D. Manmohan, Judicial Member - (1.) THIS appeal filed by the assessee is directed against the order of CIT(A) XXII, Bombay and pertains to the A.Y. 1991-92. Cost of acquisition of property which was sold by the assessee in the years under consideration is the subject matter of dispute before us.
(2.) The facts revolve in a narrow compass. M/s. Indian Roadways Corporation, a partnership firm consisted of 13 partners of which, assessee was one of the partners. The firm carried on business as transporters and courier agents for more than two decades. There were disputes between various partners of the firm, divided into two groups, and the matter was referred to a mutually agreed arbitrator. Two group of the partners have agreed to resolve the differences amicably and accordingly, the arbitrators pronounced an award on 15th October 1985, as a result of which, Jain group of partners (assessee is one amongst them) agreed to retire from the firm M/s. Indian Roadways Corporation w.e.f. the close of the business on 14.8.84, in lieu of which, certain immovable properties were given to the Jain group in full and final settlement of the rights of the retiring partners. In the deed of retirement, the assets identified by the arbitrators have come to be owned by four partners, having 1/4th share in the immovable properties. A plot of land out of afore-mentioned property was sold during the previous year relevant to the A.Y. 1991-92 for a total consideration of Rs. 9,81,000/-. Since the assessee had 1/4th share in the aforementioned property, 1/4th of share consideration which worked out to Rs. 2,45,250/- was offered to tax under the land 'capital gains'. For the purpose of working out capital gain tax, the assessee has reduced from the sale consideration a sum of Rs. 2,06,250/- towards cost of acquisition/market value as on 9.11.85 i.e. the date when the partners entered into a deed of retirement, and also deducted from the sale consideration the transfer and registration charges of Rs. 6,035/-. It may be noticed that as per Section 48 of the I.T. Act, the income chargeable under the head 'capital gains' shall be computed by deducting from the full value of the consideration : 1. Expenditure incurred wholly and exclusively in connection with such transfer. 2. Cost of acquisition of the assets and the cost of any improvement thereto. According to the assessee, the term 'cost of acquisition' having not been specifically defined, market value of the immovable property, on the date when the retirement deed was signed, should be taken into consideration whereas the A.O. was of the opinion that the book value shown in the partnership firm with regard to the said property should be adopted as the cost of acquisition. The A.O. has, therefore, allowed deduction of Rs. 1,32,018/- only as against the claim of deduction of Rs. 206250 and accordingly arrived at the net capital gain of Rs. 1,07,197/-.
(3.) AGGRIEVED, assessee preferred an appeal before the CIT (A) contending, inter alia, that the market value on the date of retirement has to be taken as the cost of acquisition. However, Ld. CIT (A) was of the view that on retirement the assessee, in her capacity as a partner, receive the property in which she already had a pre-existing right; the rights in the capital assets owned by the firm were acquired by the partner on the date the firm acquired those assets. The Ld. CIT(A), therefore, concluded that the assessee acquired assets not by virtue of deed of retirement but by virtue of being a partner in the firm. Since no transfer of the assets is involved on the date of retirement, it was held that it cannot be stated that the partner acquired the assets as on the date of retirement because the right in those properties was acquired by the assessee on the date when the firm acquired the assets. Thus, the cost of acquisition in the hands of the partner was taken to be the cost of acquisition of the assets by the previous owner i.e. the firm. The A.O. was directed to ascertain the date of the acquisition of the property by the firm and adopt the cost of acquisition of the property by the firm as the cost of the assessee. 4. Further aggrieved, assessee is in appeal before us. The summary of the submission made by the Ld.A.R. are briefly stated:- 1. Retiring partners (including the assessee herein) received certain properties of the firm, as per the arbitration award, in full and final settlement of their claims. Properties were allotted to all the retiring partners jointly as co-owners of the property. While awarding various assets to the retiring partners, the arbitrators evaluated the realisable value of all the assets on the date of retirement. Instead of selling the assets and distributing cash to the retiring partners, market value of all the assets were evaluated and certain assets equivalent to the share of the retiring partners were allotted to Jain Group. In the previous year relevant to the A.Y. 1987-88, one of the properties was sold and capital gain was computed after reducing market value of such asset, on the date of retirement, from the sale consideration. In the case of one of the co-owners i.e. Mr. Jaykumar Jain, A.O. has not accepted the claim of the assessee but the CIT (A) agreed with the assessee's contention. 2. When an asset is distributed to a partner on retirement, the value of such asset shall be cost in the hands of the partners. The difference between cost of such assets in the hands of the firm and the market value on the date of retirement, if at all taxable, should be taxed in the hands of the firm from A.Y. 1988-89 onwards. However, the cost in the hands of the partner is only as per the market value on the date of retirement. 3. In the case of CIT v. Groz-Beckert Saboo Ltd., 116 ITR 125(S.C.), the Court held that when a foreign collaborator is given raw-material free of cost, its cost in the hands of the assessee will be the market value. In coming to such conclusion, the Court had noted that in a case where instead of giving a particular asset free of cost if the collaborator had given gift of equivalent amount and from such amount the assessee had purchased that asset, then that would have been allowed as the cost. Drawing analogy from the afore-cited decision, the Ld. Counsel submitted that in the instant case also, had the retiring partners given cash by the firm, by selling properties, and if the assessee re-invests the same by purchasing a property then that would have been allowed as a cost. Such being the case, even on the asset given to a retiring partner, in full and final settlement, the same logic has to be applied in which event, market value has to be adopted as the cost of acquisition of the said asset. 4. In the case of Kalooram Govindram, 57 ITR 335 (S.C.), the Hon'ble Court held that when a member receives any asset on partition of H.U.F., the cost of property to the member on the date of partition would be the value given to it for the purpose of allotment. Similar view was taken by the ITAT Delhi Bench in the case of Hansalaya Properties, 41 ITD 290. Based on the afore-cited decisions, the Ld. Counsel submitted that there is no difference between the H.U.F. and the partnership firm with regard to the ownership of the asset prior to partition/retirement. In the case of a H.U.F., each member has ownership right in the properties owned by H.U.F. Similarly, in the case of a partnership firm, each partner will have undivided interest in the property held by the firm. Therefore, on retirement of a partner the value of the property allotted to the retiring partner should be taken at the market value. It was also contended that in the instant case, the arbitrators have taken into consideration the market value of the properties before distributing the assets between the retiring partners and continuing partners.;