TMI Blog2009 (7) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... once in July, 1994, and again in December, 1994 and entire assets retained in the hands of newly added two partners though all along the assets of the firm continued in the hands of the firm. Therefore, there was transfer of capital assets within the meaning of section 2(47) attracting capital gain tax in terms of section 45(4) of the Act. - 83 of 2004 - - - Dated:- 7-7-2009 - D. V. SHYLENDRA KUMAR and ARAVIND KUMAR JJ. K.V. Aravind for M. V. Seshachala for the appellant. B.V. Shankaranarayana Rao for K. Venugopalaraju for the respondent. JUDGMENT The judgment of the court was delivered by 1. D. V. Shylendra Kumar J.-This is an appeal by the Revenue under section 260A of the Income-tax Act, 1961 (for short, "the Act") directed against the order of the Income-tax Appellate Tribunal, Bangalore in I.T.A. No. 581/Bang/2002 rendered on October 1, 2003. The appeal had been admitted for examination on the following questions of law : "1. Whether the colourable device adopted by the assessee in admitting two new partners, namely, Sri M. Venkataramaiah and Smt. Sujatha Venkataramaiah and permitting all the old partners to retire from the firm by receiving a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... newly added partners, is virtually a transaction involving the transfer of the assets of the firm to the new partners, as firm continued in the hands of the new partners and in this view of the legal position and the need for the Assessing Officer to examine the true nature of the transaction concluded that the transaction involved additional new two partners to the firm during July, 1994, and the erstwhile four partners retiring in the month of December, 1994, and going out with the amount which the new partners had brought in by way of their capital contribution to the firm and sharing that amount minus and written down value of the assets of the firm virtually amounted to transfer of assets to the new partners and, therefore, the firm was liable to be assessed on the gains attributable to the transaction the value of the sale consideration for the transfer of the assets was taken to be the amount brought in by the partners and shared amongst the earlier partners and determined the assess-able income of the firm by applying section 45(4) of the Act and called upon the assessee to pay the tax along with interest under sections 234A and 234B of the Act. Separate penalty proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the present case applying the reasoning given by the Kerala High Court in Kunnamkulam's case in the appeal before them and also being of the view that the Kerala High Court in taking the view having considered the views expressed by our High Court and the Supreme Court in the following decisions : (i) B. T. Patil and Sons v. CGT [1997] 224 ITR 431 (Karn) ; (ii) B. T. Patil and Sons v. CGT [2001] 247 ITR 588 (SC) ; (iii) CGT v. N. S. Getti Chettiar [1971] 82 ITR 599 (SC) ; (iv) Jagatram Ahuja v. CGT [2000] 246 ITR 609 (SC) ; (v) James Anderson v. CIT [1960] 39 ITR 123 (SC) ; (vi) Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC) ; and (vii) I. T. A. No. 65 of 1999 (CIT v. Kunnamkulam Mill Board [2002] 257 ITR 544 (Ker)). allowed the appeal and reversed the order passed by the Assessing Officer confirmed in appeal by the first appellate authority. 9. It is in such circumstances, the Revenue is in appeal before us seeking for answer to the substantial questions of law referred to in the earlier part of this judgment. 10 .We have heard Sri Aravind, learned standing counsel appearing for the Commissioner and Sri B. V. Shankaranarayana Rao, learned counsel appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985] 156 ITR 509, to sustain the view taken by the Assessing Officer and confirmed by the first appellate authority and submits that the Appellate Tribunal having reversed the order passed by the first appellate authority on a totally erroneous understanding of the provisions and by wrong application of the judgment of the Kerala High Court in Kunnamkulam's case [2002] 257 ITR 544, the matter warrants interference. 14. It is also submitted that the facts as they prevail in the present appeal are more akin to the facts as obtained in the Bombay case, that the Bombay High Court has elaborately discussed not only the legislative history of reintroduction of the provisions of sub-sections (3) and (4) of section 45 but also has defined and discussed the impact of the deletion of clause (ii) of section 47 of the Act and the legislative intent is clearly to plug the leakage of revenue and the Bombay judgment clearly applies to the facts of the present case and the appeal should be allowed. 15. Sri Aravind would also draw attention of the court to the earlier judgment of this court in the case of Suvardhan v. CIT [2006] 287 ITR 404 (Karn), though this judgment was in all fairness brou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade to the four outgoing partners ; that what remained with the firm was around Rs. 45,000 and, therefore, the trans-action is one of loss and not of gain and there is no question of the firm being taxed on any gain ; that there is neither transfer nor any gain. There is no question of the provisions of section 45(4) being attracted and, there-fore, the judgment of the appellate authority be affirmed. 18. In support of his submission, Mr. Shankaranarayana Rao has drawn the attention of the court to the decision in the case of CIT v. Moped and Machines [2006] 281 ITR 52 and would submit that the Madhya Pradesh High Court having followed the view taken by the Kerala High Court and the view taken by the Kerala High Court as followed by the Madhya Pradesh High Court being the correct view commends for our acceptance and pleads for this view to be followed by this court, in deciding the present appeal. 19. Mr. Shankaranarayana Rao would distinguish the judgment of this court in Suvardhan's case [2006] 287 ITR 404 (Karn) by pointing out that on the facts there is a distinction in the sense, that case involved dissolution of the firm and one of the erstwhile partners taking over the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understanding the scope and intent of sub-sections (3) and (4) of section 45. We are of the view that the object of sub-sections (3) and (4) should be given full effect and having regard to the legislative intent and the provisions having been brought back on the statute book and at the same time taking care to delete clause (ii) of section 47 which, excluding clause (ii) reads as under : "47. Nothing contained in section 45 shall apply to the following transfers : (i) any distribution of capital assets on the total or partial partition of a Hindu undivided family ; (ii) (omitted)" 27. Section 47 was introduced to take out certain transactions which otherwise are transfers of capital assets and otherwise taxable under section 45, from being taxed. 28. On the reintroduction of sub-sections (3) and (4) to section 45 by the Finance Act, 1987, clause (ii) of section 47 has been expressly omitted removing the protective umbrella. The legislative intent is quite clear and, in our opinion, this is good enough to take care of any situation where in effect there is transfer of capital asset, by any mode and to ensure the gain being taxed the section has been amended and this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est ; we are afraid that the Tribunal having not looked into this aspect and having merely examined the merits of the appeal before it as to there being loss and there being gain and as this question as now answered against the assessee, there is no scope for us to independently examine the question of levy of interest. It remains. 32. However, we notice the question of penalty is an independent proceedings and it is open to the assessee to urge such defence as is available to the assessee in an appropriate proceeding rather than to elicit a finding in this appeal. 33. Mr. Rao has brought to our notice that in respect of the judgment of the Bombay High Court in A. N. Naik's case [2004] 265 ITR 346 and also the judgment of our High Court in Suvardhan's case [2006] 287 ITR 404 (Karn) special leave petitions have been preferred by the assessee and leave has been granted to appeal and appeals are pending. 34. May be the position is that but on that premise we do not think we should keep this appeal pending without answering the questions raised in this appeal as the law which governs the field has been applied and the questions are answered herein. There is no question of postpon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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