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TMI Blog2012 (6) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the erstwhile firm vested in the company and as such there was no transfer of assets by way of distribution - provisions of section 45(1) and 45(4) of the Act were not attracted even though there was a "transfer" of assets from the firm to a newly constituted com- pany on conversion of the firm to a company under Chapter IX of the Companies Act. The shareholding of the erstwhile partnership firm remained the same upon conversion of the firm into a company as there was no transfer of assets of the firm to the company it is only that the business was taken over by the company, thus the closing stock of the erstwhile firm cannot be valued at the market price - in favour of assessee. - 36 of 1999 - - - Dated:- 26-12-2011 - MADAN B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order was confirmed by the Commissioner of Income-tax (Appeals). 6. In a further appeal, the Income-tax Appellate Tribunal (for short, "the Tribunal") decided in favour of the assessee and came to the conclusion that there was no transfer of assets and, therefore, the provisions of section 170 of the Income-tax Act, 1961 (for short, "the Act") were not applicable inasmuch as there was no capital gain in so far as the assessee is con- cerned. 7. Section 170(1) of the Act deals with succession to business otherwise than on death and reads as follows : "170.(1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business unhampered by the load of debts or for any other appropriate collateral purpose, cannot detract from the totality of the succession. 10. In this backdrop, the Supreme Court interpreted section 25(4) of the Indian Income-tax Act, 1922, and held that the tests of change of owner- ship, integrity, identity and continuity of a business have to be satisfied before it can be said that a partner has succeeded to the business of another. 11. Following the decision of the Supreme Court, the Kerala High Court in CIT v. S. Koder [1998] 233 ITR 620 (Ker) came to the conclusion, based on the facts of that case, that the assets and liabilities of the erstwhile firm were taken over by the company with the same persons as shareholders. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of property. On conversion of a partnership firm into a company under Chapter IX of the Companies Act, the assets and property of the erstwhile firm vest in the company. On the other hand, distribution or appropriation takes place when the provisions of Chapter IX of the Com- panies Act are not applicable, such as in a case of dissolution of the firm which presupposes division, realisation, encashment of assets and appro- priation of the realised amount. The Supreme Court also made a note of the insertion of clause (xiii) in section 47 of the Act. This sub-section was inserted by the Finance (No. 2) Act, 1998, and although the court was not concerned with the amendment (nor are we concerned with the amendment), it was noted that the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act. The shareholding of the erstwhile partnership firm remained the same upon conversion of the firm into a company. Effectively, there was no transfer of assets of the firm to the company. It is only that the business was taken over by the company. That being the position and on the basis of the case law that we have already referred to above, it is quite clear that the closing stock of the erstwhile firm cannot be valued at the market price. 17. Under the circumstances, the Tribunal was correct in coming to the con- clusion that both the Assessing Officer as well as the Commissioner of Income-tax (Appeals) had erroneously decided that the closing stock of the erstwhile firm should be valued at the market price. 18. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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