TaxTMI 
TaxTMI 
2010 (3) TMI 903
X X X X Extracts X X X X
X X X X Extracts X X X X
....s laid down under section 80-I(2) and 80-I(1)(a). 3. That the order of the ld. CIT(A) on the above issues being erroneous in law and on facts be set aside and that of the order of the Assessing Officer be restored." 3. Brief facts of the case are that the assessee-firms derives income from manufacture and sale of wires, GI tapes and GA strips. Earlier, the firm was a proprietory concern of Shri Man Mohan Goel and during this year, the firm carried on business from 1-9-1991 to 17-9-1991 only. On 1-9-1991, Shri Man Mohan Goel and M/s. Pasondia Steel Profiles Pvt. Ltd. (for short "PSPPL") became partners having 90 per cent and 10 per cent shares in profit respectively. On 18-9-1991, M/s. PSPPL took over the business of the assessee-firm M/s. Goel Udyog, being the land and building, closing stock and machinery etc., which have been transferred at the book value. In the first round of the assessment proceedings, the Assessing Officer applied the provision of section 45(4) of the Income-tax Act, 1961 and he worked out the capital gain on closing stock transfer at Rs. 5,01,883. Capital gain on transfer of land was worked out by him at Rs. 1,49,377, and capital gain on transfer of plant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of section 80-I(2) and hence such deduction is not allowable to the assessee. 5. As against this, ld. AR of the assessee supported the order of ld. CIT(A). He reiterated the same arguments which were raised before ld. CIT(A) that as per clause (8) of partnership deed dated 1-9-1991, the assessee firm is not the owner of these assets and ownership was vested with Shri M.M. Goel only and hence no capital gain is taxable in the hands of the assessee on account of transfer of these assets to M/s. PSPPL. It is submitted that the copy of partnership deed is available on pages 22-23 of the paper book and the deed of transfer of business to M/s. PSPPL is available on pages 24-25 of the paper book. He also submitted a copy of the balance sheet of the assessee firm as on 17-9-1991. When it was pointed out to him that the assets in question are shown as the assets of the assessee-firm in this balance sheet, it was submitted by him that the book entry is not decisive and in support of this contention, reliance was placed by him on the judgment of Hon'ble Apex Court rendered in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 . An alternative contention was also raised by him ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....land and building, plant and machinery and closing stock are shown by the assessee in the balance sheet of the assessee-firm. There is additions also in plant and machinery of Rs. 95,407. There is secured loans also from UPFC of Rs. 18.99 lakhs and from Punjab National Bank of 0.31 lakhs total Rs. 19.30 lakhs. Interest on such borrowings is claimed by the assessee in the profit and loss a/c to the extent of Rs. 2,33,288. As per the details of these interest and bank charges available in Schedule-7 attached to the balance sheet, it is found that interest of Rs. 65,597 was paid to bank and interest of Rs. 1,31,383 was paid to UPFC. Taxable income has been reported by the assessee based on this profit and loss account in which profit of the assessee-firm has been worked out after claiming deduction on account of interest payment on such borrowings and hence it cannot be said and accepted that the assessee-firm has not taken over the assets and liabilities of the proprietorship concern of M/s. M.M. Goel which was converted into partnership firm from 1-9-1991. We also find that as per the Deed of Transfer of business as per which the assets and liabilities of the assessee firm was trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he provisions for section 45(4) are very much relevant which are as under :- "The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise shall be chargeable to tax as the income of the firm, association or body of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer." 10. From the provisions of section 45(4) as reproduced above, it is clear that in the case of transfer of capital assets on the dissolution of a firm, income has to be worked out on the basis of fair market value of the capital assets on the date of such transfer. In the light of this specific provisions of section 45(4), we do not find any merit in this contention of the ld. AR of the assessee that since the business of the assessee-firm was taken over by M/s. PSPPL, as a going concern, the assets are to be valued at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....firm is to be considered as full value of the consideration received or accruing as a result of transfer of the capital asset but when there is dissolution of the firm and the capital assets of the firm are distributed then the market value of the asset on the date of such transfer has to be considered as full value of the consideration received or accruing as a result of the transfer. In the present case on 1-9-1991, the assets were transferred by the partner to the assessee-firm and on this date, no income is chargeable in the hands of Shri MM Goel who has transferred these assets to the assessee-firm as his capital contribution because such transfer was recorded in the books of the firm at book value only. But on 17-9-1991 when on dissolution of the firm, there is distribution of assets to the second partner i.e., M/s. PSPPL, market value has to be considered for the purpose of capital gain. This ratio will apply only towards capital assets i.e., land and building and plant and machinery. For the purpose of closing stock, the same has to be valued in the profit and loss account itself on the date of dissolution on market price and excess of market price of closing stock on 17-9-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(iii)It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of ten years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; (iv)In a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power : Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section : Pr....