TaxTMI 
TaxTMI 
1982 (7) TMI 177
X X X X Extracts X X X X
X X X X Extracts X X X X
.... carry on the business of the firm. In settling the accounts of the retiring partners each of them was given a bus belonging to the firm. In computing the income for the first period from 1-4-1976 to 30-11-1976, the assessee had taken into account depreciation of Rs. 27,431 in respect of buses which have been taken away by the retiring partners. The depreciation was computed for the period of use by the firm up to 30-11-1976 in its business. The ITO was of the opinion that since the buses had been transferred to the retiring partners they did not belong to the firm and, hence, depreciation could not be allowed on such buses in computing the total income of the assessee. 3. On appeal, the Commissioner was of the opinion that the transfer of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with rule 5. In the same way, section 34(2)(iii) provides that where the assets have ceased to have been used in the business in the middle of the previous year by reason of its being sold, discarded or destroyed, no depreciation will be given for that asset even if it had been used for most part of the previous year. Normally, these two provisions would seem to complement each other and what the assessee gains in the year of installation may be offset by the depreciation lost in the year in which the asset is sold or discarded. In the present case, the revenue apprehends a lacuna in this scheme by reason of the Commissioner holding that the transfer of buses to the retiring partners in the settlement of their account would not fall within ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the firm to the retiring partner unless by way of a separate agreement the retiring partner had purchased an asset of the firm for an agreed price. The contention of the revenue is untenable from a different point of view also. The firm as such not being a distinct legal entity, has no separate rights of its own in the partnership asset which are owned jointly or in common by the partners with the result that the distribution of the assets to the partners upon dissolution is nothing but a mutual adjustment of rights between the partners. The Supreme Court has held in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 that such distribution or allotment of assets to erstwhile partner does not amount to a transfer of asset at all. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt to a sale of the buses. 6. In the alternative, it was argued that the buses having been ceased to have been used by the firm, they must be taken to have been discarded in the sense of having been given up. The word 'discarded' has not been judicially defined or noticed and the dictionary meaning is of no particular assistance in deciding this issue. The buses have been treated by mutual consent of the partners as partnership asset and after the date of retirement of certain partners was ceased to be treated as partnership assets. An agreement by the partners not to use the asset in the business does not appear to be consistent with the asset being discarded in the sense of being thrown away as useless or not usable in the business. In t....