TaxTMI 
TaxTMI 
2003 (5) TMI 200
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....ccounts of the partners on account of re-valuation of building owned by the firm. In other words, value of the building was enhanced by Rs. 7lakhs on 1-41992 and above sum was divided and credited to the accounts of the partners as under:-- (i) Shri Sant Singh Rs. 2,80,000 (ii) Shri Surjit Singh Rs. 2,45,000 (iii) Smt. Jaswinder Kaur Rs. 1,75,000 ------------------------ &n....
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....tended that interest as per terms of instrument of partnership was to be paid only on capital contribution of partners and not on notional accretion in building account with corresponding entries in the capital account of the partners. Such notional entries could not be treated as capital contribution. He further argued that building belonged to the firm and not to the partners. If there was any accretion in the value of the building, such accretion was to be made in the hands of the firm and not in the accounts of the partners. In other words, he contended that corresponding value of accretion should have been credited to reserve account representing accretion of value of building. In support of his arguments, the ld. D.R. relied on the decision or Hon'ble Punjab and Haryana High Court in the case of CIT v. Agra Tannery [1989] 179 ITR 441. He further relied on the decision of the Tribunal in the case of Amrit Bottlers (P.) Ltd. v. ITO [1994] 49 ITD 1 (Cal.) (TM). 6. The ld. Counsel for the assessee supported the impugned order of the CIT(A). It was argued that re-valuation of the building was done on 1-4-1992 when shares of the partners were credited to their accounts. The Revenu....
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....ion or retirement. It is not possible to predicate before hand what will be the position in terms of monetary value of a partner's share on that date. At the time when the partner transfers his personal asset to the partnership firm, there can be no reckoning of the liabilities and losses which the firm may suffer in the years to come. All that lies within the womb of the future. It is impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm when neither can the date of dissolution or retirement be envisaged nor can there by any ascertainment of liabilities and prior charges which may not have even arisen yet." Their Lordships further observed as under:-- "When his personal assets merge into the capital of the partnership firm, a corresponding credit entry is made in the partner's capital account in the books of the partnership firm, but that entry is made merely for the purpose of adjusting the rights of the partners inter se when the partnership is dissolved or the partner retires. It evidences no debt due by the firm to the partner. Indeed, the capital represented by the notional entry to the cre....
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....g the course of existence of a partnership. Share of profit or loss is also debited or credited to the accounts of the partners. When capital is brought to the partnership by a partner in a form other than cash, its market value is credited to the capital account of the partner. It may be a notional entry. The true value of all the entries can be determined only at the time of dissolution of the partnership when all the assets and liabilities are taken into account to find out the net wealth of the partnership. The value of share of a partner thus determined is real. Everything till that date is notional only. Yet for the sake of convenience and for practical purposes, entries are made having regard to the market value of items and transactions involved. Till the actual value is determined, the partnership acts on above notional entries. For all practical purposes, these notional entries are as good as real. These are binding on partners and partnership. 13. In the light of what has been observed above, we hold that the assessee was fully justified in crediting share of appreciation of value of the building in respective accounts of the partners. The building belonged to the partn....