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TMI Blog1991 (11) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ft. with a building of 1650 sq. ft. thereon. The firm was running a nursing home. 3. The firm was dissolved on 13-12-1982. All the assets of the firm including the land and building mentioned above were taken over by the assessee, one of the partners. The land and building, in the books of the firm, were of the value of Rs. 5,22,818. They were revalued at Rs.10 lakhs at the time of dissolution. Accordingly, the other six partners were paid. We were told that shares were issued to the other six partners and their nominees by the assessee in respect of the amounts payable to them. 4. In the assessment for 1984-85, the assessee claimed depreciation on the revalued cost. The ITO did not grant and he held that in view of Explanation 3 to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution and the revaluated cost was the basis for adjustment of the rights between the partners. The other partners have been paid according to revaluated cost. The Supreme Court has recognised the right of the partners to revalue at the time of dissolution in CIT v. Bankey Lal Vaidya [1971] 79 ITR 594. The Delhi High Court has in the case of Raj Narain Agarwala v. CIT [1970] 75 ITR 1 pointed out that the actual cost for the company (assessee) is the revaluated figure for the purposes of section 43(1). 7. Explanation 3 provides that the Assessing Officer, if satisfied that the main purpose of transfer of such asset, directly or indirectly, to the assessee was to reduce the liability to income-tax, then the actual cost may be determined hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y meaning ' Sale ', according to its ordinary meaning, is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved firm by allotment of its assets is not a transfer, nor is it for a price." The above ruling was given in the context of depreciation allowance to be debited in the computation of profits and gains under section 10(2)(vii) of Income-tax Act, 1922 which corresponds to section 41(2) of 1961 Act. 9. In Bankey Lal Vaidya's case this question was again considered by the Supreme Court. A firm of two partners was dissolved. The assets were valued and one partner received from the other partner value of his share in the assets. It was held that it was an arrangement between the partners of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the connotation of the word " transfer " found in that provision in the background of the definition in section 2(47), and the ratio equally applies to the word " transfer " found in Explanation 3 to section 43(1). 11. The case of Kungundi Industrial Works (P.) Ltd. is demonstrably distinguishable on facts. A firm of partners had been converted into private limited company and the shareholders of the company were, old partners and their nominees and shares in the company were allotted in the same proportion as shares held by the partners in the firm. The Andhra Pradesh High Court held that there was change over or transfer of the assets for the purpose of proviso to section 10(5)(a), Income-tax Act, 1922. In this case, the property belon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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