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2022 (11) TMI 1180 - SC - Income TaxCapital gain - transfer - revaluation of assets - partnership firm - retirement of one partner and reconstitution of firm with new partners - applicability of Section 45(4) of the Income Tax Act as introduced by the Finance Act, 1987 - HELD THAT:- The assets of the partnership firm were revalued to increase the value by an amount of Rs. 17.34 crores on 01.01.1993 (relevant to A.Y. 1993-1994) and the revalued amount was credited to the accounts of the partners in their profit-sharing ratio and the credit of the assets’ revaluation amount to the capital accounts of the partners can be said to be in effect distribution of the assets valued at Rs. 17.34 crores to the partners and that during the years, some new partners came to be inducted by introduction of small amounts of capital ranging between Rs. 2.5 to 4.5 lakhs and the said newly inducted partners had huge credits to their capital accounts immediately after joining the partnership, which amount was available to the partners for withdrawal and in fact some of the partners withdrew the amount credited in their capital accounts. Therefore, the assets so revalued and the credit into the capital accounts of the respective partners can be said to be “transfer” and which fall in the category of “OTHERWISE” and therefore, the provision of Section 45(4) inserted by Finance Act, 1987 w.e.f. 01.04.1988 shall be applicable. For the purpose of interpretation of newly inserted Section 45(4), the decision of this Court in the case of Hind Construction Ltd.[1971 (9) TMI 16 - SUPREME COURT] shall not be applicable and/or the same shall not be of any assistance to the assessee. As such, we are in complete agreement with the view taken by the Bombay High Court in the case of A.N. Naik Associates and Ors.[2003 (7) TMI 46 - BOMBAY HIGH COURT] - We affirm the view taken by the Bombay High Court in the above decision. The impugned judgment and order passed by the High Court and that of the ITAT are unsustainable and the same deserves to be quashed and set aside and are accordingly quashed and set aside. The order passed by the AO is hereby restored.
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