TMI Blog2005 (2) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(iii) That the learned CIT(A) has erred in law and on the facts of the case in accepting the assessee's claim that the shares transferred to partners had been converted into stock-in-trade, when the alleged conversion was not followed by the requisite conduct expected of a dealer in shares. 1(iv) That the learned CIT(A) has erred in law and on the facts in accepting the assessee's plea that there was no distribution of shares within the meaning of s. 45(4) of the IT Act, 1961, without appreciating that the word 'distribution' is of a wide import and includes apportionment of shares among the partners by book entries, as was done in the present case. 1(v) That the learned CIT(A) has erred in law and on the facts of the case in accepting the assessee's contention that for the purposes of working out the capital gains, the actual cost of the original shares was not affected by the subsequent acquisition of bonus shares, whereas the AO had correctly computed the cost of original shares by applying the averaging out formula. Reliance is placed on CIT vs. T.V.S. Sons Ltd. [1983] 37 CTR (Mad) 142 : [1983] 143 ITR 644 (Mad) and Escorts Farms (Ramgarh) Ltd. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July, 1988 appearing at pp. 124 to 127 of the paper book, the business of the assessee was as under: 3. The business of the partnership shall continue to be civil engineering construction and to execute the existing contracts in hand and/or take and execute any other contract or contracts and to invest in shares and sequrities, etc., and/or such other business as the partners may mutually decide from time-to-time. 5. This partnership deed was amended by executing a supplementary deed on 1st Jan., 1990, the copy of which is appearing at pp. 128 to 130 of the paper book, in which the cl. 3 was amended and the same reads as under: 1. That cl. 3 of the partnership deed dt. 30th July, 1988 shall stand substituted by the following clause : 'That the business of the partnership shall continue to be civil engineering construction and to execute the existing contracts in hand and/or take and execute any other contract or contracts and also to carry on the business of purchase and sale and to otherwise deal in stocks, shares, debentures and other securities and commercial paper and/or such other business as the partners may mutually decide from time-to-time.' That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership deed vide supplementary deed dt. 1st Jan., 1990, converted its stock of shares of different companies being held as investment into stock-in-trade of the business w.e.f. 1st Jan., 1990 which resulted into surplus of ₹ 11,66,08,127 and this amount of surplus was credited to the account of partners in their profit-sharing ratio. The surplus arose on account of the fact that equity shares of M/s Jaiprakash Industries Ltd. was on the date of conversion quoted at ₹ 18.50 per share as against book value of ₹ 10 per share. 8. Before taking up the facts of relevant asst. yr. 1991-92, it will be in the fitness of things to take into consideration the factual position noted by the AO in respect of this conversion of stock of investment into stock-in-trade carried out during the previous year relevant to asst. yr. 1990-91. The AO noted that from scrutiny of details for the year as well as subsequent year, it was revealed that assessee-firm had sold a substantial number of shares to its partners and related persons on 17th April, 1990 and 18th April, 1990 @ ₹ 12.50 and ₹ 12 per share, respectively. He further noted that in a short span of 3-1/2 months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jan., 1990. No. of shares and bonds (i) Equity shares of ₹ 10 each of Jaiprakash Industries Ltd. 1,37,95,500 (ii) Equity shares of ₹ 10 each of Jaiprakash Enterprises Ltd. 7,43,150 (iii) Equity shares of ₹ 10 each of Jaypee Hotels Ltd. 56,400 (iv) 7 year 14% secured redeemable non-convertible bonds of 200 National Hydro Electric Power Corporation Ltd. of ₹ 1,000 each- A supplementary deed dt. 1st Jan., 1990 was executed to this effect, a photostat copy of which is furnished herewith as per Annex. 1. The aforesaid conversion of shares and bonds into stock-in-trade is also evidenced by entries in our books of account maintained in the regular course of business. Photostat copies of these entries are furnished herewith as per Annex. 2. These shares and bonds were duly shown in the balance sheet as on 31st March, 1990 as stock-in-trade of business. As per details furnished in para 5 of our letter dt. 15th June, 1992 (photostat copy enclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 partners of the assessee-firm @ ₹ 12 per share and details thereof are appearing at p. 3 of the assessment order. The AO while completing assessment for the year under consideration for computation of capital gains took help from the observations of the assessment order framed for asst. yr. 1990-91 in which it was held that conversion of investment into stock-in-trade was not a bona fide act but was made with the sole objective of tax avoidance. The AO further noted that assessee no doubt had purchased shares of different companies worth ₹ 5,21,156 on different dates and sold some shares also, but the manner and magnitude of purchases/sales made by the assessee was not sufficient to term the assessee as dealer in share and securities. On the observation made in the assessment order for asst. yr. 1990-91, the AO concluded that shares held by the assessee are to be treated as investment and not stock-in-trade. 