Continuity of partnership business limits bus sale taxation to the excess over written down value under income-tax law.

A partnership is not treated as a new assessable entity merely because partners retire and others are introduced if the business continues with substantially the same assets, permit and control. In that situation, depreciation allowed in earlier years must be carried forward in computing the written down value for section 10(2)(vii) of the Income-tax Act, 1922. On the facts accepted, the sale of buses was taxable only to the extent the sale consideration exceeded the written down value, and not on the entire proceeds. The taxable amount was therefore restricted to the excess over the written down value recorded on the material before the court.

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Issues: Whether the amount realised on sale of buses was taxable under section 10(2)(vii) of the Income-tax Act, 1922, and, if so, to what extent, having regard to the continuity of the partnership business and the written down value of the assets.

Analysis: The decisive question was whether the later partnership deeds created a new and distinct assessable entity or whether they merely brought about a change in the constitution of the same firm. On the facts, the business continued with the same core partners, the same assets, and the same transport permit, and there was no real dissolution accompanied by an adjustment of rights and liabilities. The recitals in the later deeds could not override the legal and factual continuity of the business. For the purpose of section 10(2)(vii), the depreciation allowed in the earlier years had to be carried forward in determining the written down value. However, the material accepted by the parties showed that the written down value at the end of the second partnership was not nil.

Conclusion: The amount realised on sale was taxable under section 10(2)(vii), but only to the extent of the excess over the written down value accepted on the record. The taxable amount was restricted to Rs. 11,472, not the entire sale proceeds of Rs. 29,800.

Final Conclusion: The reference was answered by holding that the sale proceeds were taxable only in part, the assessee succeeding to the extent of reduction of the taxable sum to Rs. 11,472.

Ratio Decidendi: A partnership business is not treated as a new assessable entity merely because partners retire and others are introduced if the business continues with substantially the same assets, permit, and control; for section 10(2)(vii), depreciation already allowed in the continuity of the same business must be reflected in the written down value.

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