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2018 (6) TMI 1323 - HC - Income TaxRevision u/s 263 - dissolution of a partnership and the partners taking the assets of the firm in accordance with their individual shares - capital gain on dissolution of partnership - Held that:- The share of the assessee which he received exclusively on dissolution being relatable to a pre-existing right he had, as one of the partners; to the extent of such share, the assessee's claim for exemption from long term capital gains for reason of the deposit made to UTI under Section 54EA has to be allowed. However, on the value of the shares in which the other partner had a pre-existing right; which was released in favour of the assessee, the right over it can be claimed only from the date of release and if subsequent sale falls within the 36 month period, necessarily the assets are to be assessed as short term capital gains to that extent. The Tribunal has not gone into the facts and has proceeded on the basis that the allotment of shares on dissolution would not result in a transfer, which, according to the Tribunal, is a legally permissible option available to the assessee. On the correct law applied to the peculiar facts, do not agree with the Tribunal on the acceptance of the claim raised by the assessee for long term capital gains to be a permissible view at least to the extent of the value of the assets released in his favour by the other partner on dissolution. To that extent, the finding of the Assessing Officer in the original order was an erroneous finding, which was also prejudicial to the interest of the revenue. Commissioner was perfectly justified in invoking the powers under Section 263. To the extent of the share the assessee had prior to dissolution and the valuation of that share, which was allotted to his share on dissolution; we concur with the order of the Tribunal insofar as allowing the exemption available from long term capital gains for reason of compliance with Section 54EA. There is no ground for a suo motu revision to that extent since the Assessing Officer's finding on that count is not erroneous. The provision only enables assessment at the hands of the firm and does not deem the allotment of capital assets in proportion to the share on dissolution or otherwise as a transfer. Herein, we are not concerned with whether the firm was assessed at the time of dissolution and are only concerned with the erstwhile partners assessment as an individual; that too of the consideration received from the sale of the assets he held exclusively after the dissolution of the firm, which sale was also subsequent to the dissolution. Answer the questions of law partly in favour of the Revenue and partly in favour of the assessee. As we noticed at the outset, the exact shares of the partners are not placed before us and the valuation is also a question to be decided on facts. We hence remand the matter to the Tribunal, before whom the assessee shall produce the deed of dissolution and release executed in the year 1997-98.
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