TMI Blog2002 (3) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... e of dissolution of the firm." 2. The assessee has filed the cross objection by taking the following grounds : " 1. On the facts and circumstances of the case, the worthy CIT(A) has rightly held that the provision of section 45(4) are not applicable in the present case. 2. On the facts and circumstances of the case, the worthy CIT(A) has rightly deleted the addition made by the Assessing Officer on account of capital gain. 3. On the facts and in the circumstances of the case the worthy CIT(A) has rightly deleted the addition by the Assessing Officer on account of valuation of closing stock." 3. The brief facts of the case are that the assessee was a partnership firm consisting of four partners by a deed dated 7-9-1990 ( sic ). The firm was dissolved w.e.f. 31-12-1989 and two partners namely, S/Shri Jagir Raj Sahanan Mahesh Sahwan retired. Another partnership deed was executed on 8-2-1990 which was effective from 1-1-1990. Subsequently firm was granted registration vide Form No. 11-A. The Assessing Officer noticed that the old partnership stood dissolved vide deed dated 7-2-1990 wherein the liabilities of the partnership were distributed and applied provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 31-12-1989. On retirement some of the partners of the firm were given balance standing in their capital account and no capital assets were distributed. Clauses 1, 2, 3, 5, 6, 7, 15 and 18 of dissolution deed does not indicate that any capital asset has been distributed. 5. After considering the contention of the assessee, and going through the clauses 1, 2, 3, 4, 5, 6, 7, 15 and 18 of dissolution deed, CIT(A) allowed appeal of the assessee in respect of applicability of section 45(4) by holding as under: "Thus it is apparent that apart from the credit balance in the capital accounts the retiring partners are not allowed to take any other assets nor the same have been distributed or given to them. The question of distribution of assets of the firm would arise only when excess of assets over liability is determined and the same is apportioned to all the partners in their profit sharing ratio. The excess of assets over liabilities would arise only if the market value of the immovable capital assets is determined as also realisable value of other assets is taken into account. Whereas the value of capital assets may be more than the book value but at times the value of other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 45(4) in the following manner: "We have carefully considered the rival submissions, examined the facts, evidence and material on record. We have also perused the orders of the authorities below. Now the main issue that needs to be considered by us is as to whether there was a dissolution of the firm and also whether assets of the firm were distributed amongst the partners and whether the provisions of section 45(4) are applicable to this case. It may be mentioned that the provisions of section 45(4) of the Act were inserted by the Finance Act, 1987 w.e.f. 1-4-1988 relevant to assessment year 1988-89. These are reproduced as under: The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purpose of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer has not been made under section 2(47) as done in case of conversion of capital asset into stock in trade. In view of this lacunae in the Act, it is still doubtful whether mere dissolution of the firm would attract capital gain under section 45(4), as it does not amount to a transfer of capital asset. It may be mentioned that the contention of ld. DR that distribution of assets on dissolution of a firm amounts to extinguishment of right in capital asset, was considered by the Supreme Court in the case of CIT v. Bankey Vaidya Lal reported in [1971] 79 ITR 594 and several other High Courts. Their Lordships of the Apex Court have held in the aforesaid case that distribution of assets on dissolution of a firm does not result in any extinguishment of any right and there will be no transfer by the firm. Therefore, this contention of ld. DR is without any merit. In this case, apart from transfer of land on book value to a retiring partners, no other assets of the partnership firm like building, plant and machinery etc. have been distributed as such their profit sharing ratio. Apart from land given to the retiring partner at book value the retiring partner has received onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
