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TMI Blog2012 (6) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... and building and Rs. 75,88,816 in respect of plant and machinery. The profit accruing on the above amount was credited to the capital account of the partners as per their profit sharing ratios. The existence of the respondent, however, came to an end on March 31, 1995, and the co-partners of the firm made a deed of settlement dated March 28, 1995, whereby they mutually settled their holdings of the subscribed capital amongst themselves as members of the joint stock company and also agreed to take over certain number of shares of the newly constituted limited company in the name and style of M/s. Rita Machines (India) Limited as per the agreement dated March 29, 1995. No separate disso- lution deed was prepared or executed and the respondent stood dissolved, with effect from March 31, 1995. The transfer of capital assets took place by way of distribution within the meaning of section 45(4) of the Act and the profit and gain arising therefrom were liable to be charged as capital gains. 3. The Assessing Officer, after examining the entire situation, framed assessment under section 143(3) of the Act, vide order dated March 11, 1998 (annexure A 1) at an income of Rs. 3,96,94,499 and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Vice President and the Judicial Member constituting the Bench differed from each other on certain points and expressed their individual views. All that is essential needed to be noticed here is that the Vice President of the Tribunal pronounced that no capital gain arose to the assessee within the meaning of section 45(4) of the Act and deleted the addition made on that account. As regards the disallowance of depreciation, it was held that as the firm was in continuation up to April 3, 1995, the assessee was entitled to depreciation allowance. As per the opinion of the Judicial Member of the Tribunal, capital gain under section 45(4) did arise and was chargeable to tax but the same was chargeable in the assessment year 1996-97 and not in the assessment year 1995-96. He, however, concurred with the Vice President that depreciation was admissible. The Tribunal, however, notwithstanding divergent views on certain issues, held, vide order under appeal dated April 28, 2000 (annexure A 3), that during the assessment year 1995-96, no capital gain chargeable to tax arose and deleted the additions made on account of profits chargeable to tax on capital gain in the assessment year 1995-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Texspin Engineering and Manufacturing Works [2003] 263 ITR 345 (Bom), CIT v. Kunnamkulam Mill Board [2002] 257 ITR 544 (Ker), CIT v. Vijayalakshmi Metal Industries [2002] 256 ITR 540 (Mad). 9. We have given our thoughtful consideration to the submissions made by the counsel for the parties and find unable to accept the contention of the Revenue. 10. The primary thrust of the Revenue has been on interpretation and scope of section 45(4) of the Act. 11. Looking to the legislative history, sub-section (4) to section 45 of the Act was inserted whereas section 47(ii) had been omitted by the Finance Act, 1987, with effect from April 1, 1988. Prior thereto, under section 47(ii) of the Act distribution of capital assets on dissolution of a firm, association, etc., was not considered to be transfer and was, thus, exempt from being charged to capital gain tax. 12. Section 45(4) of the Act which is relevant reads thus : "The profits or gains arising from the 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are required to be satisfied, viz., transfer by way of distribution of capital assets, and, secondly, such transfer should be on dissolution of the firm or otherwise. Once these two conditions are satisfied then, in that event, for the purpose of computation of capital gains under section 48, the market value on the date of the transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer." 16. The court had concluded that section 45(4) of the Act was not attracted in a situation where the firm was converted into company under Chapter IX of the 1956 Act. The relevant observations are as follows (page 352) : "In this case, the erstwhile firm has been treated as a limited company by virtue of section 575 of the Companies Act. It is not in dis- pute that in this case, the erstwhile firm became a limited under Part IX of the Companies Act. Now, section 45(4) clearly stipulates that there should be a transfer by way of distribution of capital assets. Under Part IX of the Companies Act, when a partnership firm is treated as a limited company, the properties of the erstwhile firm vests in the limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same firm is now treated as a company, after a given date. In the circum- stances, in our view, there is no transfer of a capital asset as contemplated by section 45(1) of the Act. Even assuming for the sake of argument that there is a transfer of a capital asset under section 45(1) because of the definition of the word 'transfer' in section 2(47)(ii), even then we are of the view that the liability to pay capital gains tax would not arise because section 45(1) is required to be read with section 48, which provides for mode of computation. These two sections are required to be read together as the charging section and the computation section constitute one package. Now, under section 48 it is laid down, inter alia, that the income chargeable under the head 'Capital gains' shall be computed by deducting from the full value of the consideration received or accrued as a result of the transfer, the cost of acquisition of the asset and the expenditure incurred in connection with the transfer. Section 45(4) is mutually exclusive to section 45(1). Section 45(4) categorically states that where there is a transfer by way of distribution of capital assets and where such transfer is due t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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