2008 (5) TMI 256 - SC - Income Tax

Question of law - Whether the revaluation of the assets of the assessee firm on conversion of the firm into Limited Company will not result into any capital gain liability under the I.T. Act - Whether there is no transfer involved when the assessee gets itself registered as a company - Whether the assessee is not liable to any capital gain tax held that above questions are question of law u/s 260A of IT Act 1961

Summary

Issues:
1. Dismissal of Tax Appeal by High Court based on no substantial question of law arising from Tribunal's order.

Analysis:
The respondent, a partnership firm, revalued depreciable assets and enhanced the value before converting into a company. The Assessing Officer initiated reassessment proceedings under Section 148 of the Income Tax Act, resulting in an addition to the total income of the respondent. The Commissioner (Appeals) confirmed the addition, which was later set aside by the Tribunal. The Revenue filed a Tax Appeal before the High Court, raising four questions of law related to capital gain liability, transfer of assets, and capital gain tax under the Income Tax Act.

The High Court dismissed the appeal, stating no substantial question of law arose from the Tribunal's order. The Supreme Court disagreed with this view, holding that the questions raised by the Revenue were indeed substantial questions of law. The Supreme Court set aside the High Court's order and admitted the appeal on the four questions raised. The matter was remitted to the High Court for a fresh decision on these questions in accordance with the law. The Supreme Court also requested an early disposal of the Tax Appeal by the High Court.

In conclusion, the Supreme Court allowed the appeal, emphasizing that the questions raised were substantial and required a detailed examination by the High Court. The decision highlighted the importance of addressing legal issues raised by parties in tax appeals to ensure a fair and thorough consideration of the matter.