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TMI Blog1991 (11) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... was dissolved on 13th Dec., 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 Expln. 3 to s. 43(1) the assessee could not have substituted the revalued cost in place of the original cost. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners. 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 vs. Bankey Lal Vaidya (1971) 79 ITR 594 (SC). The Delhi High Court has in the case of Raj Narain Agarwala vs. CIT (1970) 75 ITR 1 (Del) pointed out that the actual cost for the company- assessee is the revaluated figure for the purposes of s. 43(1). 7. Expln. 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 having regard to all circumstances of the case. Shri Venkatesan urged that this Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 s. 10(2)(vii) of IT Act, 1922 which corresponds to s. 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 the firm amounting to distribution of assets of the firm on dissolution. The Court pointed out that there was no sale or excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io equally applies to the word "transfer" found in Expln. 3 to s. 43(1). 11. The case of Kungundi Industrial Works Pvt. Ltd. vs. CIT 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 s. 10(5)(a), IT Act, 1922. In this case, the property belonging to the partners of the firm became the property of the private limited company. The company was not a partner of the firm. It was a new company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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