2009 (12) TMI 549

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..... ate Sri P. Bala- krishnan appearing for the respondent. 2. A firm was constituted with four partners to take over 14.25 cents of land and a building thereon for running lodging business by the assessee- firm. The firm was constituted on July 1, 1979, and continued its business up to the assessment for 1993-94 and dissolved with effect from April 1, 1993. Under the dissolution, the land and buildings brought as capital of the partners went back to the same partners. Even though the firm did not file return for the assessment year 1994-95 declaring capital gains on the dissolution of the firm, the Assessing Officer on getting information initiated proceedings for assessment of capital gains under section 45(4) of the Income-tax Act. The asse .....

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..... The Tribunal after hearing both the appeals and the cross-objection filed by the assessee, decided the appeals in favour of the assessee holding that the reference to valuation was not justified and, therefore, the assessment of capital gains does not arise.   3. After hearing both sides and after going through the Tribunal's order, we are unable to uphold the order of the Tribunal for more than one reason. In the first place, the Tribunal has not considered the applicability of section 45(4) of the Act for the purpose of assessment on dissolution of the firm and distribution of the assets. In fact, the clear cut finding of the Commissioner of Income-tax (Appeals) in the appeal filed by the assessee itself is that section 45(4) is sq .....

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..... g Officer is free to refer any asset for valuation because when the transfer value shown is the book value, necessarily the fair market value has to be determined for the purpose of determination of capital gains. Even though the assessee again contended that the depreciated value is the fair market value, the same is not acceptable because depreciation itself is granted at the rate prescribed under the Act and not on the actual erosion in value and in fact in the course of time land and building only appreciates, no matter the building earns depreciation and in the course of time the book value may become low. The finding of the Assessing Officer confirmed by the Tri- bunal that the transfer of building in the course of dissolution of the .....

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