- (1.)THE present appeal was admitted on the following substantial question of law :
"whether the Tribunal was justified in holding that in absence of any corresponding amendment in the definition of Section 2 (47), there does not arise any liability of capital gains on the firm on the death of one of the partners, thereby deleting the addition of Rs. 3,40,198 made by the AO ?"

(2.)THE facts which are essential to be adumbrated are that the assessee was a partnership firm that consisted of two partners, namely, Ravinder Singh and Pritam Singh. Pritam Singh expired on 19th April, 1990. After the death of one of the partners, for the asst. yr. 1991-92, the case of the assessee-firm was selected for scrutiny and a notice under Section 143 (2) of the IT Act, 1961 (hereinafter referred to as 'the Act') was issued on 27th Feb. , 1992. The AO referred to the order-sheet dt. 13th Aug. , 1993 whereby the assessee was asked that since the firm stood dissolved after the death of one of the partners why the tax on the capital gains should not be imposed on it. The assessee was also asked to furnish the valuation report in respect of the fixed assets as on 19th April, 1990 with the firm. Eventually, the AO determined the income at Rs. 7,23,920 and issued the demand notice. That apart, a direction was also issued for initiation of a penalty proceeding as there was concealment of income treating Rs. 3,40,198 as capital gain for the purpose of Section 45 (4) of the Act. Apart from other things, the AO addressed itself with regard to the capital gains arising in favour of the assessee-firm on its dissolution.
(3.)BEING aggrieved, the assessee preferred an appeal before the CIT (A), Jabalpur (in short 'the appellate authority' ). It was contended before the appellate authority that Section 45 (4) of the IT Act would not apply unless the gain had arisen from the transfer of the capital asset within the meaning of Section 2 (47) of the Act. It was also contended that the Finance Act, 1987 by which Sub-section (4) of Section 45 was inserted, the definition of transfer as contained in Sub-section (47) of Section 2 stood amended including the capital asset on firm's dissolution to the partners in it. It was also highlighted before the appellate authority that the distribution of asset of dissolved firm to the partners does not constitute a sale, exchange, relinquishment of asset or the extinguishment of any right therein and, therefore, it does not fall within the definition of 'transfer' and the amendment in the definition of 'transfer' so as to bring such distribution of profits of dissolved firm amongst its partners within the concept of term 'transfer' as is envisaged under Section 2 (47) and hence, there would be no transfer as a consequence of which there would be no capital gain. The appellate authority appreciating the contentions raised by the assessee came to hold that levy of capital gain does not meet the test of basic requirement, namely, transfer. It was also held by him that no capital gain can be levied on an entity which is non-existent. In view of the aforesaid exposition, the appellate authority deleted the sum of Rs. 3,40,198. The appellate authority directed deletion of addition of Rs. 5,60,382 which was made by the AO on account of closing account. The first appellate authority has also directed deletion of addition of Rs. 1,21,370 which was made by the AO due to trading results.