AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 574
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....in the firm. The Assessing Officer took the view that there was transfer of assets from the respondent to the private limited company and thereby the capital gains tax under Section 45 of the Income Tax Act, 1961 (for short the Act) became payable. An order of assessment was passed to that effect on 29.03.1996. Aggrieved by that, the respondent filed an appeal before the Commissioner (Appeals). Through order, dated 12.04.1996, the Commissioner allowed the appeal. He took the view that Section 45(4) of the Act does not get attracted to the facts of the case. The Department filed further appeal being I.T.A.No.61/HYD/93 before the Visakhapatnam Bench of the Income Tax Appellate Tribunal. Through its order, dated 31.01.2002, the Tribunal dism....
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.... (2003) 263 ITR 345. The facts are not in dispute, but the difference is only as to the legal consequences that have flown from them. The respondent is a firm registered under the Partnership Act. However, in the assessment year 1993-94, it got itself transformed 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 as....
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....a person can be introduced in the partnership by the consent of the other partners. The reconstituted firm can carry on its business in the same firms name till dissolution. The law with respect to retiring partners as enacted in the Partnership Act is to a certain extent a compromise between the strict doctrine of English Common Law which refuses to see anything in the firm but a collective name for individuals carrying on business in partnership and the mercantile usage which recognizes the firm as a distinct person or quasi corporation. But under the Income Tax Act the position is somewhat different. A firm can be charged as a distinct assessable entity as distinct from its partners who can also be assessed individually. On the same lin....
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....f 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 this point is erroneous and should be overruled. Therefore, whatever be the status of a firm, under the general law of the land, it can certainly be treated as a legal entity from the point of view of the Act....
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....n. Even according to the Department, the erstwhile partners of the respondent-firm did not receive the assets corresponding to their shares. What all had taken place is that they have been allotted shares in the company corresponding to their share of assets in the firm. What constitutes distribution of assets under Section 45(4) of the Act was explained by the Bombay High Court in Texspin Engineering and Manufacturing Workss case (supra). Incidentally, the facts of that case are identical with those in the present case. There also an existing firm was transformed into a company under Part IX of the Indian Companies Act. When dealing with the identical situation, wherein the Assessing Officer proposed to levy capital gains tax, the Bombay....
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....tal assets is not satisfied. In the circumstances, the latter part of Section 45(4), which refers to computation of capital gains under Section 48 by treating fair market value of the asset on the date of transfer, does not arise. The underlined portion, in a way, signifies the basic tenets of transfer of assets. The distribution must result in some tangible act of the physical transfer of properties or the intangible act of conferring exclusive rights vis-a-vis an item of property on the erstwhile shareholder. Unless these or other legal correlatives take place, it cannot be inferred that there was any distribution of assets. In the instant case, the shares of the respective shareholders in the respondent-company were defined under the pa....