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Matrumal Dhanna Lal Vs. Income-tax Officer, a Ward - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 390 of 1966
Judge
Reported in[1972]86ITR497(All)
ActsIncome Tax Act, 1922 - Sections 10(2) and 66(1)
AppellantMatrumal Dhanna Lal
Respondentincome-tax Officer, a Ward
Appellant AdvocateP.N. Panchauri and ;S.B. Varma, Advs.
Respondent AdvocateB.L. Gupta and ;R.R. Misra, Advs.
Excerpt:
- .....year under assessment, is competent to ignore and go behind its written down value fixed in the year or years preceding thereto ? 2. whether, on the facts and in the circumstances of the case, the tribunal rightly held that the actual cost of the oil mill in question to the assessee remained what it was in the case of the firm of kishan lal matrumal ?' 5. learned counsel for the assessee argued the second question first. he relied upon the supreme court case of kalooram govindram v. commissioner of income-tax, [1965] 57 i.t.r. 335; [i965] 3 s.c.r. 641 (s.c.). in this case there was partition in a hindu undivided family wherein g. & b. were declared entitled to 10/16th and 6/16th share in the properties. each item of property which could not be divided by metes and bounds was put up.....
Judgment:

H.N. Seth, J.

1. This is a combined reference in respect of assessment years 1954-55, 1955-56, 1956-57 and 1957-58, made at the instance of the assessee, Matrumal Dhanna Lal, under Section 66(1) of the Income-tax Act, 1922.

2. The assessee is a Hindu undivided family doing business under the name and style of Matrumal Dhanna Lal of Hathras. There is an oil mill situated at Chemar Gate, Hathras. This mill along with another oil mill situated at Aligarh originally belonged to the partnership firm, Messrs. Kishan Lal Matrumal, formed on August 13, 1935, by five partners including Rai Sahib L. Dhanna Lal as representing the assessee-Hindu undivided family and L, Chiranji Lal representing his own Hindu undivided family. Duo to certain differences the partnership business was discontinued after the year 1941. The partners referred their dispute in respect of the dissolution of the firm and settlement of accounts to arbitration. The arbitrators gave their award on June 30, 1947, which was later made a rule of the court and accepted by the parties. Under that award the oil mill at Hathras was valued at Rs. 9,50,000 and allotted to the assessee's family. The other oil mill at Aligarh was valued at Rs. 5,00,000 and was allotted to the other party. As the value of the property allotted to the assessee-family exceeded the value of the property allotted to the other partner, the arbitrator directed the former to pay the difference of Rs. 2,52,476 to the other partner in order to equalise the two shares. The written down value, as per the income-tax records, of the oil mill at Hathras, on 27th March, 1946, i.e., while it belonged to the partnership of Kishan Lal Matrumal, was Rs. 1,53,348. In the year 1947-48, which was the first year of the mill's operation by the assessee's family exclusively, the Income-tax Officer allowed depreciation thereon on the basis that its actual cost to the assessee-family was Rs. 9,50,000. Depreciation was allowed on this basis up to the assessment year 1953-54. In the year 1954-55, the Income-tax Officer held that in the assessment year 1947-48 the written down value of the mill in the hands of the assessee-firm should have been fixed on the basis that its actual cost to the assessee was Rs. 1,53,348 and that the written down value in the assessment year 1954-55 was the difference between the said amount and the depreciation actually allowed to the assessee-family from the assessment year 1947-48 up to and including the assessment year 1953-54. He, accordingly, determined the written down value, on this basis, for the assessment year 1954-55 to 1957-58.

3. The assessee thereafter preferred an appeal against the orders for these years before the Appellate Assistant Commissioner, contending that the oil mill in question had been purchased by it for a sum of Rs. 9,50,000 and that its written down value should have been determined on that basis. It was further contended that the Income-tax Officer was not within his rights to ignore the written down value determined in the preceding years and to determine it afresh on a new basis. The Appellate Assistant Commissioner, however, allowed the assessee's appeal on the ground that the Income-tax Officer was not competent to determine the written down value in the year under appeal regardless of the written down value determined in the preceding year.