11. The AO further proceeded to examine the details of shares sold and it was noted that more than 90 per cent shares have been transferred to M/s Siddharth Construction Co. (P) Ltd., a partner, and written agreement was executed in between assessee-firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of India (hereinafter referred to as IFCI) and the shares were released from this non-disposable undertaking as under: 70,00,000 Released vide letter dt. 5-1-1990 19,96,000 Released vide letter dt. 24-9-1990 47,99,500 Released vide letter dt. 23-10-1990 1,37,95,500 14. The AO, on the above facts, concluded that these shares were under non- disposable undertaking and the IFCI vacated the said undertaking on 24th Sept., 1990 and 23rd Oct., 1990, then it was not an expenditure by the assessee, as how this firm could have effected alleged sale of shares which remained under non-disposable undertaking of IFCI on the dates of sale. 15. The AO also noted that M/s Siddharth Construction Co. (P) Ltd., major transferee, has shown sale of 10,00,000 shares through share broker @ ₹ 34 on 6th Sept., 1991 and resultant short-term capital gain of ₹ 2,11,49,736 and substantial dividend income has been adjusted against huge business loss by the transferee company. Not only M/s Siddharth Construction Co. (P) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of assets of the firm to its partners which has been accorded the facade of a sale with the intention of tax avoidance. In legal parlance, the word 'distribution' is of widest import and the words 'apportionment, allotment, allocation, classification' clearly fall with the brad sweep of this word (State of Tamil Nadu vs. L. Abu Kaver Bed AIR 1984 SC 326, Madhu Sudan Singh vs. Union of India AIR 1984 SC 374). In the instant case the transfer of shares by the firm to the partners at a particular rate is nothing else but apportionment of shares among partners by book entries and is well covered within the legal import of the word 'distribution'. Therefore, I hold that this is a case of transfer of assets by way of distribution of assets to the partners and the provisions of s. 45(4) of the IT Act are applicable. Sec. 45(4) lays down as under: '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 AOP or BOI (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the value of original shares is proportionately diminished. For this proposition, the AO placed reliance on the decision of the Hon'ble Madras High Court in the case of CIT vs. T.V.S. Sons Ltd. [1983] 143 ITR 644 (Mad) and on the decision of the Hon'ble Delhi High Court in the case of Escorts Farms (Ramgarh) Ltd. vs. CIT [1983] 143 ITR 749 (Del) and applying the same analogy, the cost of acquisition of the shares was taken at ₹ 1,14,82,416 by the AO. Long-term capital gain was worked out at ₹ 12,60,04,004 which is in Annex. 'A' to the assessment order. 19. The assessee came in appeal and it was submitted that the AO was not justified to work out the capital gain of ₹ 12,60,04,004 as against capital gain of ₹ 9,66,39,467 and was also not justified in not allowing the business loss of ₹ 8,66,99,100 on sales of shares to partners. The learned counsel for the assessee challenged the very observation of the AO made in the assessment framed in asst. yr. 1990-91 and relied upon in the assessment of the assessment year under consideration in relation to the conversion to its stock investment into stock-in-trade on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble Supreme Court of India in the case of Bengal Assam Investors Ltd. vs. CIT [1966] 59 ITR 547 (SC) and the case of Raja Bahadur Kamakhya Narain Singh vs. CIT [1970] 77 ITR 253 (SC). The assessee's case was that it had converted its investment in shares into its stock-in-trade w.e.f. 1st Jan., 1990 and later on sale carried out by the assessee goes to prove that assessee was carrying on business in those shares. The learned counsel for the assessee also contended before the learned CIT(A) that even under the income-tax statutory recognition to conversion of capital assets into stock-in-trade had been made by adding sub-cl. (iv) to s. 2(47) of the Act which subsequently recognised conversion of share assets under stock-in-trade as transfer. Further, reference was made to s. 45(2) of the Act, which also recognised conversion of investment into stock-in- trade. In view of these statutory provisions, the learned counsel for the assessee argued before the learned CIT(A) that there was no warrant or scope for questioning or doubting the right or act of conversion nor it is a case for application of the ratio of the Hon'ble Supreme Court of India in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st @ 15 per cent on the outstanding amount of sale was charged. With regard to other transactions which was done with other partners, it was pointed out that there was sufficient balance in their account to adjust sale price of the shares. A reference to the order dt. 23rd Dec, 1993 passed by Tribunal, Allahabad Bench, in the case of the assessee for asst. yr. 1990-91 was also made in which it was concluded that credit for revaluation of shares in the accounts of the partners were genuine credits and representing real balance in their accounts. On the basis of these facts, it was contended that partners were having sufficient capacity to purchase shares because there were sufficient balances in their capital account. 