1989 (3) TMI 115

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....nt of accounts, the 'market value' was to be adopted for the income-tax assessment of the firm ?" The respondent is the Revenue. We are concerned with the assessment year 1971-72. The applicant/assessee was a firm of retail dealers in motor vehicles' spare parts. The firm was dissolved on March 31, 1971. For the purpose of settlement of accounts, the closing stock of spare parts of value of Rs. 43,86,572 was distributed among the partners at the price at which the firm had purchased them. In the assessment, the Income-tax Officer took the view that the closing stock which was distributed among the partners on dissolution should have been valued not at the cost price but at the market price. After the applicant/assessee-firm was dissolved....

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....Madras High Court and the decision of the Cochin Bench of the Tribunal, the closing stock has to be valued at the market value in order to arrive at the true profit earned by the assessee during the relevant previous year. Thereafter, at the instance of the assessee/applicant, the Appellate Tribunal has referred the question of law, as formulated hereinabove, for the decision of this court. We heard counsel for the applicant/assessee as also counsel for the Revenue. It was brought to our notice that the decision of the Tribunal in Popular Workshops' case, wherein the Madras High Court's decisions were followed, was the subject-matter of Income-tax Reference No. 141 of 1980, and a Bench of this court in Popular Workshops v. CIT [1987] 166....

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....hip the assets were taken at their book value for the purpose of the annual accounts." The accounts of the firm may be conclusive for the purpose of calculating the profits to be divided among the partners, so long as the firm is unchanged. But it will not be so for the purpose of calculating the total amount to be paid to a partner on his expulsion from the firm or on dissolution of the firm, unless there is an agreement to the contrary. An agreement, express or implied, with reference to the taking of accounts, has been held to be applicable only to the case of a continuing partnership and not when the firm is finally dissolved or one of the partners retired. The general law seems to be clear on this point. (See Lindley on Partnership,....