Depreciation and development rebate remained allowable where partnership dissolution led to business succession, not a transfer of assets.

On dissolution of a partnership, where an existing partner-company continued the business with the firm's assets, liabilities, rights and obligations, the arrangement was treated as an adjustment of rights among partners rather than a transfer of assets. Applying the Supreme Court principle on dissolution and succession, the machinery was not regarded as transferred so as to defeat statutory allowances. As the other conditions for the claim were met, depreciation and development rebate remained allowable to the assessee-firm, and the disallowance was held to be incorrect.

---

---

Issues: Whether the assessee-firm was entitled to depreciation and development rebate on machinery used before dissolution of the firm, where the business was taken over by one of the partners on dissolution.

Analysis: The partnership deed and dissolution deed showed that the incoming partner-company was already a partner in the firm and, upon dissolution, continued the business with its assets, liabilities, rights and obligations. The arrangement was treated as adjustment of rights among partners on retirement and dissolution, not as a transfer of assets. In such a situation, the principle laid down by the Supreme Court in relation to dissolution and succession governed the matter, and the assets could not be treated as transferred so as to deny the statutory allowances. The relevant conditions for the allowance of depreciation and development rebate were otherwise satisfied.

Conclusion: The assessee was entitled to depreciation and development rebate; the disallowance was incorrect.

---