25. Referring to the observation of the AO about non-disposal undertaking given by the assessee-firm to IFCI, the learned counsel for the assessee submitted that such undertaking was given to the financial institution as a normal practice to ensure that during the subsistence of loan, the management or the ownership of the company is not de-established. It was only to safeguard the interest of the lenders and it did not amount to prohibition upon the transfer of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s partners. Reference to the decision of Tribunal, Bombay Bench, in the case of Burlingtons' Exports vs. Asstt. CIT [1993] 45 ITD 424 (Bom) was made, in which it was held that in order to attract application of s. 45(4) of the Act, there should be distribution of assets by the firm to the partner in both the situations namely-either under dissolution or otherwise . It was also held in the said case by the Bombay Bench of Tribunal that where a property is transferred to a partner for consideration, it would be a case of sale by the firm to the partner and not a distribution . It was further opined that in case of distribution , no consideration is involved and the partners have to share withdrawal as per prescribed sharing ratio agreed to in the partnership deed. On the basis of that decision, it was contended by the learned counsel for the assessee before the learned CIT(A) that facts of the assessee's case are also pari materia and the decision of the Tribunal, Bombay Bench, is squarely applicable. 29. In the same context, it was further contended that it was an admitted fact that the shares were not sold or transferred to all the partners according to their profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ror to the transferee, the shares stand transferred even though transfer is not registered in the company's books. On the basis of the date of actual sale of shares to different partners, the assessee submitted that profit/loss of the above shares should be with reference to the sales on the above date and the rates as shown in the order of assessment. 32. Lastly, the contention of the assessee was in respect to the cost to be adopted for sold out shares. The assessee submitted that while computing the capital gains, the AO had applied averaging formula and thus reduced the cost of acquisition of the original shares from ₹ 1,32,02,878 to ₹ 86,27,836 resulting in the increase in the amount of capital gains by ₹ 45,75,042. On this, the plea of the learned counsel for the assessee was that there was no warrant or justification for reduction in the actual cost of the original shares or for the increase by ₹ 45,75,042 in the amount of capital gains. Reliance was placed on the decision of the apex Court in the case of Sekhawati General Traders Ltd. vs. ITO 1972 CTR (SC) 120 : [1971] 82 ITR 788 (SC) and the decision of Hon'ble Calcutta High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) referred to para 8.3 of the said assessment order for asst, yr. 1990-91 in which the AO has specifically noted that volume of transaction of sale and purchase of shares in asst. yrs. 1990-91 and 1991-92 go to show that assessee has made purchases and sale of the shares worth ₹ 2,69,515 and ₹ 2,73,534, respectively, in asst. yr. 1990-91 and had shown purchase of shares worth ₹ 5,21,156 and sale of shares of ₹ 2,11,964 in asst. yr. 1991-92. These transactions were insignificant and it cannot be said that assessee was having any intention to deal in shares. The learned CIT (Departmental Representative) pointed out that in asst. yr. 1990-91, the year under consideration, the assessee has effected sales of more than 90 per cent shares held by it to its partners and that too within short span of time within which shares were converted from investment into stock-in-trade. The finding of the AO was that this exercise of conversion was motivated with objective of tax evasion. Ultimate finding was that entry of conversion of investment into stock-in-trade was a colourable device to avoid correct incidence of taxation and for that the AO was justified to take suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act were not applicable because assessee should have given the amount of difference of conversion from investment into stock-in-trade to reserve account and thus accounts prepared by the assessee were not correct, as it has credited amount of such difference into partners' capital accounts. 37. The learned CIT (Departmental Representative), on the basis of the above, pointed out that the AO was justified to observe further that there was no conversion as per law. Once the conversion from investment into stock-in-trade is not legal, the assessee was not supposed to sell shares to its partners because there was no stock-in-trade and that amounted to distribution of capital assets and provisions of s. 45(2) are to be made applicable as done by the AO and the learned CIT(A) was not justified to reverse the order of the AO. 38. As against it, Shri Kanchun Kaushal, learned counsel for the assessee, reiterated the same submissions as were raised before the learned CIT(A). In this connection, the learned counsel for the assessee has placed reliance on the copies of written submission submitted before the learned CIT(A) and the first written submission is appearing at pp. