c S and H formed a partnership to carry on business in partnership_ as exhibitors of cinematograph films with effect from March 1, 1947. Each partner who was an owner of a cinematograph theatre brought bis theatre into the books of the partnership as an asset of the partnership. For the assessment years 1950'51 to 1952-53 the Income-tax Officer allowed depreciation aggregating to Rs. 44,380/- in respect of the two theatres. The partnership was dissolved on Sept·omber 30, 1951, and on dissolutio•n it was agreed betweeri the partners that the theatres should D be returned to their original o\vners. Jn the books of account main· tained by the partnership, the assets were shown as taken over on· October 1, 1951, at the original price less the depreciation allowedthe lkpreciation being equally divided between the two partners. In proceedings for assessment for the year 1952-53 the- respondent was treated as a registered firm. The Appellate Tribunal held that bv restoring the two theatres to the two original owners "there was a transfer E by the firm and the 1ntries adjusting the depreciation and writing off the assets at the original value amounted to total recoupment of the entire depreciation by the partnership, and on that a¢count" proviso 2 to s. 10(2) (vii) of the Income-tax Act. 1922. applied. The High Court. in reference, held in favour of the assessee. The Revenue appealed, contending. that on th~ transfer of the theatres from the partnership to the original owners there was a sale.
