TMI Blog1993 (5) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ern and if necessary to enter said firm as partner. 4. Revaluation of assets of said firm was undertaken and as a result thereof appreciation in value amounting to Rs. 8,57,328 was credited on 1-1-1981 in the capital accounts of the partners in their respective profit-sharing ratio. The amount which was credited in the present assessee's account on this score was Rs. 85,732. Technical know-how was valued at Rs. 3,00,000 on 31-3-1981 and this amount was credited on that date in the capital accounts of the partners in their respective profit-sharing ratio, the amount which was credited in the present assessee's account regarding this item was Rs. 33,000. 5. The abovementioned company joined the said firm as its seventh partner with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a transfer within the meaning of section 43 and the capital gains arising therefrom would be taxable. Such was admittedly not the case in the instant case. The other well recognised method is that for a firm to convert its property into the property of a company by itself becoming a company. In other words, individual partners themselves form a company which becomes a partner of the firm and upon dissolution of the firm the entire property is allotted to the company which holds it as the property of the company. In the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49, it was held by the Supreme Court that upon dissolution of the firm and the distribution of the assets to one or the other partners there is no transfer in law. The und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for assessee has relied on reasons given in the appellate order and also on decisions in (i) CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj.), (ii) Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 (SC), (iii) CIT v. Dewas Cine Corpn. [1968] 68 ITR 240 (SC); and (iv) Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC). 10. We have considered rival submissions and facts on record. We are dealing with assessment year 1982-83 for which relevant accounting year ended on 31-3-1982. The material dates to which our attention has been drawn are 1-1-1981, 30-3-1981 and 30-9-1981. The first date relates to revaluation done by the firm of its assets and consequent credits given to partners in their capital accounts in their respective profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted because there is no transfer of any capital asset by the partners. Amount credited on 31-3-1981 in respect of share in technical know-how would not be regarded as income of concerned partner on dissolution of firm on 30-9-1981. On the facts of the present case decision in the case of McDowell Co. Ltd. would not at all be attracted. 13. In fact assessment order does not at all indicate as to in what manner amounts credited on 1-1-1981 and 31-3-1981 (which relate to assessment year 1981-82) could be regarded as short-term capital gains and income for assessment year 1982-83. The decision of Gujarat High Court in CIT V. Smt. Minal Rameshchandra [1987] 167 ITR 507 on which ITO has relied is of no assistance. What has been laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [1972] 83 ITR 211 (SC)]. On the basis of the principles laid down in the decisions to which our attention has been drawn on behalf of the assessee, it must be held that the amounts credited on 1-1-1981 in the capital accounts of the partners on revaluation of assets do not represent short-term capital gains for assessment year 1982-83 on dissolution of the firm and that amounts credited on 31-3-1981 in the capital accounts of the partners in respect of technical know-how do not represent income of the partners for assessment year 1982-83 as held by the ITO. We hold that on dissolution of firm there has been no transfer of any capital assets. We reject the ground raised by the department. 16. The appeals are dismissed. - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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