TMI Blog1979 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... amily, viz., Purushothamdoss Gokuldoss and Jumnadoss Dwarakadoss. It is not clear as to whether this property was treated as the said firm's property. However, on 6th November,1953, the money-lending business carried on by the said family was divided between the members thereof and the divided members executed a partnership deed for carrying on the business under the name and style of M/s. Gokuldoss Jumnadoss and Co. In this partnership deed, Purushothamdoss Gokuldoss, Jumnadoss Dwarakadoss and the major sons of Purushothamdoss Gokuldoss were shown as partners. The property " Gokulbagh " was transferred to this firm and it was being shown as an asset of the firm in the firm's books and its balance-sheets right up to 1st April, 1963, at the value of Rs. 94,000. Jumnadoss Dwarakadoss, one of the partners, was the karta of a family consisting of himself and his brother, Amichand Doss Dwarakadoss. There was a partition between these two persons and as a result of this partition, a fresh partnership deed came into existence on 14th November, 1959, between Purushothamdoss Gokuldoss and his sons on the one hand and the aforesaid Jumnadoss Dwarakadoss and his divided brother on the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. As the assessee had not exercised the option for taking the value of the land as on 1st January, 1954, the ITO proceeded to compute the capital gain on the basis of the cost of the property at the time of its acquisition. The result was that the ITO brought to tax the capital gain on the basis that the actual cost to the assessee would work out at the rate of Rs. 400 per ground and he took the difference between the amount calculated at this cost and the actual sale proceeds as the capital gains. The assessee appealed and in the grounds of appeal filed before the AAC the assessee pointed out that the ITO ought to have appreciated that, on the facts and in the circumstances of the case, the property in question was the property of the firm which was acquired by the appellant (assessee) in a mode other than that mentioned in s. 49(iii)(b) and his cost is the market value as on that date January 1, 1964. The assessee contended that the market value as on January 1, 1964, should have been taken. The AAC held that the records disclosed that the entire property had been treated as an asset of the firm and that, therefore, the partners of the firm could be said to be co-owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the property to the assessee. The property having been taken out of the assets of the firm at a particular value and the property having been taken over by the assessee to the extent of his share at a fraction of the sale value, it should ordinarily be held that the assessee has taken over the asset at the value as shown in the books of the firm as well as in his own books. In the books of the firm, he was debited with Rs. 9,400 and in his own books the assessee had taken over this property at the sum of Rs. 9,400. The way in which the partnership has dealt with the asset has been described by the Tribunal in para. 2 of its order as follows : " The appellant's account was debited with Rs. 9,400 since the entire property had been valued at Rs. 94,000 in the books of the firm. Similarly, the account of the other partners were also debited with the corresponding value of the portions allotted to them and the property account was closed. " The learned counsel for the assessee contended that what was done by the partners was merely to take out the asset from the firm, as a result of which the property became that of the co-owners, each having a distinct share in the said asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty 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." At page 340, the Supreme Court pointed out : " Take another illustration : Instead of partitioning the properties by evaluation thereof, the houses (taken as an example) were sold to a third party. So far as the third party was concerned,the cost price would be the price at which he purchased them. If instead, the properties were sold by auction between the brothers and the difference in prices was adjusted by cash payment, it would be incongruous to say that in the former the cost of the houses would be the cost actually paid by the third party purchaser and in the latter the cost of the houses would not be the price for which they were auctioned but the nominal price they bore in a remote past. Other illustrations may be visualised. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such a case as there is no company here. Sub-clause(iv)was omitted with effect from April 1,1966,and sub- cl. (v) relates to cases where the capital asset, being a share or stock of a company, became the property of the assessee under certain circumstances. This is not also such a case. Therefore, it is clear that none of the sub-clauses of s. 55(2) would apply here. Section 55(3) refers to cases where the cost for which the previous owner acquired the property could not be ascertained. The previous owner in this case will be the firm, and the cost for which the firm acquired the property could be ascertained, viz., at Rs. 94,000 as found by the Tribunal. Therefore, as s. 55(3) also cannot apply here, we may exclude from consideration the entire provisions of s. 55 of the Act. Even then, we are left with the question as to what is the cost of acquisition of the capital asset. It is in this context that the decision of the Supreme Court in Kalooram Govindram v. CIT [1965] 57 ITR 335, which has subsequently been followed or approved in Guzdar Kajora, Coal Mines Ltd. v. CIT [1972] 85 ITR 599 (SC) appears to be relevant. That decision has laid down the principle that where the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners, especially when the transfer was in favour of the partner. As credits and debits were made in the firm's books there was nothing notional about the sum of Rs. 94,000 in the present case. An estimated value taken by the partners for adjustment of their rights inter se cannot be taken as a notional value. The value is real and not notional. Learned counsel for the assessee next contended, as a general proposition of law, that wherever the market value was higher than the value as shown by any arrangement between the parties, it is the market value that should be taken into account as the actual value. There is absolutely no warrant in any statutory provision or any decided case in support of this proposition. In the circumstances, we are unable to accept this proposition put forward by the learned counsel for the assessee. There is one further aspect that requires to be clarified at this stage. Though the ITO proceeded on the basis that the cost to the assessee was only Rs. 400 per ground, the AAC took the value at Rs. 800 per ground which, according to him, was the value as on January 1, 1954. In the view of the AAC, it is a case in which the assessee should be understo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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