2019 (8) TMI 58

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....0A of the Income Tax Act, 1961 (for short, the Act) is directed against the order dated 29.10.2018 made in ITA.No.1047/Chny/2018 on the file of the Income Tax Appellate Tribunal, Chennai 'A' Bench (hereinafter called the Tribunal) for the assessment year 2009-10. 3. The Revenue has filed this appeal by raising the following substantial questions of law : "i. Whether the Appellate Tribunal is correct in law in holding that there is no violation of the conditions stipulated in Section 47(xiii) of the Income Tax Act without taking cognizance of the fact that the partners of the erstwhile firm derived benefit other than allotment of shares by way of loan credits in their favour on conversion of the partnership firm into a pr....

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.... Rs. 1,17,32,87,069.51 Ps, that the shares were alloted to the partners of the firm for a total amount of Rs. 10,00,000/- and that the balance of Rs. 1,17,22,87,070/- was given as credit of loan to the partners of the erstwhile firm in the same proportion as their share capital of the firm. Thus, the Assessing officer held that this was a deviation stipulated under Section 47(xiii) of the Act for exemption from capital gains and therefore, made an addition of Rs. 1,17,22,87,070/- towards short term capital gains and demanded tax thereon. 7. Aggrieved by the order passed by the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-18, Chennai [for brevity, the CIT(A)], who, by order dated 1....

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....ich is a condition precedent to tax the transaction under Section 45(4) of the Act. In support of their contention, the assessee referred to various decisions of the Tribunal and the High Courts. 10. However, the CIT(A) opined that the shares worth of Rs. 10 lakhs were given as credit of loan to the partners of the erstwhile firm in the same proportion and that this has to be treated to fall foul of the condition stipulated in Section 47(xiii) of the Act. 11. We find that the CIT(A) did not take into consideration the legal issue involved i.e. when a firm is succeeded by a company with no change either in the number of members or in the value of assets with no dissolution of the firm and no distribution of assets with change in legal ....

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....erefore, we are of the view that Section 45(4) is not attracted as the very first condition of transfer by way of distribution of capital 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." 13. The endeavor of Mr.T.R.Senthilkumar, learned Senior Standing Counsel before us is by laying emphasis on the fact that the shares worth of Rs. 10 lakhs were given to the partners, that the remaining was given as credit of loan to the partners of the erstwhile firm in the same proportion as their share capital of the firm and that this is a deviation from the conditions stipul....