R.S. Syal, Accountant Member - (1.) THIS appeal by the revenue is directed against the order passed by CIT(A) in relation to assessment year 1990-91.
(2.) The solitary effective ground projects the grievance of the revenue as under: - On the facts and in the circumstances of the case ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 10, 09, 500 on account of capital gain under Section 50. Factual matrix of the case: The assessee filed its return disclosing a loss of Rs. 2,41,390. The Assessing Officer made original assessment at Nil income by ignoring the loss declared on the ground that the return was filed beyond the time limit prescribed under Section 139(1). On appeal the CIT(A) directed the Assessing Officer to determine the loss as per law and complete the fresh assessment. Subsequently the Assessing Officer completed the assessment vide his order dated 30-3-1994 determining the taxable income at Rs. 7, 68, 110. While doing so he adopted the fair market value of land, building and machinery on the basis of the valuation report of the Valuation Officer and accordingly worked out the net capital gain at Rs. 10, 09, 499 and also allowed therefrom the loss claimed by the assessee. While working out capital gain the Assessing Officer noted that on 15-9-1989 the assessee-firm consisting of two partners, namely, Sh. Patiram and Sh. Rai Binder, Karta of Rai Binder (HUF) having shares at 10% and 90% respectively was dissolved and the business carried on by it was taken over by Sh. Rai Binder as karta of HUF under the same name. The Assessing Officer opined that in view of the provisions of Section 45(4) read with Section 2(47) there was a transfer and the gain arising therefrom was liable to be taxed under the head "Capital gains". Aggrieved thereby the assessee came up in appeal. It was pointed out before the first appellate authority that on 15-9-1989 i. e. the date of dissolution of the assessee-firm there was no "transfer" of any capital asset within the meaning of Section 2(47). It was further submitted that actually there was no dissolution of the firm and only Sh. Patiram voluntarily retired from the firm and the assets and liabilities were taken over by Sh. Rai Binder at book value as stated in the balance sheet drawn on 15-9-1989. Reliance was placed on the decision of Apex Court in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49' to contend that the property of the partnership firm originally belonged to the partners and after the retirement of Sh. Patiram the property vested with Sh. Rai Binder and as such no transfer took place between two separate legal entities. The report of the valuation officer was also challenged before the CIT(A) by submitting that the Assessing Officer had failed to appreciate that the provisions of Section 50 which were invoked by him for computing capital gains were inapplicable in respect of value of land. The ld. CIT(A) after considering the submissions advanced on behalf of the assessee overturned the order of the Assessing Officer by holding that there was no transfer of any assets resulting into capital gain.
(3.) BEFORE us the ld. DR assailed the findings of the CIT(A) by contending that the latter has miserably failed to appreciate the provisions of the Act. It was pointed out that the assessemnt year under consideration was 1990-91 and the provisions of Section 45(4) which were introduced w. e. f. assessment year 1988-89 were squarely applicable to the facts of the case as a result of which the capital gain was liable to be charged on dissolution of firm. The ld. DR strongly urged that the CIT(A) erred in holding that there was no "transfer" within the meaning of Section 2(47) and hence no capital gain was chargeable. It was pointed out that primarily Section 45(4) was complete in itself which clearly mandates that on the dissolution of the firm transfer shall be deemed to have been taken place and there was no necessity to look into the provisions contained in Section 2(47). Our attention was further drawn towards Section 47(ii) which was omitted w. e. f. assessment year 1988-89, the effect of which according to the ld. DR was that the distribution of capital assets on dissolution of firm amounted to 'transfer' and hence the capital gain was chargeable. It was vehemently argued by the ld. DR that the reliance of the ld. CIT(A) on the case of Malabar Fisheries Co. (supra) was not relevant for the reason that after the insertion of Section 45(4) this decision was no more a good law in this context. It was contended by the ld. DR that when one of the partners retired from a firm consisting of two partners, it was a clear cut case of dissolution of firm and the provisions of Section 45(4) were clearly attracted. Reliance was placed on the case of Suvardhan v. Asstt. CIT [1998] 67 ITD 104 (Bang.) and Swamy Studio v. ITO [1998] 66 ITD 276 (Mad.) to contend that the facts involved in the present case were identical to those considered by these Benches of Tribunal wherein it was laid down that the provisions of Section 45(4) were attracted. The ld. DR also relied on the decision of Summit Court in AL. A Firm v. CIT [1991] 189 ITR 285' (SC) to point out that on dissolution of firm, stock in trade was liable to be valued at market price. In the final submissions the ld. DR contended that the ld. CIT(A) did not consider the factual and legal position in right perspective as a result of which there was a miscarriage of justice.;