COMMISSIONER OF INCOME TAX Vs. M KATHIRESAN

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal has stated a case and referred the following question of law for our consideration: - Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that in the case of conversion of proprietary business into partnership firm, the stock should not be valued at market price?".

(2.) THE assessment year involved is 1983-84. THE issue raised in this tax case reference is regarding the method of valuation to be adopted. In the assessment proceedings for the assessment year 1983-84 the assessee claimed loss incurred in the sole proprietary concern, since the proprietary concern was converted into a partnership firm. THE Income-tax Officer, completed the assessment accepting the loss returned by the assessee in the sole proprietary concern. THE Revenue carried the matter in appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income-Tax (Appeals) set aside the assessment order on the ground that the assessing officer has not revalued the stock according to market price on the conversion of the proprietary business into a partnership business, following the decisions in the case of G.R.Ramachari & Bros VS. (41 ITR 142) And A.L.A. Firm V. Commissioner Of Income Tax (102 ITR 622) and directed the assessing officer to apply the ratio laid down in the above cases. On appeal by the assessee, the Income-tax Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals), following the Supreme Court decision in the case of Sunil Siddarthbhai V. Commissioner Of Income Tax (156 ITR 509), on the ground that though the conversion of a proprietary business into partnership is undoubtedly a transfer, it could not be said that the nominal value credited to capital account in the hands of the firm is the consideration for the transfer. It is against the order of the Income-tax Appellate Tribunal, at the instance of the Revenue, the Income-tax Appellate Tribunal has stated a case and referred the question of law referred to above.