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of sale and purchase of other shares of different companies in asst. yrs. 1990-91 and 1991-92. The learned counsel for the assessee further pointed out that main item of share was of M/s Jaiprakash Industries Ltd. The original face value of each share was Rs: 10 per share, but on conversion, the value of each share was ₹ 18.50 per share as per stock exchange rate as on 1st Jan., 1990 and this has resulted into a surplus of ₹ 11,68,08,127 and this surplus was credited to the accounts of the partners in their profit ratio. The learned counsel for the assessee submitted that this action of the assesses is in conformity with the legal provisions, because conversion of capital assets into stock-in-trade is legally recognised one and for this reliance was placed on the decision of the Hon'ble Supreme Court of India in the cases of Bengal Assam Investors Ltd. vs. CIT (supra) and CIT vs. Gioz-Beckert Saboo Ltd. (supra). Not only this, the learned counsel for the assessee pointed out that the Hon'ble Madras High Court in the case of CIT vs. Ambadi Enterprises Ltd. [2001] 171 CTR (Mad) 237 : [2000] 243 ITR 431 (Mad) had followed the ratio of the apex Court decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (supra), the assessee-firm has all rights to transact sale and purchase business even (with) its partners and there is no provision in law to the fact that a firm cannot deal with its partners or vice versa in the normal course of business. 42. The learned counsel for the assessee submitted that there was written agreement about sale of shares in respect of M/s Siddharth Construction Co. (P) Ltd. to whom more than 90 per cent shareholding was sold. The learned counsel for the assessee submitted that explanation was given to the AO as well as to the learned CIT(A) that M/s Siddharth Construction Co. (P) Ltd. was not having sufficient credit balance in its capital account that is why written agreement was executed and interest @ 15 per cent was charged on the outstanding balances. The AO has taken note of the fact that assessee had shown receipt of ₹ 47 lakhs as interest charged by the assessee from this concern. There was no need for written agreement with other partners because they were having credit balances and the amount of sale consideration stand adjusted by the assessee-firm out of those outstanding balances. 43. Further, the AO failed to take note of the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of lawful taxes. 45. It was also highlighted by the learned counsel for the assessee that partners who purchased shares were independent of the assessee-firm. How they have dealt with their holding after their purchase was not the concern of the assessee. It was also pointed out that sale of shares to different partners were made on the latest prevailing rate of stock exchange on the relevant dates. Nobody could have visualised the future trend of the prices on the stock exchange. The assessee suffered losses as price of the share fell in the month of April when shares were transferred to partners but later on there was increase in the prices of the shares and each of the respective partners who purchased the shares, sold the shares at higher rates and have returned short-term capital gain of substantial amount and in this connection, the learned counsel for the assessee had given working of short-term capital gain returned by M/s Siddharth Construction Co. (P) Ltd. in asst. yr. 1991-92 to the extent of ₹ 2,11,59,436 and in asst. yr. 1993-94 to the extent of ₹ 34,38,225 and again in the same year to the extent of ₹ 1,90,27,600. The share price could hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares and the execution of the date of transfer which is relevant for taking date of transaction of the sale. The contention is that this view negates the very observation of the AO and he was not justified to take date of registration of shares in the register of the shareholders of the company as date of transfer. The assessee has also contended that the AO was not justified to reduce the actual cost of the original shares by ₹ 45,75,042 and for that reliance was placed on the decision of Sekhawati General Traders (supra) and CIT vs. Steel Group Ltd. (supra) and contended that the learned CIT(A) was justified to decide this issue in favour of the assessee on the basis of the decision in the case of Smt. Rekha Dixit which he has followed in the case of Ram Adhar Singh in asst. yr. 1991-92. The contention is that the learned CIT(A) has rightly decided the issue in favour of the assessee and it does not require any interference. 