TaxTMI 
TaxTMI 
2009 (7) TMI 738
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....rovision as per the Income-tax Act ? 2. Whether the Tribunal was correct in relying on various judgments of the apex court and other courts in arriving at the conclusion that there was no transfer on receipt of consideration amount by the retiring partners from the incoming partners without examining and applying the amended provisions of section 45 of the Act ?" 3. The brief facts leading to the above appeal are as under : 4. The assessee is a partnership firm and the relevant assessment year is 1995-96. The firm was carrying on the business of maintaining a cinema theatre, comprising four partners who were entitled to share the profits of the firm. The previous year corresponding to the assessment year is from April 1, 1994, to March 31, 1995. A reconstitution of the partnership firm took place some where in July, 1994, by addition of two partners to the partnership firm. It is indicated in the books of account that the incoming partners brought about Rs. 17 lakhs towards their capital contribution to the firm and on December 15, 1994, the firm was again reconstituted with the erstwhile four partners going out retiring from the partnership, the newly added partners remai....
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....ioner of Income-tax (Appeals) but without much success. 7. The appellate authority after noticing the facts and noticing the development in terms of the judgment of the Supreme Court in Sunil Siddharth-bhai's case [1985] 156 ITR 509 as also the subsequent judgment of a Division Bench of the Bombay High Court in the case of CIT v. A. N. Naik Associates reported in [2004] 265 ITR 346 and being of the view that the above object of the legislation by reintroduction of sub-sections (3) and (4) to section 45 being designed to prevent leakage of revenue by assessees indulging in transactions which was camouflaged and even otherwise which are capable of escaping the net of the tax as capital gains, opined that the Assessing Officer has rightly brought to tax the income attributable to the capital gain of the firm under section 45 of the Act. Upholding the view of the Assessing Officer and fortified the reasoning by referring to the provisions of section 188 read with section 177(2) of the Act and noticing that there were two changes in the constitution of the partnership firm for the accounting period and at the end of the year, none of the erstwhile partners remained in the firm ....
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....ed counsel appearing for the Revenue is that the Tribunal has committed an error in simply following the reasoning and the judgment of the Kerala High Court in Kunnamkulam's case [2002] 257 ITR 544 that the Kerala High Court has made a mistake in not noticing the full effect of the provisions of section 45(4) of the Act ; that section 45(4) being attracted not merely in the case of transfer of property involving dissolution of the firm but transfer in any other situation as is indicated under section 45(4) has been overlooked and attention has been drawn to the applicability of the provisions of section 45 to a situation where the assets of the firm on transfer otherwise than by way of dissolution of the firm and in the present case though there was no dissolution, in effect there being the transfer of the assets of the firm in the hands of four earlier partners to the firm later as it was held by the two incoming partners with addition and deletion of partners and that the two incoming new partners bringing capital investment of Rs. 17,00,000, out of which except for the amount which is the value calculated as written down value of the assets of the firm as reflected in the books ....
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.... counsel appearing for the respondent and not cited earlier in support of the case of the Revenue. Be that as it may, the Division Bench of this court has followed the view taken by the Bombay High Court in A. N. Naik's case [2004] 265 ITR 346 (Bom), rather than to follow the view taken by the Kerala High Court in Kunnamkulam's case [2002] 257 ITR 544 and, therefore, also we are bound to follow the view expressed by this court in Suvardhan's case [2006] 287 ITR 404 (Karn). 16. On the other hand appearing on behalf of the assessee Sri B. V. Shankaranarayana Rao would very vehemently urge that this is a fit case where this court should dismiss the appeal ; that the provisions of section 45(4) are not at all attracted to the facts of the present case ; that the facts of the present case do not involve any dissolution of a partnership firm ; that there is no actual transfer of any of the assets of the firm to any partners whether incoming or outgoing and in the absence of any transfer of capital assets there is no question of capital gain arising to the firm and, therefore, there is no transfer of capital assets in the hands of the firm. It is, therefore, submitted that nothin....
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.... of assets and dissolution and one partner taking all the assets of the firm. 20. Pointing out to the facts of the present case, the submission of Mr. Shankaranarayana Rao is that there is no transfer in the present case as the assets remained with the firm and none of the partners have taken out any of the assets of the firm. 21. We have bestowed our anxious consideration to the submissions made at the Bar and perused the records. 22. Section 45 of the Act has a chequered history. We are not sure whether it should be described as colourful history. It appears, in the parent Act section 45 was all by itself and later was introduced sub-sections (2) to (4) by way of amendment in the year 1964. Sub-sections (2) and (3) were omitted with effect from April 1, 1966, by the Finance Act, 1964, and got back on the statute book by way of amendment through the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985, and again modified as per the Finance Act, 1987, with effect from April 1, 1988, and so on and so forth. 23. While this position continued for some time by the Finance Act of 1987, sub-sections (3) and (4) were reintroduced with effect from April 1, 1988, ....
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....urt. 29. As indicated earlier, we are in respectful agreement with the view expressed by the Bombay High Court in A. N. Naik's case [2004] 265 ITR 346. We are of the view that in the present case the Assessing Officer has rightly indicated that the series of transactions such as reconstitution of firm twice ; once in July, 1994, and another in December, 1994, and the entire assets retained in the hands of the newly added two partners, results in transfer of assets of the firm in the sense that the assets of the firm as had been held by the erstwhile partners are transferred to the newly added two partners though all along the assets of the firm continued in the hands of the firm. Therefore, we hold there is transfer of capital assets within the meaning of section 2(47) and we are unable to accept the submission con-trary made by the learned counsel for the assessee. 30. In this view of the matter we answer the first question in the affirmative in favour of the Revenue holding that there was a transfer of capital asset attracting the capital gain transaction in terms of section 45(4) of the Act. 31. The second question is answered in the negative in favour of the Reve....