TaxTMI 
TaxTMI 
2010 (2) TMI 992
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....of the Revenue is against the order of the Commissioner of Income-tax (Appeals) deleting the addition made by the Assessing Officer on account of capital gains chargeable. For this, the Revenue has raised the following ground No. 1 : "(1) The learned Commissioner of Income-tax (Appeals) erred in law and on facts in deleting the addition of Rs. 95,91,810 made by the Assessing Officer as capital gain chargeable to tax on transfer of assets to M/s. Gulabdas Flexipack Pvt. Ltd. by the assessee on the basis of revaluation of assets made by the assessee firm." The brief facts leading to the above issue are that the assessee-firm filed its return of income for the assessment year 1994-95 and this return was processed. Subsequently, the Assessing....
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....turing Co. [1997] 227 ITR 260 (SC), the addition on account of revaluation of the assets transferred to Gulabdas Flexipack Industries Pvt. Ltd. to the tune of Rs. 95,91,810 is added as income under the head "Capital gain". Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) allowed the claim of the assessee after considering the submissions of the assessee and stating that in the present case, the company has not come into existence at an early date so that the assets of the undertaking (the firm), cannot be transferred to it. Also, the individual assets have not been transferred to the company and accordingly he deleted the addition. Aggrieved, the Revenu....
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....es 18 to 28. According to him, it was merely a book entry passed by the firm so as to bring the assets to their present value and disclosed the net worth at its real value and therefore mere passing of a book entry so as to bring the assets to their market value will not give rise to any income, much less transfer of assets and profit thereon so as to be liable as capital gains under section 45(1) of the Act. Learned counsel further stated that the Assessing Officer is not justified in observing that the assets were transferred to Gulabdas Flexipack Industries Pvt. Ltd. on revaluation so that addition was required to be made and when the assets were revalued and accounting entries were passed on April 1, 1993, there was no transfer of asset....
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.... is the profit or gain arising on transfer of the asset distributed on dissolution of the firm or otherwise and it is not the contention of the Assessing Officer that Rs. 95,91,824 is the profit or gain arising on conversion of the firm. In view of this he argued that this contention of the assessee would also hold good as regards the observation made by the Commissioner of Income-tax (Appeals) that the firm stood dissolved on January 6, 1994. Accordingly he stated that there is no infirmity in the order of the Commissioner of Income-tax (Appeals) and that is to be upheld. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order as wel....
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....s of printing and lamination. The assets of the firm was revalued at market price as on April 1, 1992 and thereafter a seventh partner was introduced with effect from October 1, 1993 by the partnership deed dated October 12, 1993. Subsequently, the firm was converted into a company by the name "Gulabdas Flexipack Industries Ltd." on October 6, 1994 and the certificate of commencement of business was given on January 12, 1994 by the Registrar of Companies. These seven partners were allotted shares worth of Rs. 35 lakhs in their profit sharing ratio and the balance Rs. 97 lakhs was credited to the capital account. There was no change in profit sharing ratio in the hands of the firm. In view of the above provisions of section 45(4), we are of ....
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....f the dissolution of the firm, should be the fair market value and not the written down value or any other value. This view has been held by the hon'ble Andhra Pradesh High Court in the case of Rajlaxmi Trading Co. v. CIT [2003] 250 ITR 581, 583. Under section 45(4), two conditions are required to be satisfied, viz., transfer by way of distribution of capital assets, and, secondly, such transfer should be on dissolution of the firm or otherwise. Once these twin conditions are satisfied then, in that event, for the purposes of computation of capital gains under section 48, the market value on the date of the transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. Where a firm b....