2006 (8) TMI 142

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....wo continued the partnership in terms of the partnership deed dated October 17, 1988. A survey was conducted in the business premises of the assessee. It came to light that the firm had been dissolved and the business had been taken over by one of the partners, Smt. Anuradha Maruthi Gokam. It was also noticed that the partnership was dissolved on April 1, 1992, and the assets and liabilities had been taken over by the said lady. The Assessing Officer proposed to apply section 45(4) of the Act. Notice was issued. The assessee filed a nil return. Thereafter, the Assessing Officer concluded the assessment under section 144 of the Act charging capital gain in the hands of the firm in respect of the assets transferred by the firm. An appeal was ....

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.... April 1, 1992. He also noticed clause 3 of the dissolution deed in his order. After noticing the same, he comes to the conclusion that it is incorrect to say that there is no distribution of assets in terms of income-tax laws. It is in these circumstances that he has chosen to consider section 45(4) of the Income-tax Act for the purpose of levy of tax. When this was challenged, the appellate authority noticed the definition of transfer under section 2(47). After noticing, the appellate authority states that it is inclusive definition. Thereafter, the appellate authority would hold that the assessing authority is right in the matter. He would come to the conclusion that this is a case of transfer by way of distribution of capital assets on ....

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....e 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." A reading of the said provision would show that the profits or gains arising from the transfer of capital assets by way of distribution of capital assets on the dissolution of a firm shall be chargeable to tax as the income of the firm in the light of transfer that has taken place. "Transfer" has been defined under section 2(47) of the Act. What is contended before us is that if section 2(47) is read with section 45(4), there is no transfer at all, and if there is any transfer,....

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....he issue involved in the case on hand. On the other hand, as rightly pointed out by Sri Seshachala, learned counsel for the Department, a similar question was considered by the Bombay High Court in the case of CIT v. A. N. Naik Associates [2004] 265 ITR 346. In the said judgment, the Bombay High Court has noticed the effect of Act of 1987. After noticing, the Bombay High Court has ruled that section 45 of the Income-tax Act is a charging section. The Bombay High Court further ruled that: "From a reading of sub-section (4) to attract capital gains tax what would be required would be as under: (1) transfer of capital asset by way of distribution of capital assets: (a) on account of dissolution of a firm; (b) or other association of persons....