1971 (3) TMI 34 - HC - Income Tax

In the instant case we find that while dividing the properties between the various partners, the arbitrators valued them and after distributing them they made adjustments in the shares by directing the partner receiving property of a higher value to pay actual monetary compensation to the partner receiving property of lower value. In view of the principles laid down in the Supreme Court case mentioned above, it is clear that the actual cost of the oil mill to the assessee should be considered to be Rs. 9,50,000 and not what it was to the original firm, Kishan Lal Matrumal, at the time of its acquisition.

Summary

Issues:
1. Determination of the written down value of an asset for assessment years 1954-55 to 1957-58.
2. Competency of the Income-tax Officer to determine the written down value of an asset in the current year disregarding the values from previous years.
3. Assessment of the actual cost of an oil mill to the assessee.

Analysis:
The judgment pertains to a combined reference for assessment years 1954-55 to 1957-58 made by the assessee, a Hindu undivided family engaged in business, regarding the written down value of an oil mill. The partnership firm owning the mill was dissolved, and the assets were divided amongst the partners through arbitration. The dispute arose when the Income-tax Officer determined the written down value of the mill for the years in question based on the original cost to the partnership firm, which was contested by the assessee. The Appellate Assistant Commissioner allowed the appeal, stating that the Officer couldn't ignore the previously determined values. However, the Tribunal reversed this decision, holding that the actual cost of the mill to be assessed remained what it was for the partnership firm, not the amount paid by the assessee.

Regarding the competency of the Income-tax Officer to determine the written down value disregarding previous values, the Tribunal concluded that the Officer was not bound to calculate the value based on prior determinations. The Tribunal emphasized that the division of assets amongst partners did not constitute a sale or transfer of property, and the actual cost to the partners remained as it was for the original owner. The Tribunal upheld the Officer's determination, leading to a reference to the High Court.

The High Court analyzed the case in light of a Supreme Court precedent concerning asset valuation in partition cases. The Court determined that the actual cost of the oil mill to the assessee should be considered as the amount paid during the division of assets, i.e., Rs. 9,50,000, rather than the original cost to the partnership firm. The Court rejected the revenue's argument of a notional price, as there was no evidence to support it. Consequently, the second question was answered in favor of the assessee, and the first question was not addressed due to the resolution of the second issue.

In conclusion, the High Court ruled in favor of the assessee, determining the actual cost of the oil mill to be Rs. 9,50,000 based on the principles of asset valuation in partition cases. The Court awarded costs to the assessee and upheld the decision in their favor.