Law: Income Tax Act, 1922

Section:

Income-tax--Firm---Valuation of stock---Dissolution of firm- -Stock has to be valued at market price on date of dissolution of firm---Death of partner---Firm was dissolved on such death---Indian Income Tax Act, 1961. The assessee firm claimed that on the death of one of its partners on October 31, 1981, it was dissolved. It furnished its returns for the assessment year 1982-83 disclosing an income of Rs.22, 940 for the period from April 1, 1981 to October 31, 1981, stating that the closing stock had to be valued at market price. The Assessing Officer brought to charge an aggregate sum of Rs.71,140 being the differential arising out of the valuation of the closing stock at market price and he made assessments one for the period from April 1, 1981 to October 31, 1981, and the other for the period from November 1, 1981 to June 31, 1982. The first appellate authority confirmed the view taken by the Assessing Officer. The Tribunal found that on the death of P, the remaining four partners took one R as partner and continued the business as before and the Tribunal also found that the business of the firm having been continued, there was no necessity for valuing the closing stock as on October 31, 1981, at market price. On a reference: Held, that on the death of the partner, the firm stood dissolved and so, the closing stock as on October 31, 1981, being the date of dissolution of the firm, should be valued on the basis of the market price. A. L. A. Firm v. CIT (1991) 189 ITR 285 (SC) fol. CIT v. India Reinforcing Co. (1991) 188 ITR 651 (Mad.) and G.R. Ramachari & Co. v. CIT (1961) 41 ITR 142 (Mad.) ref. JUDGMENT MRS. A. SUBBULAKSHMY, J.---The assessee-firm filed returns of income for the year 1982-83. During the lifetime of one Shri Paranjothi Nadar, he was one of the five partners of the assessee-firm. He died on October 31, 1981. On the death of Paranjothi Nadar, the assessee claimed that the firm stood dissolved, and the assessee furnished returns of income disclosing an income of Rs. 22,940 for the period from April 1, 1981 to October 31, 1981, stating that closing stocks had to be valued at market price. The Assessing Officer brought to charge an aggregate…

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