48. We have considered the rival submissions and perused the record carefully. The facts which are not in dispute are that on 31st March, 1986 the assessee-firm was holding 1,83,940 shares of ₹ 100 per share of M/s Jaiprakash Associates ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able device to avoid payment of lawful taxes. For this, he has taken into consideration that main investment of the assessee was in the shares of 1,37,95,500 of JIL of ₹ 10 per share which were converted @ ₹ 18.50 per share and from further scrutiny of the details of asst. yrs. 1990-91 and 1991-92, it transpired that assessee had sold more than 90 per cent shares on 17th April, 1990 and 18th April, 1990 @ ₹ 12.50 per share and ₹ 12 per share, respectively. He doubted the action of the assessee that within a span of 3-1/2 months from the date of conversion, assessee-firm sold substantial number of shares at a lower price. The assessee has offered capital gains as per provisions of s. 45(2) on the difference between value as on the date of conversion and cost price of shares and claimed deduction under s. 48(2) of the Act thereon and on the other hand, the assessee has claimed business loss on account of sale on the reduced price of ₹ 12 and ₹ 12.50 per share as against converted cost of ₹ 18.50 per share. In this way, the assessee has succeeded in tax evasion to a great extent. For this, the AO has taken help from the ratio of the apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s proved on record. 51. The next point relates to the amount of appreciation, which resulted from such conversion of shareholding because initially share of JIL were that of ₹ 10 per share and on the date of conversion, the amount of each share was ₹ 18.50. There was surplus of ₹ 11,66,08,127.50 and assessee had credited the said amount in the. respective capital account of each partner as per their profit-sharing ratio. The learned CIT (Departmental Representative) had questioned this action of the assessee and contended that this was against the settled principle of accountancy as those amounts should have been credited to the reserve account to be created by the assessee and assessee-firm was not justified to give credit in the partners' capital account as done. In this connection, it is pointed out that this issue was before the Tribunal, Allahabad Bench, in the case of the assessee for just preceding asst. yr. 1990-91 though in different context, as the issue in that year was as to whether each of the partner was having actual amount available to them for making withdrawal and interest on such withdrawal may be charged or not. The Tribunal has also con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show it as a 'liability'. Looked at in another way, reserves themselves are not assets. Reserves mean that a portion of assets, equalling reserves, is free to be utilised by the business as it likes and assets equalling reserves are not required to pay liabilities. Also, reserves indicate that, taking into account the capital brought in cash into the business by the proprietor and the sums owed to outsiders, there is surplus of assets. The surplus really is measured by the amount of the reserves.' From the above, it is clear that as to whether the alleged valuation is shown as reserve or credited to the accounts of the partners, it means the same as alleged amount belongs to the partners and can be utilised by them as and when they like. Hence, in this case, in our opinion, even crediting of the said amount to the accounts of the partners in proportion to their share was also justified on the basis of the principle of accountancy. 52. This observation of the Bench in the case of the assessee goes against the Department and submission of the learned CIT (Departmental Representative) to the effect that assessee instead of crediting capital account of partners shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. The explanation of the assessee was that other partners were having sufficient credit balance in their respective capital account while there was no sufficient amount available in the capital account of M/s Siddharth Construction Co. (P) Ltd. that is why assessee was constrained to get written agreement and even interest @ 15 per cent on the outstanding amount has been charged and the AO has taken note of this fact that assessee had returned ₹ 43,47,328 as interest from that concern. There is no abnormality in this view of the facts and thus the AO was not justified to raise doubts on such transactions. 56. The next point taken by the AO was that there was no actual credit balance appearing in the capital account of remaining partners. In this connection, the AO took help from the observation of asst. yr. 1990-91 in which it was observed that the amount of appreciation on account of conversion of shareholding investment into stock-in-trade was notional one and not to be taken into consideration. In this connection, again we may refer that Tribunal, Allahabad Bench, in the case of the assessee for asst. yr. 1990- 91 has decided this issue vide order dt. 23rd Dec, 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate entities. In the realities of commercial life one will find a firm borrowing from or lending to its partner, giving premises on lease to or taking premises on lease from its partner and similarly selling or purchasing goods and other assets to or from its partner or partners. Merely because a transaction is between a firm and its partner it will not result in the consequence or application of the principle that since the firm is not separate in law from its partners, there cannot be any trade or profit as between the two or flowing from the transaction between the two. 58. A perusal of the above shall show that there is no prohibition in law that a firm cannot transact with partners or vice versa in the normal course of business. The case of the assessee is fully governed by the said principle. 