9911796707
TMI Blog1989 (5) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... whether or not the stock should be valued at market rate in accordance with the decision of the Madras High Court in the case of A L.A. Firm v. CIT [1976] 102 ITR 622 in so far as the assessee-firm had been dissolved on 30-9-81. 3. The assessee-firm was carrying on business in partnership under the name and style of 'Wilson Press Tools' under the partnership deed dt. 15-5-77. It consisted of the following four partners : (i) Shri M.R. Sadagopan (ii) Shri S. Reginald (iii) Shri V. Vidayathil and (iv) Shri V.J. John On 30-9-81, S/Shri M.R. Sadagopan, S. Reginald and V. Vidayathil retired from the firm and Sri V.J. John took over the assessee-firm's assets and liabilities and carried on the business thereafter as a sole proprietor. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the dissolution deed. In his order, the Commissioner (A) referred to clause (1) of the retirement deed dt. 30-9-81, as per which Sri V.J. John agreed to pay each of the three retiring partners their respective share of capital and share of profit up to 30-9-81 and share of goodwill in cash of Rs. 5,000 each and the retiring partners had agreed to release all their rights, interest and title over the partnership assets in favour of Sri V.J. John. Thereafter, purporting to apply the ratio of the decision of the Supreme Court laid down in the case of CIT v. Bankey Lal Vaidya [1971] 79 ITR 594, the Commissioner (A.) held that the transfer of closing stock to Mr. V.J. John, one of the partners, was nothing but a receipt of his share in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court's case supported the contention of the Revenue that the value of stock at the time of dissolution of the firm had to be determined according to its true worth and not according to the book value and thus followed the decisions of the Madras High Court cited earlier. Reference was also made to the decision of ITAT, Hyderabad in the case of K.P. Yeriswamy & Sons v. ITO [1984] 9 ITD 372. 6. On his part, the assessee's representative strenuously argued that in so far as the deed of retirement was drawn and the settlement of accounts between the partners took place as per that deed, the ITO was not justified in bringing to assessment any profit with reference to the closing stock of finished goods. According to him, since there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proposition that the option to value the stock-in-trade at cost or market value whichever is lower is available to the firm even at the point of termination of the business, the re-valuation of the properties at the prevailing market value was justified and the assessment of the profit arising on such revaluation was justified." In the present case, three of the four partners had retired and the fourth partner had taken over the assets and liabilities of the firm. Thus there was a clear case of dissolution of the assessee-firm and in these circumstances the decision of the Madras High Court would squarely apply to the assessee's case and the ITO was justified in re-valuing the closing stock of finished goods as on 30-9-81 at market rate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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