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TMI Blog2025 (4) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... ering question Nos. 3 and 4, in the light of the discussions in this judgment and the remand necessitated to the Tribunal for a specific finding on the extent of short term capital gains, if any, that would accrue to the appellant firm during the assessment year in question. The Appellate Tribunal shall examine the provisions of Section 48, as modified by Section 50(1) of the Income Tax Act, and determine whether or not any short-term gains had accrued to the appellant firm for the assessment year in question. Taking note of the time that has elapsed since the filing of this appeal before this Court, we direct that the above computation exercise be completed by the Appellate Tribunal within an outer time limit of six months from the date of receipt of a copy of this judgment, after hearing the appellant firm." 2. The factual ground of the case is that the appellant is a partnership firm engaged in the business of running hotel. The return of income for AY 2012-13 was filed on 31.10.2013 declaring income of Rs. 67,59,352/-. Against the said return of income, the assessment was completed by the Asst. Commissioner of Income Tax, Circle -1(1), Non-corporate, Kochi (hereinafter called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The relevant portion of the order reads as under: - "9.9 Now the question is whether section 45(4) covers transfer only transfer on dissolution or also a transfer during the subsistence of a firm or "distribution" and/ "or otherwise" is to be understood in the true spirit of the legislation. "Distribution" is akin to final settlement. Every transfer is not a "distribution" because the latter involves division, realization, encashment of assets and appropriation after settling the liabilities. Reconstitution of the firm should not come within the expression "or otherwise" because it will render the word "distribution of capital assets" otiose. In fact, it runs contrary to legislative intent which was simply to tax the transfers in the course of final settlement between the partners which is the reason section 47(ii) was deleted by the amendment that introduced section 45(4). Thus, the purpose and object of the Finance Act, 1987 was to charge tax arising on distribution of capital assets of the firm which otherwise was not subject to tax. Therefore, the language of section 45(4) should be construed to mean that the expression "or otherwise" is not to be read ejusdem generis wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal and the firm for several years claimed ownership of the building and based on the same, depreciation was claimed in respect of the building for all the assessment years until 1993-94 which was the last year of assessment of the firm. Admittedly, on dissolution the property reverted back to the partners in the same way it was brought by them to the firm as their capital. The Assessing Officer initiated proceedings for assessment for capital gains under section 45(4). The Assessing Officer limited the levy of capital gains to the extent of 14.25 cents of land involved. Since the building was sold at the book value, i.e., depreciated value, the Assessing Officer accepted the transaction as one falling u/s. 50(1) of the Act not attracting any capital gains tax because the transfer was at the book value. The Commissioner acting under section 263 held that the entire transaction attracted tax on capital gains u/s. 45(4) of the Act. The assessee's appeal on the levy of capital gains tax on land value was allowed by the Commissioner (Appeals). The Tribunal held that the reference to the valuer was not justified and therefore, the assessment of capital gains did not arise. On appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt and, therefore, the sale consideration received on sale of the building to Shri Poonghat Srinivas is to be brought to tax. Further he submits that since the same asset, which was bought into the books of the partnership as capital contribution of Shri Poongaht Srinivas for the purpose of computing capital u/s. 50 of the Act the depreciable value of the asset alone is to be considered. 11. On the other hand, the learned A.R. of the assessee submits that for the purpose of computing capital gains as per section 45(4) of the Act the computation is to be done in the manner prescribed u/s. 48 r.w.s. 50 of the Act. He further submits that for the purpose computing capital gain u/s. 50 of the Act the value at which it was brought back into the books of the firm by the incoming partner Shri Poonghat Srinivas should be considered as addition to the block of assets as specified under sub-clause (1) of section 50 of the Act. If such method is adopted, it would not result in short term capital gain. 12. We have heard the rival contentions of both the parties and perused the material available on record. The matter was remanded to this Tribunal by the Hon'ble High Court with a specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been allowed in the earlier years as per the Income Tax Act and Rules. The actual amount of depreciation in fact becomes known, which would call for an adjustment to be made to the depreciation which had been earlier allowed as per the provisions of Income Tax Act and Rules made thereunder. This adjustment is called for in the year of sale by way of short term capital gains or loss. If the realisation of sale proceeds is more than the opening WD value of the asset as increased by the value of addition made in the asset during the year, it would result in short term capital gains under the provisions of section 50 of the Act. Of course, the amount of value of addition should be adjusted in terms of the provisions of section 50 of the Act. However, these provisions of section 50 have no application to the facts of the present case as the same amount was assessed to capital gain u/s. 45(4) of the Act. In other words, provisions of both section 45(4) and section 50 cannot be applied to the same amount. In this regard reliance is placed on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Urmila Ramesh [1998] 230 ITR 422 (SC) rendered in the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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