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TMI Blog2005 (9) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1998 in respect of Kar Vivad Samadhan Scheme, 1998 and prayed for permission to withdraw the appeal. Copy of certifi-cate issued by the Department in this respect has been placed on record. In view of above, we dismiss this appeal as withdrawn. ITA No. 402/Ahd./1999 : Revenue s Appeal 2. The only ground raised in this appeal by the revenue reads as under : "The ld.CIT(A) has erred in law and on facts and on circumstances of the case in directing to reduce the fair market value of the shares from Rs. 40 per share to Rs. 10 per share and thereby reducing the fair market value of the consideration received by the assessee-firm from Rs. 4,65,00,000 to Rs. 1,16,25,000." 3. The facts of the case are that the assessee - a partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the assessee-firm under section 45(4) of the Act. 4. On appeal, the CIT(A) rejected the assessee s contention that on conversion of firm into the company, there was no transfer of assets. However, with regard to the consideration received by the assessee on the transfer of assets to the company, he accepted the assessee s contention that the face value of the shares is to be considered. He accordingly directed the Assessing Officer to assess the capital gains tax at Rs. 1,16,25,000. 5. The assessee as well as revenue both aggrieved with the order of the CIT(A) filed the appeals before us. However, it was pointed out by the learned counsel for the assessee that since the assessee has availed the benefit of KVSS and paid the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support the order of the CIT(A) on the ground decided against the assessee. He, therefore, submitted that no capital gains tax is chargeable on the conversion of firm into company. However, since the assessee has withdrawn its appeal on account of KVSS, the assessee will not get any further relief but at the same time the amount of capital gains as determined by the CIT(A), cannot be enhanced and, therefore, the order of the CIT(A) should be sustained. He further submitted that even on merits, the order of the CIT(A) is required to be sustained because in the books of account of the assessee-firm all its assets were revalued and fair market value of the assets after re-valuation was Rs. 116.25 lakhs. The CIT(A) has already sustained the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n treating the fair market value of the asset on the date of transfer did not arise. In the case of a transfer of a capital asset, the two important ingredients are : existence of a party and counterparty and, secondly, incoming consideration qua the transfer. When a firm is treated as a company the two conditions are not attracted. There was no conveyance of the property executable in favour of the limited company. On the vesting of all the properties statutorily in the company, the firm was treated as a company, after a given date. In the circumstances, there was no transfer of a capital asset as contemplated by section 45(1)." 9. No contrary decision is pointed out from the revenue side. In view of above, we hold that on the conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A). 9.1 Even on merits, the revenue s appeal is liable to be dismissed. Section 45(4) reads as under : "(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (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." 9.2 Thus, as per section 45(4) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its incorporation, the normal presumption would be that the face value of the shares, i.e., the shares issued at par is the market value of the shares. Apart from the allotment of shares to the partners of the assessee-firm, the company had also allotted 8,37,500 shares to others at par . Again on 25-3-1995 the company allotted 10 lakh shares of Rs. 10 each to promoters and relatives of the promoters at par . Thereafter on 6-5-1995 and 10-5-1995 the shares were allotted to the associates of the promoters at a premium of Rs. 30 per share. The allotment of shares at premium was after three months of allotment of shares to the partners of the firm. In the share market, the market value of the shares may vary within a period of three mont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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