TMI Blog1996 (9) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961." 3. The facts of the case are that there was a partnership firm consisting of three partners, namely, Shri M.K Minocha, Ku. Sudershan Minocha and Smt. Vidya Minocha. One of the partners, namely, Ku. Sudershan Minocha, expired on 28th January, 1989 and Smt. Vidya Minocha retired from the partnership with effect from the same date, i.e., 28th January, 1989. Consequently, Shri M.K. Minocha, the remaining partner took over all the assets and liabilities of the firm as it stood on the date of death of Ku. Sudershan Minocha and retirement of Smt. Vidya Minocha. The Assessing Officer made the addition of Rs. 22,335 as short-term capital gains by applying the provisions of section 45(4) of the Act. On appeal, the CIT(A) deleted the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er : "that on the dissolution of the partnership, each theatre had to be returned to the original owner in satisfaction partially or wholly of his claim to a share in the residue of the assets after discharging the debts and other obligations. But thereby the theatres were not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue, and, therefore, the amount of Rs. 44,380 could not be included in the total income of the partnership under the second proviso to section 10(2)(vii). The expressions 'sale' and 'sold' are not defined in the Income-tax Act ; those expressions are used in section 10(2)(vii) in their ordinary meaning. Sale', according to its ordinary meaning, is a tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is property or assets in which all partners have a joint or common interest. It cannot, therefore, be said that, upon dissolution, the firm's rights in the partnership assets are extinguished. It is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between partners and there is no question of any extinguishment of the firm's tights in the partnership assets amounting to a transfer of assets within the meaning of section 2(47) of the I.T. Act, 1961. There is no transfer of assets involved even in the sense of any ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Persons or Body of individuals, if the following conditions exist : (i) Profit and gains is arising. (ii) Such arising of profit and gain is from the transfer of capital assets. (iii) The transfer of capital asset is by way of distribution of capital assets. (iv) It is on dissolution of firm or Association of Persons or Body of Individuals or otherwise. All the above conditions are cumulative and if all the above co-exist, then the firm, Association of Persons or Body of Individuals, shall be chargeable to tax for the previous year in which the said transfer takes place. Thus, it is apparently clear that the transfer of capital asset is sine qua non for the applicability of sub-section (4) of section 45. The capital gains tax w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in the cases discussed earlier. Therefore, in our opinion, the amendment in definition of word "Transfer" as per section 2(47), does not cover the case of distribution of assets among the partners on the dissolution of the firm. 11. One may be tempted to argue that sub-section (4) of section 45 is a separate code by itself and it by way of deeming provision provided for levy the capital gains tax on the distribution of assets among the partners on dissolution of the firm. Therefore, there is no necessity of referring to the definition of word "Transfer" in section 2(47). However, we find that in section 45, sub-section (2) was inserted by Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. As per this sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital assets, the assessee cannot be charged to capital gains tax. Therefore, the decisions of Hon'ble Supreme Court in the cases of Dewas Cine Corpn., Bankey Lal Vaidya and Malabar Fisheries Co. still hold good. 12. The omission of sub-section (2) of section 47 w.e.f. 1-4-1988 will not make any difference. This sub-section, before its omission provides exemption from capital gains tax in respect of distribution of capital assets on the dissolution of the firm, body of individuals or association of persons. However, as we have held that the distribution of assets on the dissolution of firm is not "Transfer" so as to make the assessee liable for capital gains tax. Therefore, when the assessee is not liable to capital gains tax, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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