TMI Blog1997 (12) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... rm had been dissolved and the business was taken over by Mrs. AMG. Mrs. AMG was summoned to produce a copy of the dissolution deed. She appeared and filed a copy of the dissolution deed. A perusal of the same indicated that the partnership had been dissolved on 1-4-1992 and that the assets and liabilities were taken over by the lady. A proposal to apply section 45(4) was sent and, in response, a return of income, for the assessment year under consideration, came to be filed declaring 'Nil' income. Along with the return a letter was enclosed stating "please find herewith enclosed return of income in respect of the firm M/s. Suvardhan for the assessment year 1993-94. This is in response to your notice under section 142(1)." Subsequently another notice under section 142(1) along with summons under section 131 was sent to the firm requiring its continuing partner Mrs. AMG to appear. She appeared on 28-12-1995. A statement was recorded from her regarding M/s. Suvardhan. While recording the statement, to a question put to her, she confessed that there was a dissolution deed and that the assets were taken over by her at book value. During the course of survey, a valuation report was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice without spelling the requirement. Hence, there was no direction to the assessee that the return should be filed on or before 8th of February, 1995. In the circumstances, no default of non-compliance could be suggested. On the other hand, the assessee had filed the return on 11-12-1995 declaring nil income for the relevant assessment year. Without prejudice to the above submissions, it is submitted that the assessee firm was dissolved with effect from 1-4-1992 vide Dissolution Deed dated 25-3-1992. Prior to the dissolution the firm was constituted with two partners Smt. Anuradha Maruthi Gokarn and Sri. B. Chandrasekhar. The effect of the dissolution was that the business as a going concern was continued by Smt. Anuradha Maruthi Gokarn in the capacity of sole proprietrix, and Shri B. Chandrasekhar has ceased connection with the business. The business as such has not been disrupted and the assets and liabilities of the erstwhile firm had not been distributed. In fact Shri B. Chandrasekhar has not paid anything either in kind or in cash. Thus there was no distribution of an asset which was one of the condition required to be satisfied for invoking the provisions of section 45(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts must be equal. He examined the order of the Tribunal in Mangalore Ganesh Beedi Works v. Dy. CIT [IT Appeal No. 591 (Bang.) of 1994 dated 14-11-1995], and came to the conclusion that the facts were different. He, finally, computed the capital gains on the distribution of the assets consequent on the dissolution of the firm M/s. Suvardhan, and brought a sum of Rs. 17,30,520 as deemed short-term capital gains under section 45(4) of the Act. The Assessing Officer also charged interest under sections 234A, 234B 234C of the Act. The assessee appealed. 3. To the contention that the original notice under section 142(1) had not called for filing of the return and, therefore, there was no failure to furnish the return by the due date, the CIT(A) held that it was settled law that a wrong reference to the power under which an order was made did not per se vitiate the order if there was some other power under which the order could lawfully be made. The CIT(A) stated that it was a fact that the notice under section 142(1) dated 30-1-1995 did not speak of filing of a return and that the assessee did not respond to the notice. The CIT(A) held that assuming that the earlier notice under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 45(4) was to deem certain activity/transaction which was covered by the definition of the word 'transfer' under section 2(47) as also transfer for the limited purpose of computation of capital gains. The CIT(A) also discussed the argument of the assessee that section 45(4) envisages two conditions, viz., (a) dissolution of the firm and (b) distribution of capital assets and that the two conditions were to be satisfied cumulatively. The CIT(A) went through the provisions of the deed of dissolution. According to him, the deed of dissolution would show that the arrangement was that BC was to retire from the firm taking the balance to his credit as on 31-3-1992 together with profit upto that date, thereby bringing an end to the partnership. Mrs. AMG was to continue the business as per proprietary concern. In such an arrangement, the division or distribution of assets could be only in such a way that the business assets were not destroyed. The properties involved were building and plant and machinery and a division or distribution of such assets could be done only by allotment of the assets to such person who was to take over the business and the other party being paid such amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 139(4). The assessment has thus become an income escaped assessment. Therefore, a notice under section 148 should have been issued. No notice under section 148 is issued. Therefore, it is the contention of Shri Parthasarathi that the ex parte assessment order passed under section 144 in this case without issue of a notice under section 148 is invalid and has to be cancelled. In support, the learned counsel for the assessee relied on an order of the Hyderabad Bench of the Tribunal in the case of Dr. Vijay Kumar Datla v. Asstt. CIT [1996] 58 ITD 339. The learned departmental representative, on the other hand, relied on the orders of the authorities below. 