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TMI Blog2014 (10) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... ers in the respondent-company were defined under the partnership deed - The only change that has taken place on the respondent being transformed into a company was that the shares of the partners were reflected in the form of share certificates - beyond that, there was no physical distribution of assets in the form of dividing them into parts, or allocation of the same to the respective partners or even distributing the monetary value – thus, the order of the Tribunal is upheld – Decided against revenue. - I.T.T.A. No. 100 of 2002 - - - Dated:- 12-8-2014 - L. Narasimha Reddy And T. Sunil,JJ. For the Appellant : Sri S. R. Ashok For the Respondent : Sri. Ch. Dhanamjaya JUDGMENT (Per LNR,J) The respondent is a firm constituted under the Partnership Act and was assessed to tax. In the assessment year 1993-94, it got itself transformed into a private limited company. The entire assets and liabilities of the respondent were made over to the company. The respective partners were issued shares by the company corresponding to the value of their share in the firm. The Assessing Officer took the view that there was transfer of assets from the respondent to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansformed into a private limited company, as provided for under Part IX of the Indian Companies Act. Except that the assets and liabilities of the respondent were en bloc transferred and made over to the newly formed company, no transaction of transfer in the ordinary parlance has taken place, much less any consideration was paid to the respondent. The Assessing Officer took the view that the respondent stood dissolved, once a new company has come into existence in its place. As regards assets, he took the view that on allotment of shares by the company to the shareholders, who were none other than the partners of the respondent-firm, consideration stood paid for the respective extents of the assets. On this premise, the Assessing Officer levied the capital gains tax. In the appeal preferred by it before the Commissioner, the contention of the respondent was that no distribution of assets has taken place and the transfer of assets was not to any individual company whatever. The Commissioner accepted the contention, and has allowed the appeal and set aside the order of assessment. Insofar as levy of capital gains tax, the same view taken by the Commissioner. It is true that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple is laid down in Income Tax Commissioners vs. Gibbs (1942) A.C. 402), in which the question arose whether a partnership of four stock brokers who took in a fifth partner ceased to carry on business and was succeeded by the partnership of five within the meaning of sub-rule I of Rule 9. Schedule D to the Income Tax Act, 1918, which provided that if a person charged under Schedule D ceased within the year of assessment to carry on the trade in respect of which the assessment was made and was succeeded by another person, the Commissioner shall adjust the assessment as directed. It was held by the House of Lords reversing the decision of the Court of Appeal that though in the English law a partnership was not a single juristic person, the scheme of the income-tax legislation treated the partnership as a legal entity for the purpose of assessing revenue and there was succession to the business within the meaning of Rule 9, sub-rules 1 and 2. Applying the principle of these authorities it is clear that in the present case there has been a succession to the partnership within the meaning of Section 25(4) of the Indian Income Tax Act and that the finding of the Appellate Tribunal on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer proposed to levy capital gains tax, the Bombay High Court held: In this case, the erstwhile firm has been treated as a Limited Company by virtue of Section 575 of the Companies Act. It is not in dispute that in this case, the erstwhile firm became a Limited Company under Part IX of the Companies Act. Now, Section 45(4) clearly stipulates that there should be transfer by way of distribution of capital assets. Under Part IX of the Companies Act, when a Partnership Firm is treated as a Limited Company, the properties of the erstwhile firm vests in the Limited Company. The question is whether such vesting stands covered by the expression transfer by way of distribution in Section 45(4) of the Act. There is a difference between vesting of the property, in this case, in the Limited Company and distribution of the property. On vesting in the Limited Company under Part IX of the Companies Act, the properties vest in the company as they exist. On the other hand, distribution on dissolution presupposes division, realisation, encashment of assets and appropriation of the realised amount as per the priority like payment of taxes to the Government, BMC etc., payme ..... 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