TaxTMI 
TaxTMI 
2002 (3) TMI 16
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.... on March 31, 1989, there was a change in the constitution of the firm with the retirement of five partners after receiving the credit balances in their accounts. There was also a revaluation of the assets and it is the enhanced value of the assets that was credited equally in their accounts. The Assessing Officer took the view that on the retirement of five partners taking the enhanced value for the assets there amounted to a transfer of capital assets as envisaged in section 45(4) and the profit arising from the transfer was liable to tax as the income of the assessee-firm. He accordingly treated that sum, i.e., Rs.7,63,559 to be representing the difference in the value of the assets and credited it in the account as the income of the ass....
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....tnership firm. It had originally five partners and it was constituted under a deed executed on September 14, 1983. Subsequently, there was a change in the constitution of the partnership as evidenced by a new partnership deed executed on January 13, 1989. Two more partners were admitted at that time. At the time of admission of the new partners there was a revaluation made in respect of the assets of the firm. As per clause 6 of the partnership deed it was agreed that the difference representing enhancement by revaluation of the assets would be credited to the accounts of the original partners and the two new partners would have no share in it. The relevant clause in the partnership deed dated January 13, 1989, reads as under: "On recons....
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....e 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." What is postulated under section 45(4) is that 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 would be chargeable to tax as the income of the firm. The question that arises....
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....ames Anderson v. CIT [1960] 39 ITR 123, in which the Supreme Court noticed the arguments and stated as under: "The purpose is this: as long as there is distribution of the capital assets in specie and no sale, there is no transfer for the purposes of the section; but as soon as there is a sale of the capital assets and profits or gains arise therefrom, the liability to tax arises, whether the sale be by the administrator or the legatee." Again, this principle is reiterated by the subsequent decision of the Supreme Court in CGT v. N.S. Getti Chettiar [1971] 82 ITR 599. That is a case where the ownership of the gift in question was transferred. Discussing the question of transfer of possession, etc., the Supreme Court stated thus: "A....
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.... sufficient to explain the position. However, since learned counsel brought to our notice other decisions as well, we may advert to the same for the sake of their having been cited. The next decision cited is B.T. Patil and Sons v. CGT [2001] 247 ITR 588 (SC). Therein their Lordship of the Supreme Court have succinctly stated as to what happened in such a situation as the one in hand: "Learned counsel for the assessee submitted to us that when there is already a subsisting shared interest in an asset, as in the case when a firm is continuing, the distribution of such asset to a partner would amount to replacing the shared interest with an exclusive interest in the asset and so there was no transfer. There was a transfer when individua....