TaxTMI 
TaxTMI 
1981 (7) TMI 114
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....5th April, 1971. By this agreement it was agreed that the assessee would retire from the partnership as soon as the parties decided it practicable, but in any case not later than 31st Dec., 1971. Bishanlal Ahuja, the party of the first part, had agreed to pay the assessee, the party of the second part, Rs. 1,50,000 towards half share of goodwill relating to the said partnership in terms of cl. 3. In terms of cl. 4, if the total sum due to the assessee plus the one-half share of goodwill referred to fell below Rs. 3,00,000, the difference was to be considered also as value of one-half share of goodwill. Further, there were cls. 5 and 6 which state as under:-- "5. The land and buildings in which the business is being carried on by the said partnership stand in the joint names of the first and second parties each having an equal share. The Second Party agrees to execute a proper conveyance deed in favour of the first party on his retirement conveying absolutely to the first party his one half share in the said land and building. 6. It is open to the first party to classify the sum payable to the second party as between movable and immovable properties and get necessary documents exe....
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....of the assets of the firm of which the assessee and his brother were partners and that the parties to the document had borrowed monies from the LIC of India by mortgaging their property and thereafter the document speaks of the assessee having agreed to release and relinquish in favour of his brother the entire half share in the firm for a consideration of Rs. 3,00,000 out of which Rs. 1,00,000 was already paid. In terms of the release deed, Rs. 50,000 was payable on execution of the deed and the balance in equal instalments of Rs. 75,000 on 1st Dec., 1972 and 1st Dec., 1973. This deed set out in particular, the details of the property admeasuring about 11, 690 sq. yds. in the schedule thereto. Stamp Duty was paid on the release deed in terms of an endorsement under s. 31 of the Indian Stamp Act wherein it was held to be a release deed and also a mortgage without possession falling under s. 16 of the Indian Stamp Act. 5. The GTO considered the aforesaid documents to determine whether there was any taxable gift. He has set out in his order the salient features of the aforesaid documents to which we have already referred. He pointed out that the partnership deed of 9th Jan., 1965 di....
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.... Nov., 1971 Rs. 1,40,732 50 per cent share in surplus assets Rs. 11,26,283 . 12,67,015 Since the assessee had received only Rs. 3,00,000, the GTO proceeded to examine whether the balance of Rs. 9,67,015 constituted a gift or not. 7. The GTO referred to the provisions of s. 2 (xii) of the GTO Act as also the provisions of s. 4 and came to the conclusion that the assessee had foregone an amount of Rs. 9,67,015 in the process referred to which he was entitled and there was clearly a gift. This amount was, therefore, brought to tax in addition to the amount taxed in the original assessment. 8. The assessee appealed to the CGT (A) who set out the background of the case referred to. The CGT (A) (hereinafter referred to as the 'Commr'), observed that s. 2(xxiv)(b) of the GT Act referred to a transfer of property as meaning any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing provisions, the grant or creation of any lease, mortgage, charge, casement, licence, power, partnership or interest in property, and though the partners owned the entire assets as co-owners, they had definit....
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.... of the view that there was no justification to interfere with the valuation of the aforesaid structures and he confirmed the value of the same at Rs. 2,10,000 in round figures. 10. Coming to the value of the land of 11,600 sq. yds. taken by the Deptl. Valuer at Rs. 175 per sq. yds. the Commr. referred to the three cases which the Deptl. Valuer had referred to in his valuation report, viz., Metro Estate. Hindustan Builders property and Tajmahal Hotel property. According to the Commr., the first two properties were more advantageously situated and were not at all comparable and the last property could not be taken as comparable since it was situated on a less busier King Kothi Road. Eventually, the Commr. referred to a transaction of sale by one Narsamma at Tilak Road, at Rs. 106 per sq. yd. (Including the amount disclosed by her under the Voluntary Disclosure Scheme) and observing that the land was not as good as that of the assessee's but at the same time the sale took place one year later, the Commr. arrived at a value of Rs. 110 per sq. yd. On this basis he fixed the value of the land at Rs. 12.76 lakhs as against Rs. 20.30 lakhs adopted by the Deptl. Valuer and gave a reductio....
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....this contention, he referred to the decision of the Supreme Court in the case of Malabar Fisheries Co. vs. CIT (1979) 12 CTR (SC) 415 : (1979) 120 ITR 49 (SC). The ld. counsel stated that the assessee, on the dissolution of the firm, received only the amount of Rs. 3,00,000 and he had not given up any consideration thereof any property to which he was entitled for the Revenue to urge that property had been surrendered at less than its market value. According to the ld. counsel, this is also not a case where, even if s. 4(1) could be said to be attracted, there was a deemed gift because no property had been transferred by the assessee in the present case. Apart form this, the ld. counsel sought to submit that the deemed definition of 'transfer of property' as occurring in s. 2(xxiv) and in particular the clause which stated that any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any to the person was a transfer, could not be read into the provisions of s. 4, because the expression 'transfer of property' as defined in s. 2(xxiv) did not occur in s. 4(1). For all t....
