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TMI Blog2012 (6) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee was in the business of manufacturing footwear. It was initially a partnership firm but subsequently it got converted into a private limited company in accordance with Chapter IX of the Companies Act, 1956. All the partners became shareholders in the company and their respective shareholding was in the same proportion as in the partnership firm. 3. The assets of the partnership firm, i.e., footwear, was taken over by the company and the question that arose before the Assessing Officer was whether the closing stock of the partnership firm should be taken at market value or not. According to the assessee, the closing stock should be taken at the cost price and not at the market value. 4. The Assessing Office came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act read with section 47 of the Act. 9. The issue appears to have come up for the first time under the provi- sions of the Indian Income-tax Act, 1922, when the Supreme Court dealt with the succession of a business from the "transferor" to the "transferee". In CIT v. K. H. Chambers [1965] 55 ITR 674 (SC) the export business of the father was taken over by the son. The entire business was transferred and the identity of the business was preserved inasmuch as the same business continued. The Supreme Court recognised that succession involves change of ownership, that is, the transferor goes out and transferee comes in ; it connotes that the whole business is transferred, and that substantially the identity and continuity of the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the provisions of sec- tion 45 of the Act as well as the provisions of Chapter IX of the Companies Act. In this decision, the Bombay High Court noted that section 45(4) of the Act provides for two conditions to be satisfied, namely, that there must be a transfer of assets by way of distribution and, secondly, such transfer should be on dissolution of the firm or otherwise. If these two conditions are satisfied, then for the purposes of computation of capital gains under section 48 of the Act, the market value on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. 13. On the facts of that case, it was noted that there was no dispute that the erstwhile fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter IX of the Companies Act. 15. The view expressed by the Bombay High Court was followed in CIT v. Rita Mechanical Works, which is an unreported decision but is available as "MANU/PH/3828/2010" decided on September 24, 2010, by the Punjab and Haryana High Court. The High Court took the view that in a case where a firm is converted into a company under Chapter IX of the Com- panies Act, there is no conveyance of property in favour of the limited company and there is only vesting of property in that company. Accord- ingly, the Punjab and Haryana High Court took the view that the Tribunal was right in holding that taking over of assets of the firm by the company and allotting shares to the erstwhile partners of the firm as per their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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