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2014 (10) TMI 574 - HC - Income TaxCapital gain u/s 45 - Transfer of assets from partnership firm to Private limited company – Taxability u/s 45(4) - Held that:- Under the Income Tax Act, a firm can be charged as a distinct assessable entity as distinct from its partners who can also be assessed individually - Following the decision in Commissioner of Income-Tax Versus Texspin Engineering And Manufacturing Works [2003 (3) TMI 56 - BOMBAY High Court] - an existing firm was transformed into a company under Part IX of the Indian Companies Act - the erstwhile firm has been treated as a Limited Company by virtue of Section 575 of the Companies Act - Section 45(4) clearly stipulates that there should be transfer by way of distribution of capital assets - section 45(4) is not attracted as the very first condition of transfer by way of distribution of capital assets is not satisfied - the latter part of Section 45(4), which refers to computation of capital gains u/s 48 by treating fair market value of the asset on the date of transfer, does not arise. The shares of the respective shareholders in the respondent-company were defined under the partnership deed - The only change that has taken place on the respondent being transformed into a company was that the shares of the partners were reflected in the form of share certificates - beyond that, there was no physical distribution of assets in the form of dividing them into parts, or allocation of the same to the respective partners or even distributing the monetary value – thus, the order of the Tribunal is upheld – Decided against revenue.
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