59. Apart from it, reasons why sale of shares was effected to the partners have also been explained by the assessee in the written submissions submitted on 20th May, 1993 before the learned CIT(A)-III and copy thereof is appearing at pp. 2 to 5 of the paper book in which it was submitted that assessee came to know that shareholding of the firm in respect of shares of JIL being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,37,75,600 Cost of each share to R.K. Singh Co. 0.63 Sale price per share 34 Tax in the hands of the firm and partners Sale consideration (1,37,75,600 x 34) 46,83,70,400 Cost (1,37,75,600 x 0.63) 86,78,628 Long-term capital gains 45,96,91,772 Deduction under s. 48 @ 60% 27,58,15,063 Taxable income 18,38,76,709 Tax on the above @ 20.16 % (A) 3,70,69,545 Partner's share 14,68,07,164 Tax on the above @51.75% (Siddharth) (B)7,59,72,707 Or Tax on the above @ 56% (individual) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of purchase (1,37,75,600 x 12) 16,53,07,200 Short-term capital gain (D) 30,30,63,200 (2) Partner's share of R.K. Singh Co. (LTCG) 71.26,989 Total income 31,01,90,189 Tax on the above @ 5175% 16,05,23,423 Total tax paid 16,23,23,023 Effective rate 34.66% 62. This working given by the assessee has not been challenged by the Department nor the learned CIT (Departmental Representative) has pointed out any mistake in the said calculation. In the absence of any defect/calculation mistake by the. Department in this working which was submitted before the learned CIT(A), the whole case of the Department goes away and thus the very basis of the AO that assessee adopted a colourable device to avoid payment of due taxes remains no more alive. 63. Another point raised by the AO was that after purchases made by the partners, shareholding was sold by the respective partners at higher prices and they have earned more profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of Tribunal, Bombay Bench, in the case of Burlingtons' Exports vs. Asstt. CIT (supra). The relevant portion thereof is in para 18 and the same is reproduced as under : 18. We, however, find force in the contention of the learned counsel for the assessee, Sri Dastur, that in that case also, there should be a distribution of assets by the firm to the partners so as to invoke the provisions of s. 45(4) of the Act. The words 'or otherwise' are used as an alternate to the words 'on dissolution' and, therefore, in both the situations, i.e., on dissolution or otherwise, the distribution of a capital asset is a must. What is distribution of capital asset is not defined in the Act. Generally, it is the allocation of the assets by the firm given to the partners or the legal heirs on dissolution, retirement, death or exclusion of one or more of the partners of the firm and in cases of mere change in the constitution of a firm. Any withdrawal of the capital asset by the partners of the firm from the firm to the exclusion of others might also be a distribution of capital assets. However, if such withdrawal is for consideration, it would be a case of sale by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on transfer. The written down value of the two properties was the consideration that has arisen to the assessee. Amount which is over and above the stated or agreed consideration cannot be brought to tax even though the market value of the two properties was much higher to the stated or agreed consideration. It is not the case of the learned Departmental Representative that the assessee had received the market value of these properties and, therefore, as held by Their Lordships of the Supreme Court in the case of K.P. Varghese, nothing more than what has been agreed to and actually received or recorded, could be brought to tax as capital gains. The difference, if any, could at best be a deemed gift which is excluded from the ambit of capital gains tax by the provisions of s. 47(ii) of the Act. In our opinion, therefore, s. 45(4) of the Act has no application to the facts of the case before us. 65. If we apply the above ratio, then provisions of s. 45(4) of the Act cannot be pressed into service in the factual position of the case, because it is a case of outright sale of shareholding by the assessee-firm to its partners and that too for consideration and thus it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in favour of the assessee and the learned CIT(A) has also taken note of this fact. As the learned CIT(A) has followed the order of the Tribunal, there is no infirmity in the order and we also confirm the view taken by the learned CIT(A) which is based on the decision of the Tribunal in the case of the assessee for just preceding year. 71. Ground No. 1(vii) relates to deletion of addition towards hire charges receipts which were increased by ₹ 33,16,225 and identical issue was before the Tribunal in the case of the assessee for asst. yr. 1990-91 and Tribunal vide its order dt. 23rd Dec, 1993 in ITA No. 1288/A11/1993 has already decided this issue in favour of the assessee and the learned CIT(A) has also taken note of the fact. As the learned CIT(A) has followed the order of the Tribunal, there is no infirmity in the order and we also confirm the view taken by the learned CIT(A) which is based on the decision of the Tribunal in the case of the assessee for just preceding year. 72. Ground No. 1(viii) reads as under : That the learned CIT(A) has erred in law and on the facts of the case in directing the assessee to allow full depreciation as claimed, without apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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