TMI Blog2003 (2) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... tners. The firm carried on business as transporters and courier agents for more than two decades. There were disputes between various partners of the firm, divided into two groups, and the matter was referred to a mutually agreed arbitrator. Two group of the partners have agreed to resolve the differences amicably and accordingly, the arbitrators pronounced an award on 15th October, 1985,as a result of which, Jain group of partners (assessee is one amongst them) agreed to retire from the firm M/s. Indian Roadways Corporation w.e.f. the close of the business on 14-8-1985, in lieu of which, certain immovable properties were given to the Jain group in full and final settlement of the rights of the retiring partners. In the deed of retirement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said property should be adopted as the cost of acquisition. The Assessing Officer has, therefore, allowed deduction of Rs. 1,32,018 only as against the claim of deduction of Rs. 2,06,250 and accordingly arrived at the net capital gain of Rs. 1,07,197. 4. Aggrieved, assessee preferred an appeal before the CIT(A) contending, inter alia, that the market value on the date of retirement has to be taken as the cost of acquisition. However, Ld. CIT(A) was of the view that on retirement the assessee, in her capacity as a partner, receive the property in which she already had a pre-existing right; the rights in the capital assets owned by the firm were acquired by the partner on the date the firm acquired those assets. The ld. CIT(A), ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotted to Jain Group. In the previous year relevant to the assessment year 1987-88, one of the properties was sold and capital I gain was computed after reducing market value of such asset, on the date of retirement, from the sale consideration. In the case of one of the co-owners i.e., Mr. Jaykumar Jain, Assessing Officer has not accepted the claim of the assessee but the CIT(A) agreed with the assessee's contention. 2. When an asset is distributed to a partner on retirement, the value of such asset shall be cost in the hands of the partners. The difference between cost of such assets in the hands of the firm and the market value on the date of retirement, if at all taxable, should be taxed in the hands of the firm from A.Y. 1988-89 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ITD 290. Based on the aforecited decisions, the Ld. Counsel submitted that there is no difference between the HUF and the partnership firm with regard to the ownership of the asset prior to partition/retirement. In the case of a HUF, each member has ownership right in the properties owned by HUF. Similarly, in the case of partnership firm, each partner will have undivided interest in the property held by the firm. Therefore, on retirement of a partner the value of the property allotted to the retiring partner should be taken at the market value. It was also contended that in the instant case, the arbitrators have taken into consideration the market value of the properties before distributing the assets between the retiring partners and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etirement took place, the statute did not provide for treating transfer of property from the firm to the retiring partners as a transfer within the meaning of section 45 of the Act. In fact, section 45(4) deals with such situations by deeming such event as a 'transfer', only with effect from 1-4-1988. Though under section 45(4), the Legislature used the expression 'distribution of capital asset on the dissolution of the firm......or otherwise.....'for the purpose of determining the cost of acquisition of the property by the partner the Legislature has covered the cases of dissolution of (and not retirement from) a partnership firm section 49(1)(ii)(b) conspicuously omits the expression 'otherwise' though it covers 'distribution of assets on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets of the HUF and only on partition it is replaced by an exclusive interest in an asset which is received by the said member on partition. Similarly, when there is dissolution of partnership firm, the erstwhile partners receive the assets whereby a shared interest in a property is converted into an. exclusive interest. In all such specific cases, the Legislature intended to replace the market value with the cost for which previous owner of the property acquired it, for the purposes of determining the cost of acquisition of the asset, as per section 48(ii) of the Act, whereas the distribution of assets on retirement of a partner was not covered by section 49 of the Act which implies that the cost of acquisition of the asset in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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