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TMI Blog2008 (2) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... o attract tax on capital asset under Section 45(4) of the Act. We have heard senior standing counsel appearing for the Income-tax Department and separate counsel appearing for the two assessees. 2. The common assessee in I.T.A. Nos. 146 and 168 of 2002 is a partnership firm that consisted of two partners. During the previous year, relevant for the assessment year 1990-91, the assessee-firm was dissolved and under the deed of dissolution one partner took over the land and factory building. After the dissolution, the partner who got the land and factory building continued the business as a proprietorship one. The capital gains on transfer of land and building on the dissolution of the firm and distribution of assets was assessed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the dispute on valuation which was the issue originally raised in all the three appeals. So far as I.T.A. No. 219 of 2002 is concerned, the position is the same in as much as the Tribunal has considered only whether there is capital gains arising on the dissolution and reconstitution of the firm during the relevant previous year. 3. Since the question raised pertains to interpretation of Section 2(47) and Section 45(4) of the I.T. Act, we extract hereunder these two provisions for easy reference: "2(47) "transfer", in relation to a capital asset, includes,- (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; or (iv) in a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer." 4. While counsel for the revenue relied on the decisions of the Andhra Pradesh, Bombay and Karnataka High Courts reported in Rajlaxmi Trading Co. v. CIT [2001] 250 I.T.R. 581, CIT v. A.N. Naik Associates [2004] 265 I.T.R. 346 and Suvardhan v. CIT [2006] 287 I.T.R. 404 respectively, counsel appearing for the assessees relied on the unreported decision of this Court in I.T.R. 235 and 236 of 1997 dated 29.2.2002 and that of the Madras High Court in CIT v. Vijayalakshmi Metal Industries, [2002] 243 I.T.R. 540. The Tribunal decided the issue in favour of the assessee following the decision of other Tribunals. The Tribunal has taken the view that Section 2(47) defining "transfer" does not take in the case of dissolution of a firm and sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after dissolution of the firm wherein one partner assigned his right in the assets in favour of the other partners on taking consideration in cash. 6. In short, the transactions in both the cases have resulted in dissolution of the firm and partner or partners getting rights over the immovable property. Subsequent reconstitution of the firm does not affect the liability under Section 45(4) which is a liability of the dissolved firm to be assessed for capital gains in terms of Section 45 (4). Of course, dissolved firm can be assessed for capital gains under Section 45(4) by virtue of provisions contained in Section 189(1) of the Income-tax Act. Decisions of various High Courts referred above on the side of counsel appearing for the departme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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