Depreciation cost on partnership asset allotment follows genuine arbitration valuation, not predecessor written down value.

On a real division of partnership assets through arbitration, with cash adjustment to equalise unequal allotments, the recipient's actual cost for depreciation is the value fixed for allotment and not the predecessor's written down value, unless the valuation is shown to be merely notional or collusive. Here, the arbitrators adopted a genuine valuation basis and no material supported any artificial inflation or deflation. The oil mill's actual cost to the assessee was therefore treated as the allotment value, and depreciation had to be computed on that basis.

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Issues: Whether, on division of partnership assets by arbitration with monetary adjustment for unequal allotment, the actual cost of the asset to the assessee for depreciation purposes was the value fixed on allotment or the written down value in the hands of the predecessor owner.

Analysis: The asset was allotted to the assessee on a real division of properties, and the arbitrators fixed separate values for the properties with cash adjustment to equalise the shares. In such a case, the cost to the recipient is the value taken for allotment, unless the valuation is shown to be merely notional or adopted for collusive, inflated, or deflated purposes. No finding supported any such notional valuation here, and the compensation direction indicated a real valuation basis.

Conclusion: The actual cost of the oil mill to the assessee was Rs. 9,50,000 and not the written down value in the hands of the former firm; the answer to the referred question was therefore in favour of the assessee.

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