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TMI Blog2010 (10) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... which was distributed by the assessee firm to its two partners was Rs. 86,15,894 and accordingly, the short term capital gain in the hands of the assessee firm under section 45(4) will be difference between Rs. 86,15,894 and the written down value of Rs. 34,64,745 which is Rs. 51,51,149 – Appeal is partly allowed - IT APPEAL NO. 345 (AHD.) of 2008 - - - Dated:- 7-10-2010 - BHAVNESH SAINI, N.S. SAINI, JJ. J.P. Shah for the Appellant. Anil Kumar for the Respondent. Order Per N.S. Saini, Accountant Member. This is an appeal filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals)-V Baroda, dated 26-11-2007. 2. Ground No. 1 reads as under : On the facts and in the circumstances of your appellant case and in law, the Hon ble Commissioner has erred in upholding the decision of Learned Assessing Officer in respect of re-opening and re-assessment of your appellant s case. 3. At the time of the hearing the Learned Authorised Representative of the assessee submitted that he is not pressing this ground of appeal and therefore the same is dismissed as not pressed. Ground Nos. 2 to 4 of appeal reads as under : 2. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 the assessee filed a revised return and declared Rs. 1,59,255 as short term capital gain on transfer of Ratanpur factory building. 6. The Learned Assessing Officer found that the value of factory building has been credited in the partner s capital account by passing journal entries by the assessee. The Learned Assessing Officer asked the assessee to explain why capital gain as per section 45(4) should not be levied on the transfer price of Rs. 3,22,65,000. The assessee explained that the valuation report dated 1-4-2000 relied upon by the Learned Assessing Officer was obtained for getting credit facility from Bank. The Learned Assessing Officer did not accept the contention of the assessee. He observed that the valuation report dated 1-4-2000 is authentic. He stated in the assessment order that valuation has been done at the instance of the partners of the assessee-firm. The new company M/s. New Gujarat Tin Circle Depot Pvt. Ltd., had taken over the entire balance sheet of New Gujarat Tin Circle Depot on 30-9-2001, and the value of factory building shown in the balance sheet of New Gujarat Tin Circle Depot was Rs. 3,22,65,000.The Learned Assessing Officer examined the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t another important aspect which was overlooked was that the valuation done by Abbasi and Abbedin Tinwala comprised of land which was in their individual ownership and the factory building which was owned by the firm. 9. The Learned Commissioner of Income-tax (Appeals) after considering the submissions of the of the assessee observed that the capital asset has been withdrawn from the partnership firm and introduced as capital in another firm and therefore the provisions of section 45(4) r.w.s. 50 became applicable and capital gain was leviable. The assessee has also accepted this fact by filing a revised return. The valuation was done at the instance of partners of assessee firm only. The value was again confirmed by the fact that the same amount has been credited on re-valuation in the new firm New Gujarat Tin Circle Depot, to the partners capital account. The Private Limited Company has also claimed depreciation on this amount. The assessee cannot say that the entire chain of events was a mistake. It was significant to note that the company New Gujarat Tin Circle Depot Pvt. Ltd., which now owns all the assets has allotted shares to the partners of New Gujarat Tin Circle Depot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 280 dated 7-3-1996. 11. From this also it can be seen that the property in question is not owned by the assessee-firm. 12. Lastly, the Learned Authorised Representative of the assessee argued that the definition contained in section 2(47) defines transfer as (i) the sale exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; 13. As none of the above conditions exists in the case of the assessee there was no transfer of building made by the assessee-firm and therefore was not liable to tax under section 45(4) of the Act. 14. On the other hand the Learned Departmental Representative submitted that the building in question was part and parcel of the asset of the assessee-firm. The firm is owner of the property and the asset forms part of the written down value of the assets of the firm and depreciation was regularly being claimed by the assessee on such assets. After this the firm cannot turn around and say that it is not the owner of the Ratanpur factory because it was not transferred by way of a conveyance deed. The conduct of the assessee shows that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; 17. Thus we find that if a transaction falls within the ambit of the above stated definition of transfer then irrespective of the fact whether the transaction is a transfer within the Transfer of Property Act, 1881 or not, the income accrued on such transaction is chargeable to Income-tax Act under section 45(4) of the Act. Thus we do not find force in the submission of the Learned Authorised Representative of the assessee to the effect that transfer of immovable property belonging to a firm in favour of its partners by mere book entries is not an acceptable mode of transfer of ownership unless it is followed by registration of a duly stamped deed of conveyance in favour of the partners. 18. Further section 45(4) of the Act reads as under : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. We find that section 45(4) was inserted in the Income-tax Act with effect from 1-4-1988 and the above decisions relied upon by the Learned Authorised Representative of the assessee are all relating to the earlier assessment years. Thus, by the insertion of provisions of section 45(4) of the Act the legislative intent is clear that profits or gains arising on distribution of capital asset of a firm to its partners is a taxable event under the Income-tax Act and thus the law on the issue has undergone an amendment with effect from 1-4-1988. Therefore, in our view the above cited decisions relied upon by the Learned Authorised Representative of the assessee are not applicable to the instant case as the Assessment Year involved in the instant case is Assessment Year 2001-02 which is after 1-4-1988. 20. In view of the above, in our considered opinion the fair market value of Ratanpur factory building as on 1-4-2000 is to be treated as full value of consideration received or accrued to the assessee firm as a result of distribution of the said capital asset to its two partners hence the only issue which we are left with is to determine what was the fair market value of Ratanpur facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory building was not proper. The assessee contended before the Learned Assessing Officer that the value of Rs. 3,22,65,000 included the value of land also which was not transferred by the assessee firm to its partners. 24. We find that the Learned Assessing Officer has not disputed the fact that only Ratanpur factory building was transferred by the assessee firm to its partners and land which were already owned by the partners were not transferred by the assessee firm to its partners. The Learned Assessing Officer rejected the contention of the assessee only on the ground that the new company namely M/s. Gujarat Tin Circle Depot Pvt. Ltd. has claimed depreciation on entire value of Rs. 3,22,65,000 and therefore he assumed that the fair market value of the said factory building as on 1-4-2000 was Rs. 3,22,65,000. In our considered view this assumption on the part of the Learned Assessing Officer is not factually sustainable. We find that the valuation report dated 1-4-2000 was not disputed by the Revenue. As per the said valuation report the fair market value of the Ratanpur factory building as on 1-4-2000 was Rs. 86,15,894only and the fair market value of land was Rs. 2,36,49 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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