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M/s Pipelines India, Trichy Versus The Assistant CIT Circle, Trichy

2016 (2) TMI 799 - MADRAS HIGH COURT

Capital gain under Section 45(4) - transfer - whether the Tribunal was right in law in holding that there is a dissolution of the firm and not conversion of a firm into a company for the purpose of capital gains under Section 45(4) ? - Held that:- In the case on hand, the partners have taken equity shares in the private limited company that was inducted as the fifth partner. Therefore, whatever rights that they had in the capital assets of the firm by way of being its partners, continue to exist .....

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Kirubakaran, JJ. For the Appellant : Mr. V. S. Manoj For the Respondent : Mr. J. Narayanaswamy JUDGMENT This tax case appeal, filed by the assessee under Section 260A of the Income Tax Act, 1961, was admitted on the following two substantial questions of law : "(i) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that there is a dissolution of the firm and not conversion of a firm into a company for the purpose of capital gains under Section 45(4 .....

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e year 1990. On 4.1.1990, a private limited company called M/s.Pipeline and Process Equipment (P) Limited was floated by the partners of the partnership firm themselves. Thereafter, the private limited company was admitted as the fifth partner into the partnership firm. The private limited company was admittedly given a lion's share namely 3/4th of the assets of the partnership firm. The four natural partners of the firm took the remaining 1/4th share for themselves. 4. On 30.6.1990, the fou .....

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8377; 8,44,620/-. The Assessing Officer came to the conclusion that there was a transfer of assets by way of distribution of capital assets on the dissolution of the firm and that therefore, the provisions of Section 45(4) were not attracted. Consequently, the Assessing Officer included the short term capital gains and made a demand. 6. The partnership firm filed a first appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority concluded that there was no dissolution of the .....

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ointed out by Mr.J.Narayanaswamy, learned Standing Counsel for the Department, Section 47 that treated particular transactions as not amounting to transfer, was amended by the Finance Act, 1987 with effect from 1.4.1988. Clause (ii) of Section 47, which made 'any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons', not to be covered by Section 45, was omitted by the Finance Act, 1987 with effect from 1.4.1988. By the very same .....

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se of Section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer." 8. For attracting Section 45(4), the following conditions are to be satisfied : (i) profits and gains should arise (ii) from the transfer of a capital asset (iii) by way of distribution of capital assets (iv) on the dissolution of a firm or other association of persons or body of individuals not being a .....

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