5. On a careful consideration of the rival submissions, we see that there is no infirmity in the order of the Assessing Officer passed under section 144 of the Act. The facts as found in the assessment order as well as in the order of the CIT(A), which have been narrated by us above, are not in the realm of dispute. The CIT(A) had justified his conclusion by facts and also on the basis of case laws. Nothing more than a decision of the Hyderabad Bench in Dr. Vijay Kumar Datla's case has been brought before us by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 144, the Assessing Officer is empowered to pass a best judgment assessment if any person (a) fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, after taking into account all relevant material which he has gathered. He shall make an assessment after giving the assessee an opportunity of being heard of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. In this case, the assessee has not filed the return voluntarily. The Assessing Officer issued several notices under section 142 requesting the assessee to file all the details. In response to that, the assessee filed return which is beyond the period. One of the partners appeared before the Assessing Officer. She was examined the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uals (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 year in which the said transfer takes place and, for the purposes 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." When Mrs. AMG who took over the assets and liabilities of the firm was examined she stated that she took over them at book value. In para 2 above we have reproduced one of the questions put to Mrs. AMG and her reply, at the time of survey. It is the contention of the learned counsel for the assessee that there was no transfer or distribution of capital assets on dissolution of the partnership firm because there was no corresponding amendment to the definition of 'Transfer' under section 2(47) of the Income-tax Act. When there is no transfer, there is no justification for assessing any capital gains under section 45(4). The learned counsel placed reliance on the definition of the word 'Transfer' under section 2(47) of the Act. The sub-section states: "(47) 'transfer', in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not correct to say that the dissolution of assets takes place eo instanti with the dissolution of the firm or that it is effected by the dissolved firm." In our considered opinion, the above judgment of the Hon'ble Supreme Court has no application here. Firstly, the Hon'ble Supreme Court decided the above case before the insertion of section 45(4) of the Income-tax Act. Secondly, there was no distribution of assets in the case decided by the Supreme Court whereas there is dissolution, evidenced by a dissolution deed, and distribution of assets among the partners of the firm. The same is the position in the case of Mangalore Ganesh Beedi Works. In the case decided by the Jabalpur Bench of the Tribunal in Thermoflics India's case, it is held: "From decisions of Supreme Court in the case of CIT v. Dewas Cine Corpn. [1968] 68 ITR 240, CIT v. Bankey Lal Vaidya [1971] 79 ITR 594 and in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49, it was clear that on dissolution of the firm and upon the consequent distribution of assets amongst the partners, there is no t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets amongst the three partners out of them one died and another retired. In this case, there is a dissolution of the partnership firm run by two partners evidenced by a dissolution deed and there is distribution of assets among the two partners as per the dissolution deed. We have already quoted the relevant clauses of the dissolution deed. In this case, admittedly, Mrs. AMG has taken over the entire assets and liabilities of the partnership firm. It is, therefore, clear that there is a dissolution of the partnership firm. Under the provisions of section 45(4) the profits and gains arising on the transfer of a capital asset of a partnership firm on the dissolution of the firm is liable for capital gains w.e.f. 1-4-1988. Before the insertion of the above sub-section, there was section 47 which dealt with transactions not regarded as transfer. Under section 47(ii) any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons was regarded as not 'transfer'. This sub-section is also omitted w.e.f. 1-4-1988 by the Finance Act, 1987. This would show that any distribution of capital assets on the dissolution of a firm, body of indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,35,600 ------------------- 20,87,830 Less: W.D.V. of Buildings 1,80,478 Others 1,76,830 3,57,308 ------------------- ------------------- Deemed short-term capital gains 17,30,522 chargeable to tax under section 45(4) rounded off 17,30,520 The contention on behalf of the assessee is that the market value as determined by the Assessing Officer without appreciating that the market value of the assets has been inflated while computing the capital gains is not justified. But no evidence has been brought to our notice in this regard. Therefore, the contention on behalf of the assessee that the computation of capital gains is excessive, arbitrary cannot be countenanced. Therefore, it is rejected. We do not find any reason to interfere with the computation of the short term capital gains by the authorities below. 9. The last ground is against levy of interest under sections 234A, 234B 234C of the Income-tax Act. Interest under the above sections is leviable as a part of the assessment. The jurisdictional High Court of Karnataka has upheld the validity of the above sections. Hence, we uphold the levy. 10. In the result, the appeal is dismissed. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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