TMI Blog1992 (1) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... % Mrs. Pushpa Vadera 5% Mr. Niraj Vadera 10% Hotel Hans (P) Ltd. 40% The firm was constituted vide partnership deed dated 27-6-1974 with effect from 1-1-1973. There were changes in the constitution of the firm prior to 16-10-1975. However, on 16-10-1975 the partnership constituted with the partners mentioned above. The said firm was dissolved on 17-3-1979 on the completion of the project on which this firm was constituted. At the time of dissolution the assets and liabilities of the firm were ascertained and for that purpose the market rate of the flats in the multi-storeyed building was taken on the basis of the approved Valuer's Certificates. The accounts of the partners inter se were settled on the basis of the mutual consent of the partners vide dissolution deed dated 17-3-1979. All the assets and liabilities were allocated amongst the different partners and their accounts were credited accordingly. After the dissolution deed a new partnership firm came into existence on the same day in which M/s Hotel Hans (P) Ltd. gone out of the partnership firm and rest of the four partners constituted new partnership firm vide deed dated 17-3-1979. The partners of the new partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indram v. CIT [1965] 57 ITR 335, came to the conclusion that the deeming provisions of section 49(1)(iii)(b) cannot be applied in this case of the assessee. The sale price of the flat and the cost of acquisition of the same in the hands of the new firm being the cost of the flat contributed to the partnership firm. The capital gains returned by the assessee firm at Rs. 10,295 is correct. Therefore, the department is aggrieved. 4. The learned Departmental Representative Shri Sandeep Tandon submitted that it is a case of reconstitution of the firm because earlier firm was dissolved but the rest of the partners of the firm jointly continued with the same business of the firm after they were jointly allotted and assigned all the remaining assets mentioned in schedule ' C ' attached with the new partnership deed in their profit sharing ratio. Therefore, if there is any appreciation in the valuation of the assets, the cost of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. In the present case the previous owner of the property was dissolved firm. Therefore, in view of section 49(1)(iii)(b) no other cost of acquisition can be taken and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of the firm as well as in his own books and the value which the parties put for the land was not a notional one but a real one. Considering this fact that the value was nearly real one, the cost of acquisition to the assessee was computed at a market value shown in the books. In the present case the ITO has not considered the question of a notional or real valuation. Therefore, the computation of cost of acquisition cannot be taken at the book value of the assessee-firm. As against this, the learned counsel for the assessee Shri S. K. Kandhari pointed out that the firm M/s. Hansalaya Properties was constituted on 8-8-1970 with a sole object of completing the construction of multi-storeyed commercial building at Plot No. 15, Barakhamba Road, New Delhi and on completion of this project, the firm was dissolved. All the assets and liabilities were divided amongst the partners on 17-3-1979. Final balance-sheet was drawn. The assets and liabilities were distributed and credited to the partners' account in their respective share ratio. Altogether a new partnership firm came into existence by another deed on the same date. Therefore, the new firm has nothing to do with the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the asset and the cost of any improvement thereto ; As far as the present case is concerned, we have not to consider any expenditure incurred wholly or exclusively in connection with such transfer. We have only to find out the cost of acquisition of the capital asset. Section 49(1)(iii)(b) of the Income-tax Act provides that where the capital asset became the property of the assessee on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons .... the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it....The applicability of section 49(1)(iii)(b) will depend upon the finding whether the assessee firm constituted under the deed dated 17-3-1979 is a reconstituted firm or it is a new partnership firm different from the earlier one, dissolved on the same date. In this case the firm was constituted with the object of completin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, (d) settlement of accounts inter se partners, and (e) drawing up of a new deed of partnership among the partners who took over the remaining assets. By whatever name we choose to call partnership formed after dissolution i.e., reconstituted firm or by any other name, it is a newly constituted firm, different from the earlier partnership. This is the law declared by almost all the High Courts in India while dealing with the interpretation of sections 187 188 of the Income-tax Act, on the question as to when a partner retires, one assessment is to be made or two assessments to be made. In particular the matter came before the Hon'ble Madhya Pradesh High Court in the case of Rajdoot Hotel Enterprise Corpn. where the facts were as follows. The assessee firm consisted of eight partners and was constituted in 1967. The partners of the firm had purchased a piece of land for a sum of Rs. 1.25 lakhs in 1965. The partners transferred the land to the firm. A land account was opened in the books of the firm to which the sum of Rs. 2 lakhs was debited and a corresponding credit was given to the capital accounts of the eight partners to the extent of the share of each partner in the owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court was whether the sum of Rs. 34 lakhs was to be taken as the actual cost of this property to Govindram and the Hon'ble Supreme Court has laid down the following principle :--- " It may be that in strict legal theory partition may not involve transfer, but the substance of the transaction is that an erstwhile member of a joint Hindu Family, who has only an interest in the entire joint family property acquires an absolute title to a specific property. The cost of the property to the member at the date of partition would be the value given to it for purpose of allotment, provided it was real, or the price at which he purchased it in auction or the value of it ascertained otherwise. " It was further observed, " Barring the cases of fraud, collusion and inflation and deflation of values for ulterior purposes, cost of an asset to a divided member must necessarily be its cost to him at the time of partition, whether mentioned in the partition deed or ascertained aliunde ". This principle was followed in the case of M. RM. K. PL. Firm. 5B. Therefore where section 49(1)(iii)(b) provided, the cost to be taken as the cost of the previous owner, the previous owner must b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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