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....ion for adopting any value higher than that adopted in the case of Tajmahal Hotel. 14. Coming to the value of goodwill, the ld. counsel placed before us figures of profit according to the profit and loss account from 1967-68 to 1971-72. The aggregate profit for five years came to Rs. 3,28,057. Deducting salary at Rs. 1,500 per month for each of the partners, the profit came to Rs. 1,48,057 and the average profit was Rs. 29,611. The ld. counsel submitted that the average return should be taken at 12 per cent of the average capital which came to Rs. 48,211, and the actual profit being Rs. 29,611 there was no super profit and, therefore, no goodwill, and if the parties had placed a value on goodwill, it must be considered as relating to other assets and even if there was a gift, appropriate deduction should be allowed for the same. 15. The ld. Deptl. Rep., on the other hand, submitted that the decision in the case of CGT vs. N.S. Getti Chettiar 1972 CTR (SC) 349 : (1971) 82 ITR 599 (SC) related to an HUF. In the present case, the assessee is a partner who had a definite share, viz., one-half share in the firm's assets. So, when there was a dissolution, he submitted the assessee was ....
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....material on which he wanted to rely before the Commr. and he would rely on the same material before us to support the valuation. According to him, the mere fact that a lower value has been taken for land eventually in the case of the Tajmahal Hotel property, could not affect the factual position of the valuation of the land in the present case and he pleaded for the order of the Commr. being upheld on the point of valuation. He also stressed that as far as the cycle stand etc. was concerned, since it was recently built, the valuation placed by him was reasonable and there was no justification for taking any scrap value for the aforesaid property. 19. We have considered the rival submissions. We now have the judgment of the Supreme Court in the case of Malabar Fisheries Co. vs. CIT (1979) 12 CTR (SC) 415 : (1979) 120 ITR 49 (SC) which spells out the effect of dissolution of a firm. The Supreme Court has clearly stated that upon dissolution, the firm ceases to exist, followed by making up of accounts, discharge of debts and liabilities and distribution, division or allotment of assets inter se between the erstwhile partners by way of mutual adjustment of rights between them. The Sup....
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....decided by agreement in which event the rules or s. 48 of the Indian Partnership Act do not apply. In the present case the agreement to dissolve the firm and the dissolution deed executed in pursuance thereof spell out the agreement of apportionment. A coparcener in an HUF does not have any definite share in the family property before division as observed by the Supreme Court in Getti Chettiar's case. The Court observed therein that a member of an HUF who had no definite share in the family property before division, could not be said to diminish directly or indirectly the value of his property or to increase the value of the property of any other coparcener by agreeing to take a share lesser than what he would have got if he had gone to Court to enforce the claim. In this regard, according to the Supreme Court, till Partition, the share in the family property was indeterminate and he became entitled to a share only after partition and, therefore, there was no question of either diminishing directly or indirectly the value of his property, or increasing the value of the property of anyone else. So also, in the case of a firm, till dissolution, the share of any partner in the firm's ....
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....purview of s. 2(xxiv) (a),(b) or (c) also. 23. Out of the remaining expressions used in s. 2(xxiv), we only have to examine whether any 'disposition' has resulted or there has been any 'other alienation of property'. The term 'disposition' has been explained by the Supreme Court in Getti Chettiar's case to mean giving away or giving up by a person of something which is his own. In the present case, prior to dissolution, it could not be said that the assessee had an interest in the assets of the firm which was his own. Therefore, his share being indeterminate therein, it could not be said that on a mutual adjustment consequent to dissolution, the assessee had given up any right which was his own. The further requirement laid down by the Supreme Court is that in the context the term 'disposition' in s. 2 (xxiv) applies only where there is some transfer of property as is generally understood. Looking to the ratio of the judgment in Getti Chettiar's case and of the ratio in Malabar Fisheries Co.'s case, in the present case, on the dissolution of the firm and allocation of assets or payment of consideration between the partners inter se, there has been no transfer of property. There wa....
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....l Government or the Reserve Bank of India; (b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full to in part from the transferee to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transfer; (c) where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender forfeiture or abandonment, to the extent to which it has not been found to the satisfaction of the GTO to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment; (d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the person makin....
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....in the brother of the assessee. Merely because the parties considered further formalities were necessary to vest the properties in the brother, and the assessee executed the release deed, it does not alter the position that the immovable property which may have been originally purchased jointly, but which was treated as firm's property, had consequent to the dissolution of the firm and the terms of agreement applicable thereto, already vested in the brother of the assessee. Thus, there was no debt, contract, actionable claim or other interest in property which the assessee had parted with as a result of allocation of shares on dissolution of the firm which takes the case outside the purview of cl. (c) of sub-s. (1) of s. 4 and finally cl. (d) does not in terms apply. 26. Though we have held that in law there is no taxable gift, we would also discuss and give our findings regarding the valuation were we to have held that there was a gift. There are only two items in dispute. One is the valuation of the land and building and the other is the valuation of goodwill. 27. We would first take up the valuation of land and building. We have already given the break-up of the buildings and ....
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....ered as comparable. The ld. counsel for the assessee submitted that the Deptl. Valuation Officer had taken a lower value for the assessee's property i.e. Rs. 175 per sq. yd. when he took the value of Tajmahal Hotel Property at Rs. 220 per sq. yd. and therefore when the Tribunal had taken a value of Rs. 68.per sq. yd. he submitted the value taken by the assesses valuer at Rs. 60 per sq. yd. would be in order. We have given very careful consideration to this argument. Once we have held that the values of the two properties would be comparable, the question of our making any further adjustment would not arise since we have given weight to the various factors of location, disadvantage of narrow opening etc. We would therefore hold that the value of the assessee s land of 11,600 sq. yds. will be taken at Rs. 68 per sq. yrd. Thus, the value of the land will come to Rs. 7,88,800 and if to this is added the value or other items of property of Rs. 2,10,000 the aggregate value comes to Rs. 9,98,800. We would direct accordingly that the value of the property be taken at this figure of Rs. 9,98,800 if computation of the value of gift was to be made as against the values taken by the GTO and th....