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TMI Blog2000 (2) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of Rs. 252 per sq. ft. and, on the assumption that the property prices had increased between July 15, 1985, and June 30, 1986, adopted the rate of Rs. 400 per sq. ft. As stated hereinabove, without considering the factual position, the Assessing Officer treated the office premises as stock-in-trade and on that basis, he concluded that the income on the said transaction of the stock-in trade having accrued to the continuing partner in the sum of Rs. 1,42,290. he made the said addition. Accordingly, the Assessing Officer taxed the notional profit of Rs. 1,42,290. Being aggrieved, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). The appellate authority, on the facts, found that the flat in question was used by the firm as office prior to the dissolution. That, even after dissolution, it continued to be used as office by the continuing partner. Applying the ratio of the judgment of the Supreme Court in the case of Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506, the appellate authority ordered deletion of the said amount of Rs. 1,42,290. The appellate authority, on the facts, found that the flat was never meant for sale. That, under the family arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rate of the closing stock, subject to the contract to the contrary. The Tribunal held that in the case of A. L. A. Finn [1991] 189 ITR 285 (SC), there was no contract to the contrary which is the case in the present matter. The Tribunal further held that there was no legal principle which laid down that in all cases the stock-in-trade, on dissolution, shall be valued only at market price. The Tribunal distinguished the facts of the present case from the facts in the case of A. L. A. Firm [1991] 189 ITR 285 (SC). Reading the family arrangement, the Tribunal found, on the facts, that the partners had categorically agreed to dissolve the firm on the basis of the book value. That the accounts, inter se, between the parties were agreed to be settled upon on that basis. That, the office premises were never intended to be sold. That, whether the flat is treated as a capital asset or a stock-in-trade was immaterial inasmuch as on the date of dissolution, all assets were required to be valued on the basis of the market value, subject to the contract to the contrary. Hence, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals). Being aggrieved, the Department has come i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock-in-hand on the date of the dissolution should be on the basis of the prevailing market value. In the said judgment, the Supreme Court has relied upon a passage from Pickles on Accountancy in which it has been observed that in the absence of a contrary agreement, all assets and liabilities must be taken at fair value and not merely at book value. This passage has been used by the Tribunal in the impugned order. The judgment of the Supreme Court in the case of A. L. A. Firm [1991] 189 ITR 285 did not deal with the valuation of a capital asset. However, the above passage from Pickles finds place in the book Pickles on Accountancy and under the Chapter of Dissolution of Firms, it is clearly laid down that all assets, on dissolution, must be taken at fair value. It is, therefore, true that this principle will apply to stock-in-trade as well as capital assets. However, as stated hereinabove, the Department, without ascertaining the fair value of the flat has, without any basis, adopted Rs. 400 per sq. ft. This valuation is arbitrary. On the facts, it is clear that the flat was not intended to be sold. If that be the case, the Department should have examined whether the fair value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgments referred to hereinabove, the High Court took the view, with respect rightly so, that the Department under the Act has to ascertain the fair value of the asset and if it comes to the conclusion that the book value does not correspond to the fair value, then the Department will not be bound to accept the book value. Therefore, the High Court set aside the order of the Commissioner of Income-tax on the ground that he had taken ad hoc figures in arriving at the real income. The said judgment applies to the facts of this case. As stated hereinabove, the Assessing Officer has taken ad hoc figures for arriving at the additions which he has made on the basis that the earlier flat sold was a stock-in-trade. In fact, on the facts of this case, it is clear that the flat was used as an office before and after dissolution. That the partners agreed to settle on the basis of the flit not being permitted to be sold. On the facts, the Commissioner of Income-tax (Appeals) and the Tribunal have come to the conclusion that there was an agreement to the contrary. On the facts, there is nothing to indicate that the Department has impugned the family arrangement. Therefore, it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, shall be valued at book value and divided amongst the partners. By a deed of dissolution, the firm was dissolved and subsequently, each partner took over the businesses. In that matter, the partnership carried on the business at two different places under two different names. For the concerned assessment year, the firm valued the closing stock at book value. The Assessing Officer valued the closing stock on the basis of the market value. The Tribunal took the view that the rights of the parties would be governed by the clause in the deed of partnership referred to above and hence the assets were ordered to be valued on the basis of the book value in accordance with the deed of partnership. The High Court rightly held that though under the partnership deed, the parties agreed that, in the event of dissolution, the book value should be adopted, such an agreement may be good only as between the partners. However, such an agreement was not binding on the Revenue. In that matter, the facts show that the Assessing Officer valued the stock on the basis of the market value after taking into account all the facts and circumstances of that case and coming to the conclusion that the book ..... X X X X Extracts X X X X X X X X Extracts X X X X
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