TMI Blog2010 (2) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... er should be on dissolution of the firm or otherwise. Once these twin conditions are satisfied then, in that event, for the purposes of computation of capital gains u/s 48, the market value on the date of the transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. Where a firm becomes a limited company under Part IX of the Companies Act, 1956, section 45(4) is not attracted as the very first condition of transfer by way of distribution of capital assets is not satisfied. In the circumstances, latter part of section 45(4), which refers to computation of capital gains u/s 48 by treating the fair market value of the asset on the date of transfer, does not arise. In the present case before us, neither there is dissolution of firm nor transfer of assets of the firm, rather it is purely a case of conversion of firm into company and accordingly the provisions of section 45(4) will not apply. In view of the above discussion, we uphold the order of CIT (A) and this issue of the Revenue's appeal is dismissed. - Order The order of the Bench was delivered by Mahavir Singh (Judicial Member).-This appeal by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited to the capital account. On these facts, the Assessing Officer treated the conversion of the firm into company as transfer of assets and charged capital gains on revaluation of assets by giving the following finding : In view of the above fact and in view of decision in the case of CIT v. Artex Manufacturing Co. [1997] 227 ITR 260 (SC), the addition on account of revaluation of the assets transferred to Gulabdas Flexipack Industries Pvt. Ltd. to the tune of ₹ 95,91,810 is added as income under the head Capital gain . Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) allowed the claim of the assessee after considering the submissions of the assessee and stating that in the present case, the company has not come into existence at an early date so that the assets of the undertaking (the firm), cannot be transferred to it. Also, the individual assets have not been transferred to the company and accordingly he deleted the addition. Aggrieved, the Revenue came in appeal before us. Before us the learned senior Departmental representative, Shri Sanjay Rai supported the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evaluation is made in the hands of the assessee by writing up the value of assets in the books. He placed reliance on the hon'ble apex court in the case of CIT v. Hind Construction Ltd. [1972] 83 ITR 211 which is followed by the Income-tax Appellate Tribunal, Ahmedabad Bench in the case of Wellpack Packaging v. Deputy CIT [2003] 78 TTJ 448 and the identical addition was deleted. He further stated that the tax appeal filed by the Department before the hon'ble jurisdictional High Court had been dismissed on the ground that no substantial question of law arises. Learned counsel for the assessee stated that this addition could be looked at from another angle also, that the company has issued shares worth ₹ 35 lakhs to seven partners of the assessee-firm in respect of capital account of the said partners in the books of the firm, whereas the company has treated as unsecured loan the balance in the current account of the said partners. He referred to the facts that the erstwhile partners have been issued shares worth ₹ 35 lakhs whereas balance ₹ 97 lakhs has been treated as unsecured loan by the assessee-company. Accordingly he argued that what is chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 and thereafter a seventh partner was introduced with effect from October 1, 1993 by the partnership deed dated October 12, 1993. Subsequently, the firm was converted into a company by the name Gulabdas Flexipack Industries Ltd. on October 6, 1994 and the certificate of commencement of business was given on January 12, 1994 by the Registrar of Companies. These seven partners were allotted shares worth of ₹ 35 lakhs in their profit sharing ratio and the balance ₹ 97 lakhs was credited to the capital account. There was no change in profit sharing ratio in the hands of the firm. In view of the above provisions of section 45(4), we are of the view that the transfer of capital asset by way of distribution of capital assets on the dissolution of a firm, etc. profits or gains arising from such transfer is charged under section 45(4), which is newly inserted by the Finance Act, 1987, with effect from April 1, 1988, takes care of a situation where profits or gains arise from . . . 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 soci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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