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Issues involved: Interpretation of section 45(4) of the Income-tax Act regarding the fair market value of assets transferred upon dissolution of a firm.
Summary: The High Court of Andhra Pradesh heard an appeal by an assessee against the order of the Income-tax Appellate Tribunal regarding the assessment year 1991-92. The dispute arose when the Assessing Officer applied section 45(4) of the Income-tax Act, deeming the fair market value of assets transferred upon dissolution of a firm to be higher than the book value, resulting in short-term capital gains for the assessee. The assessee contended that the consideration received by the firm should be considered as the fair market value, citing a Supreme Court decision. However, after considering the arguments, the court found no substantial question of law in the Tribunal's order as the fair market value determined by the District Registrar was appropriate under section 45(4). The court highlighted the difference between section 12B of the Indian Income-tax Act, which focused on the consideration actually received, and section 45(4), which deems the fair market value as the full value of consideration upon transfer of assets during firm dissolution. Referring to the definition of fair market value, the court emphasized that the value of the asset should be based on what it would fetch in the open market, as determined by rules under the Act. The Tribunal's decision to consider the fair market value determined by the District Registrar was upheld, as it aligned with the clear provisions of section 45(4. Additionally, the court referenced a previous apex court decision emphasizing that assets upon firm dissolution should be valued at market value for determining capital gains. Despite the absence of a direct reference to section 45(4) in that case, the principle applied was relevant to the current matter. Ultimately, the court dismissed the appeal, affirming the Tribunal's decision to use the fair market value determined by the District Registrar, as prescribed by section 45(4) of the Income-tax Act.
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