assets on the dissolution of the firm. The Tribunal's finding was that the sale of assets occurred before the dissolution, thus falling outside the scope of section 47(ii) of the Act. This finding was binding and supported by the fact that the sale was prior to the dissolution, making the transaction taxable under s. 41(2).

Issue 3: Mistake Apparent in the Tribunal's Order
The Tribunal found no mistake apparent on the record in its order dated May 18, 1979, which required rectification u/s 254(2) of the Act. The Tribunal's finding about the date of dissolution was based on an appreciation of evidence and could not be rectified by raising debatable questions. The court held that no reference from the order rejecting an application for rectification is tenable under s. 256(1) of the Act.

Conclusion:
The court answered:
- Question No. (1) in the affirmative, in favor of the Revenue.
- Question No. (2) in the negative, in favor of the Revenue.
- Question No. (3) in the negative, in favor of the Revenue.

The reference was answered accordingly, with no order as to costs.

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