COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE C.R. BUILDING, QUEENS ROAD, BANGALORE AND THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE I, C.R. BUILDING, QUEENS ROAD, BANGALORE Vs. M/S. GOKULDAS EXPORTS. NO. 70, MISSION ROAD, BANGALORE@RESPON

JUDGEMENT

(1.) THIS appeal is filed by the revenue being aggrieved by the order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'B' (hereinafter referred to as the TTAT) in ITA No. 1062/Bang/2004 for the assessment year 1995 -96 wherein the appeal filed by the assessee has been allowed by setting aside the order passed by the first appellate authority confirming the order of the assessing officer that the impugned transaction would attract capital gain under Section 45(4) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act').

(2.) THE material facts leading up to this appeal are as follows: The assessee - company is in the business of garment exports. It filed annual return income for the assessment year 1995 -96 on 31 -10 -1995 declaring a total income of Rs. 73,45,020/ - which was processed under Section 143(1)(a) of the Act and scrutiny under Section 143(3) completed on 16 -3 -1998, The case was re -opened on the basis of revenue audit objection as according to the revenue, there was transaction of Immovable property and to that extent there was capital gain. Thereafter, after enquiry, notice was issued and the assessee filed a revised return declaring the income as 'nil'. The assessing officer, by order dated 26 -3 -2002 held that transfer of assets to the partners of the firm would amount to transfer of capital asset which would attract capital gain under Section 45(4) of the Act and directed to issue demand notice accordingly. Being aggrieved by the same, the assessee preferred an appeal before the first appellate authority - the Commissioner of income Tax (Appeals) -I, Bangalore in ITA No. 554/R -11/CIT(A) -I/02 -03 and the first appellate authority by order dated 31 -3 -2004 dismissed the appeal and confirmed the order passed by the assessing officer. Being aggrieved by the same, the assessee preferred an appeal in ITA No. 1062/Bang/2004 before the ITAT contending that re -opening of the assessment was illegal and the impugned transaction would not attract under Section 45(4) of the Act. It was contended that there was no transfer of immovable property and therefore the question of adding any capital gain under Section 45(4) of the Act would not arise. In support of his contention, the assessee relied upon the earlier decision of the ITAT in M/s. Unity Care & Health Services (ITA Nos. 611 & 300/Bang/2005 dated 17 -6 -2005). The ITAT negatived the first contention regarding validity of re -opening of the assessment as invalid and answered the same against the assessee. However, insofar as the second contention regarding impugned transaction was concerned, on the basis of the decision rendered by them in Unity Care & Health Services case, held that there was no transfer of capital asset and therefore, provisions of Section 45(4) of the Act would not be attracted and accordingly allowed the appeal in part. Being aggrieved, this appeal is filed by the revenue.

(3.) THE Learned Counsel appearing for the respondent submitted that the transfer of capital asset which had been put into partnership by the partners has been done on 29 -3 -1995 itself and the firm was re -constituted into a joint stock company by obtaining order of the Company Court and the decision in M/s. Unity Care and Health Services is applicable to this case. In support: of his contention, he relied upon the decision of this Court in Jansons Vs. Commissioner of Income Tax, Karnataka, (1985) 154 ITR 432 KAR The Learned Counsel submitted that there is no transfer of conveyance which would attract the provisions under Section 45(4) of the Act so as to impose capital gain and the order passed by the ITAT is justified. The Learned Counsel further submitted that if this Court comes to the conclusion that decision in M/s. UNITY CARE and HEALTH SERVICES is not applicable, the question of fact has to be considered by the ITAT and the matter is to be remanded and if it comes to the conclusion that it should be remanded, the ITAT is the final authority on the question of fact. The Learned Counsel appearing for the revenue in reply, has relied upon the decisions in The Commissioner of Income Tax and The Assistant Commissioner of Income Tax Vs. Gurunath Talkies, (2010) 328 ITR 59 KAR and Commissioner of Income Tax Vs. A.N. Naik Associates and Anr. and Rangavi Realtors and Anr., (2004) 2 BomCR 801 in support of his contention that impugned transaction would attract capital gain.