Partnership property and depreciation: capital contributed by partners remained an asset of the firm despite a dissolution clause.

Property contributed by partners as capital becomes partnership property under the Partnership Act, and a dissolution clause governing how that asset will vest on winding up does not change its character during the firm's continuance. On that basis, the Palace contributed to the firm was treated as an asset of the partnership, not merely a right of use. Depreciation was therefore allowable to the firm under the income-tax provision considered.

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Issues: Whether the Rambagh Palace, brought in by the partners as capital of the firm, was partnership property so as to entitle the assessee-firm to depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922.

Analysis: The Palace was contributed as part of the capital of the firm and, on that footing, became partnership property. Under section 14 of the Indian Partnership Act, property brought into the partnership stock becomes partnership property, and a stipulation regarding its treatment on dissolution does not alter its character during the subsistence of the firm. Section 48 of the Indian Partnership Act permits partners to regulate the mode of settlement of accounts on dissolution by agreement. The clause providing that the Palace would vest in the other partners on dissolution therefore did not show that only its use, and not the property itself, had been contributed.

Conclusion: The Palace was partnership property and depreciation was rightly allowable to the assessee-firm.

Ratio Decidendi: Property contributed by partners as capital becomes partnership property, and a dissolution arrangement dealing with its devolution does not prevent depreciation being claimed on it as an asset of the firm.

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