4. The revenue then preferred appeals in respect of these years before the Tribunal. After considering the nature of the transaction involved in the case, the Tribunal ultimately came to the conclusion that when the property was divided amongst the partners it did not result in sale of assets to a partner and did not involve any transfer of property. After considering a number of cases, it came to the conclusion that so far as assets, distributed to various partners of the firm on its dissolution, were concerned the actual cost of such assets to the partners so receiving it was their actual cost to the previous owner thereof. Accordingly, it held that the actual cost of the oil mill in question to be assessed remained what it was in the case of the firm, Kishan Lal Matrumal, i.e., Rs. 1,53,348. The Tribunal further repelled the contention raised on behalf of the assessee that the Income-tax Officer was bound to calculate the written down value of the mills in the subsequent years on the basis of the written down value that had been determined by him in the earlier years. In the result the order made by the Income-tax Officer was restored. At the instance of the assessee the Tribunal has referred the following two questions for the opinion of this court:

'1. Whether the Income-tax Officer, while determining the written down value of a particular asset in the year under assessment, is competent to ignore and go behind its written down value fixed in the year or years preceding thereto ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal rightly held that the actual cost of the oil mill in question to the assessee remained what it was in the case of the firm of Kishan Lal Matrumal ?'

5. Learned counsel for the assessee argued the second question first. He relied upon the Supreme Court case of Kalooram Govindram v. Commissioner of Income-tax, [1965] 57 I.T.R. 335; [I965] 3 S.C.R. 641 (S.C.). In this case there was partition in a Hindu undivided family wherein G. & B. were declared entitled to 10/16th and 6/16th share in the properties. Each item of property which could not be divided by metes and bounds was put up for sale by competitive bidding between them. One of the items was a sugar factory which was knocked down in favour of G. for a sum of Rs. 34,00,000. After all the items of the property were thus allotted to one or the other of them, final adjustment was made by cash payment. Thereafter, G.'s smaller family continued to run the factory.

6. For the assessment year 1950-51 the question arose whether G.'s family was entitled to depreciation on the factory under Section 10(2)(vi) of the Indian Income-tax Act, 1922, on the amount of Rs. 34,00,000 depreciation not having been allowed for an earlier period. The Appellate Tribunal held that as regards the 10/16th share, the cost to G.'s family was the original cost to the larger family and, as regards 6/16th share, the original cost was 6/16th of the purchase price of Rs. 34 lakhs, viz., Rs. 12,75,000. On a reference at the instance of G.'s family the High Court held that depreciation ought to be computed on the basis of the original cost of the larger family and not on the basis of the valuation on which the appellant took over the assets. Being dissatisfied, G.'s family took the matter in appeal before the Supreme Court. The Supreme Court held that, barring the cases of collusion, inflation and deflation of values for ulterior purposes, the cost of asset to a divided member must necessarily be its cost to him at the time of partition, whether mentioned in the partition deed or ascertained aliunde. If the valuation of the property for purposes of partition was not notional but was real and that was the basis for allocating the properties to different members, cost of property allotted to a member cannot be that at which it was purchased by the joint family in a remote past but would be the value given to it for the purpose of allotment or at which it was auctioned for purposes of partition.

7. In the instant case we find that while dividing the properties between the various partners, the arbitrators valued them and after distributing them they made adjustments in the shares by directing the partner receiving property of a higher value to pay actual monetary compensation to the partner receiving property of lower value. In view of the principles laid down in the Supreme Court case mentioned above, it is clear that the actual cost of the oil mill to the assessee should be considered to be Rs. 9,50,000 and not what it was to the original firm, Kishan Lal Matrumal, at the time of its acquisition.

8. Learned counsel for the revenue tried to argue that in this case it might be that the transaction in question was motivated and the value put on the oil mill was not the real market price but was merely the notional price adopted for purpose of facilitating the division of property. No such finding has been recorded by the Tribunal. It does not appear that there is any material on the record to support this contention. The direction of the arbitrators for payment of compensation to the person receiving property of a smaller value indicates that the price fixed was considered to be the real market price. In the circumstances, we answer the second question referred to us in the negative and in favour of the assessee. In view of our answer to the second question learned counsel for the assessee did not press for an answer to the first question, and we refrain from answering the same.

9. The assessee is entitled to the costs of this reference which we assess atRs. 200. Counsel's fee is also assessed at Rs. 200.


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