Andhra Pradesh H.C : This appeal by the assessee, is directed against the order of the Tribunal in IT Appeal No. 1922 of 1995, dt. 17th Aug., 2000, for the asst. yr. 1991-92.

High Court Of Andhra Pradesh

Rajlaxmi Trading Co. vs. CIT

Sections 2(22B), 45(4), 260A

Asst. Year 1991-92

Bilal Nazki & S. Ananda Reddy, JJ.

IT Appeal No. 85 of 2000

2nd February, 2001

JUDGMENT

S. ANANDA REDDY, J. :

This appeal by the assessee, is directed against the order of the Tribunal in IT Appeal No. 1922 of 1995, dt. 17th Aug., 2000, for the asst. yr. 1991-92. The assessee was a registered firm. The said firm was dissolved on 31st Aug., 1990 and upon the dissolution, one of the partners took over the assets at book value of Rs. 2,17,555. The AO applied the provisions of s. 45(4) of the IT Act, 1961, and held that the fair market value of the property so transferred was Rs. 5,36,100 as determined by the District Registrar, Ranga Reddy District. The difference between the amount determined by the District Registrar and the amount of written down value (book value) of the asset in question was added in the hands of the assessee-firm as short-term capital gains, which was to the extent of Rs. 3,18,545. The assessee-firm carried the matter in appeal to the CIT(A). The CIT(A) did not agree with the contention of the assessee-firm and, hence, confirmed the addition made by the AO. The matter was carried on in further appeal to the Tribunal, which also did not agree with the contention of the assessee. Hence, the present appeal.

The learned counsel for the assessee contended that the Tribunal as well as the Departmental authorities have fallen in error in putting an interpretation of s. 45(4) so as to take the value determined by the District Registrar as the market value and in computing the capital gains thereon. The learned counsel relied upon a decision of the Supreme Court in the case of CIT vs. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC) : TC 21R.295 and contended that the value of the consideration must be the consideration received by the firm and not something else and according to the learned counsel, in view of the said judgment of the Supreme Court, the written down value which was received by the firm is to be taken as the full value of the asset and, therefore, there is no provision for taking any other value. The said value should be the fair market value of the asset.

The matter was heard at length at the admission stage. After hearing the learned counsel, we do not find that there is any substantial question of law arising out of the order of the Tribunal. The facts are not in dispute. The firm was dissolved on 31st Aug., 1990 and upon dissolution of the firm one of the partners, viz., Shri Sitaram Sarada took over the assets at the book value of Rs. 2,17,555. It is also not in dispute that the assets were transferred in favour of the said partner and the District Registrar, Ranga Reddy District determined the fair market value for the purpose of stamp duty at Rs. 5,36,100. The contention of the assessee is only that the consideration that was received by the assessee-firm should be treated as the fair market value. In support of his contention, he relied upon the decision of the Supreme Court in George Henderson & Co. Ltd.’s case (supra). In the said case, the Supreme Court was considering the provisions of s. 12B of the Indian IT Act, 1922. In the said provision, there is no reference to the fair market value. The reference in the said provision was full value of the consideration for which the sale, exchange or transfer of the capital asset is made and according to the apex Court, the full value of the consideration is the consideration that was actually received by the transferor and there was no provision to substitute any other value in the place of the consideration actually received by the transferor. The position is totally different under s. 45. For convenience, the relevant provision of s. 45(4) is extracted, which is as under : “(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other AOP or BOI (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of s. 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.”

4. A perusal of the abovesaid provision clearly shows that on distribution of capital assets, as a result of the dissolution of the firm for the purpose of s. 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. This deeming or fictional fair market value was not there in s. 2 (22B) of the IT Act. What is ‘fair market value’ was also defined in sub-s. (22B), which is as under : “(22B) ‘fair market value’….. (i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and (ii) where the price referred to in sub-cl. (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act;”

In view of the above, it is clear that the value of the capital asset, on transfer, as a result of the dissolution of the firm, should be the fair market value and not the written down value or any other value. The contention of the assessee was negatived by the Tribunal observing that the reverse interpretation was sought for by the counsel for the assessee stating that the value received by the firm should be the fair market value, which was not accepted; fairly so. In fact, a similar issue was considered by the apex Court in the case of A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC) : TC 2R.453 wherein it was held that ‘there can be no manner of doubt that, in taking accounts for the purpose of dissolution, the firm and the partners, being commercial men, would value the assets only on a real basis and not at cost or at their other value appearing in the books. The real rights of the partners cannot be mutually adjusted on any other basis.’ In the above decision, the apex Court has clearly held that upon dissolution of the firm, the assets have to be valued at the market value for the purpose of determining the capital gains, if any, under s. 48. Though the apex Court rendered the said decision without even reference to s. 45(4), that is actually applicable to the present facts of the case. Apart from that, the provisions of s. 45(4) themselves are very clear that it is the fair market value of the asset on the date of transfer, on dissolution of the firm, which should be taken as the full value of the consideration received or accruing and, therefore, the authorities as well as the Tribunal was right in computing the market value, as determined by the District Registrar, which was not even disputed. As the fair market value is proper and appropriate, no substantial question of law arises out of the order of the Tribunal.

5. Hence, the appeal is dismissed.

[Citation : 250 ITR 581 ]

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