Pathak, C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961. The question of law referred is as under :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the direction of the Appellate Assistant Commissioner that the benefit of depreciation should be given to Shrimati Lachmi Devi Choukhani and Shri Banwarilal Choukhani, two out of the three partners of the assessee-firm ?'
2. The Income-tax Officer while making assessments relating to the asses-see, M/s. Bordubi Rice, Flour and Oil Mills, Hoogrijan, made certain additions in the income of the firm and also allowed certain amounts towards depreciation in the assessment orders relating to assessment years 1962-63 and 1963-64. The assessee-firm preferred an appeal against the assessment orders for the two assessment years before the Appellate Assistant Commissioner of Income-tax, who by his common order dated July 29, 1968, relating to these two assessment years held that out of three partners of the firm, Mangtulal Choukhani by himself or through his younger brother, Mahabir Prasad Choukhani, was only a working partner and the benefit of depreciation should be given to Lachmi Devi Choukhani and Banwarilal Choukhani only in both the years. Thereafter, the department filed two appeals before the Income-tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner. The Tribunal by its order dated May 4, 1972, upheld the order of the Appellate Assistant Commissioner and hence this reference.
3. It is common case that the firm, M/s. Bordubi Rice, Flour and Oil Mills, the assessee in the instant case, was constituted by a partnership deed executed on March 29, 1958, between Banwarilal Choukhani and Musammat Lachmi Devi Choukhani, partners of the first part, and Mangtulal Choukhani, partner of the second part. It is found from the deed of partnership, which is annexure 'C' of the brief, that the partnership styled as M/s. Bordubi Rice, Flour and Oil Mills, consisted of three partners, namely, Banwarilal Choukhani, Mst. Lachmi Devi Choukhani and Mangtulal Choukhani. In paragraph 14 of the partnership deed it has been stated as below:
'That the partners hereto of the 1st part are the owners of the mill and will not charge any interest or rent from the partnership business for the use and working of the said Bordubi Rice Mills unless so determined and the partnership firm will keep and maintain all machineries, buildings, in a perfect condition and running order and will effect all repairs, alterations and improvement in the mill and the partnership business will bear all taxes, fees and other taxes in respect of the same.'
4. It is submitted on behalf of the assessee that according to the terms of the partnership deed ownership of the rice mill in question, which is used by the assessee-firm, lies with the two partners, namely, Banwarilal Choukhani and Mst. Lachmi Devi Choukhani, and the third partner, Mangtulal Choukhani, is not an owner of the mill in question. That being so, depreciation allowance as allowable under Section 32 of the Income-tax Act, 1961, cannot be allowed to the assessee-firm, inasmuch as the assessee-firm is not the owner of the mill in respect of which the Income-tax Officer has allowed depreciation allowance. Since depreciation allowance has been allowed in the instant case by the Income-tax Officer and the department has not challenged that aspect of the matter in appeal before the Tribunal, it is submitted on behalf of the assessee that the Tribunal correctly upheld the order of the Appellate Assistant Commissioner by which the depreciation allowance allowed by the Income-tax Officer in the instant case was distributed between the two partners owning the mill equally. The Tribunal also observed in its judgment as follows:
'It cannot be doubted that the Income-tax Officer in this case could not have allowed depreciation to the firm and the proper course would have been to allow depreciation in the case of assessment of individual persons. However, the department has not challenged before us that the depreciation should not be allowed and that the Income-tax Officer was not justified in allowing depreciation. Once depreciation is allowed, the Appellate Assistant Commissioner has no course left but to direct that the benefit of the depreciation should be given only to Shri Banwarilal Choukhani and Smt. Lachmi Devi Choukhani. In view of the peculiar circumstances of the case, we hold that the Appellate Assistant Commissioner took a reasonable view in the matter which was the only course for him.'
5. Under Section 32 of the Income-tax Act, 1961, depreciation allowance may be allowed subject to the provisions of Section 34 of the Act, in respect of buildings, machinery, plant or furniture owned by the assessee and used or the purpose of the business or profession. The use for the purpose of business or profession is necessarily that of the assessee. If the buildings, machinery, plant and furniture are not owned by the assessee, even though in the peculiar circumstances of a particular case they may be used by the assessee, no depreciation may be allowed under Section 32 although in appropriate cases deductions may be made under the relevant provisions of Section 30 of the Act. In the instant case, admittedly, the assessee is the firm and it is also asserted on behalf of the assessee that the assessee-firm does not own the mill but it belongs to the two partners, namely, Banwarilal Choukhani and Smt. Lachmi Devi Choukhani, in their individual capacity. That being the position and that has also been accepted by the learned Tribunal in its judgment, the Income-tax Officer really committed an error of law in granting depreciation allowance in favour of the assessee in the instant case. But there was no appeal against the order of the Income-tax Officer by the department and so that cannot be touched in this reference. It is, however, indisputably clear on the plain language of Section 32 of the Act, and on the admitted facts of this case that no depreciation allowance for the machinery, etc., of the mill was allowable to the assessee-firm, inasmuch as it was not the owner of the mill in question. That being so, the learned Tribunal was not right in allocating the depreciation allowance as between the two partners who are stated to be the owners of the mill. It is the firm which is the assessee in the instant case and the depreciation allowance has to be allowed or disallowed with respect to the assessee-firm. The profits and gains of business or profession are chargeable in accordance with Section 28 and the sections following thereafter. Under Section 29 of the Act, income from profits and gains of business or profession are to be computed in accordance with the provisions contained in Sections 30 to 43A. Section 30 deals with deductions of rent, rates, taxes, repairs and insurance for buildings. Section 31 deals with deductions with respect to repairs and insurance of machinery, plant and furniture and Section 32 deals with deductions with respect to depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession of the assessee. That being so, in the instant case, according to law no depreciation allowance was allowable to the assessee-firm and, consequently, the question of distributing
the depreciation allowance equally as between the two partners did not arise.
In view of the facts and circumstances of this case, we find that the learned
Tribunal was not justified in upholding the direction of the Appellate Assistant Commissioner that the benefit of depreciation allowance should be
given to Banwarilal Choukhani and Smt. Lachmi Devi Choukhani. In
fact, the benefit of depreciation was not at all allowable to the assessee-firm.
6. In the result, we answer the question in the negative and in favour of
the department.
7. The reference is accordingly answered. We, however, make no order
as to costs.
D.M. Sen, J.
8. I agree.