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TMI Blog2018 (12) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... us year, the actual cost to the assessee. As actual cost to the assessee was ‘Nil’, the WD value of the assets in the hands of the predecessor firm shall be considered for the allowance of depreciation. Therefore, we do not see any reason to interfere with the orders of the authorities below. Although in Assessment Year 2013-14, the Tribunal has stated in para no. 10 of that Tribunal order which has been reproduced above that the Tribunal finds no reason to take a contrary view in this appeal and therefore, following the Tribunal order for earlier years, the AO was directed to allow depreciation on intangible assets. When the issue was decided by the Tribunal against the assessee for Assessment Years 2005-06 and 2008-09 and also for Assessment Year 2012-13, this Tribunal order for Assessment Year 2013-14 in which, it is stated that the earlier tribunal orders are being followed, it cannot be considered as binding precedence and hence, by respectfully following the earlier Tribunal orders for Assessment Years 2005-06, 2008-09 and 2012-13, the issue in dispute is decided against the assessee.- decided against assessee. - ITA No.2255/Bang/2018 - - - Dated:- 29-11-2018 - Shri Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act which explains the term demerger. 7. The lower authorities have failed to appreciate that in cases where it was intended that the effect of revaluation needs to be ignored the same has been explicitly provided for as envisaged under Section 50B of the Act, dealing with Computation of capital gains in a slump sale. 8. Without prejudice to the above, the lower authorities have failed to appreciate that the revaluation of the assets of the firm has to be necessarily carried out and the partners' accounts have to be necessarily credited in respect of such revaluation when the business of the firm is succeeded to by the company keeping in mind the business reality that the shares of the company may be listed or venture capitalists may invest in the company. 9. The lower authorities have failed to appreciate that Section 43(1) of the Act which defines the term 'actual cost' nowhere stipulates that the incurrence of the expenditure needs to be necessarily in cash. 10. The lower authorities have failed to appreciate that Board Circular No.21 dated 09.07.1969 in paragraph 11 (though currently withdrawn vide Circular No.382 for different reasons) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in assessee s own case for Assessment Year 2012-13 and reproduced the relevant paras from the earlier Tribunal order in para no. 9 of this Tribunal order for Assessment Year 2013-14. He submitted that the issue should be decided in favour of the assessee by following the Tribunal order in Assessment Year 2013-14. 4. As against this the ld. DR of revenue supported the order of CIT(A). He also submitted that as per the Tribunal order for Assessment Year 2012-13 reproduced by the Tribunal in later order for Assessment Year 2013-14, the issue was decided by the Tribunal against the assessee and appeal of the assessee was dismissed and therefore, the issue in dispute is covered against the assessee by the Tribunal order in assessee s own case for Assessment Year 2012-13. 5. We have considered the rival submissions. First of all, we reproduce the relevant para from the impugned order of CIT(A) and the same is para no. 5 which reads as under. 5. I have considered the above grounds of appeal, statement of facts and written submissions filed by the appellant and also perused the assessment order. The Assessing Officer has observed that the firm was converted into private Ltd. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dication before us is whether the earlier partnership firm was required under law to revalue the assets before its conversion into a company. As rightly pointed out by the learned counsel for the assessee, when a partnership firm is dissolved, it needs to revalue its assets as the partners are entitled to receive the value of the assets as on the date of dissolution in the ratio of their contribution of capital and, therefore, to arrive at the value of the assets as on the date of dissolution the revaluation of assets and liabilities is required to be done. Similar is the case where any of the partners retires or any new partner is inducted. But what happens when there is no induction of a new partner or retirement of any partner or dissolution of partnership firm? The requirement of revaluation of the assets and liabilities arises only in the circumstances mentioned above. In the case on hand, the assessee had revalued its assets on the ground that it was getting converted into a private limited company. The learned counsel for the assessee had placed reliance upon the decision of the Hon ble Supreme Court in the case of Kartikeya A.V Sarabhai (cited Supra) in support of his conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on dissolution pre-supposesdivision,realization,encashment of assets and appropriation of the realized amount as per the priority and that this difference is very important. Having observed thus, the Hon ble High Court held that there is no transfer of property and no capital gains arise from such a transaction. The Hon ble High Court was dealing with the case of the partnership firm while in the case on hand, we are dealing with the case of the company. In the case of Texspin, the questions considered were (1) whether capital gains arose in the hands of the partnership firm on conversion of the firm into the company, and (2) whether the firm was entitled to depreciation on the assets owned by it till the date of transfer. 17. The case on hand is a reverse case. The company is claiming the depreciation on the value of the assets in its books of accounts. The claim of depreciation is on trademarks which are intangible assets and depreciation thereon is allowable u/s 32(1)(ii) of the IT Act. The two conditions mentioned in sec. 32 are that the assets should be owned by the assessee and should have been used for the purposes of the business or profession of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the case on hand. 22. The other objection of the learned counsel for the assessee is that the conversion has taken place in the previous year relevant to assessment year 2004-05 and hence it can be examined only in A.Y 2004-05 and not in subsequent year. We are unable to argue with this contention of the assessee. Sub-sec(6) of sec. 43 defines Written Down Value and it provides for both the acquisition of assets during the relevant previous year and acquisition of assets before the relevant previous year and both the clauses mention actual cost to the assessee . In the second circumstance i.e. where the assets are acquired before the previous year as in the case of the assessee before us, the WDV shall be the actual cost to the assessee less all depreciation actually allowed to him under the Income-tax Act. Therefore, it is clear that the claim of depreciation can be examined even in the assessments years subsequent to the assessment year in which the succession has taken place. This argument is accordingly rejected. 23. The other objection of the assessee is that though only the AO is entitled to invoke the provisions of Explanation 3 to sec. 43(1) of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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