2016 (2) TMI 799

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....y for the purpose of capital gains under Section 45(4) ? and (ii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the provisions of Section 45(4) are attracted even though there was no distribution of assets ?" 2. Heard Mr.V.S.Manoj, learned counsel appearing for the appellant/ assessee and Mr.J.Narayanaswamy, learned Standing Counsel for the Department. 3. The assessee was originally a partnership firm, which came into existence in 1979-80. It comprised of four individuals as partners upto the year 1990. On 4.1.1990, a private limited company called M/s.Pipeline and Process Equipment (P) Limited was floated by the partners of the partnership firm themselves. Thereafter, the p....

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....that the relationship inter se between the partners had come to an end, the moment they released their shares in favour of the private limited company and that therefore, it was a clear case of dissolution of the firm and not conversion of the firm into a company. Therefore, the assessee is before us. 7. As rightly pointed out by Mr.J.Narayanaswamy, learned Standing Counsel for the Department, Section 47 that treated particular transactions as not amounting to transfer, was amended by the Finance Act, 1987 with effect from 1.4.1988. Clause (ii) of Section 47, which made 'any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons', not to be covered by Section 45, was omitt....

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....Section 45(4) unless it was a case of transfer of a capital asset by way of such distribution. 10. The expression 'transfer' is defined in Section 2(47) to mean several things. A sale, exchange or relinquishment of the asset or the extinguishment of any rights therein are all covered by the expression 'transfer'. 11. But, a Full Bench of the Karnataka High Court, in the decision in Commissioner of Income Tax Vs. Dynamic Enterprises [dated 16.9.2013 made in I.T.A.No.1414/2006] held that when a retiring partner takes only money towards the value of the share and when there is no distribution of capital asset/assets among the partners, there is no transfer of capital asset and consequently, no profits or gains are payable....