COMMISSIONER OF INCOME TAX Vs. SOUTHERN TUBES

JUDGEMENT

(1.) The common question raised by the Department in these appeals filed in the case of two assessees is whether the Tribunal was justified in holding that there was no "transfer" within the meaning of that term contained in Section 2(47) of the IT Act to attract tax on capital asset under Section 45(4) of the Act. We have heard senior standing counsel appearing for the IT Department and separate counsel appearing for the two assessees.

(2.) The common assessee in IT Appeal Nos. 146 and 168 of 2002 is a partnership firm that consisted of two partners. During the previous year, relevant for the asst. yr. 1990-91, the assessee firm was dissolved and under the deed of dissolution one partner took over the land and factory building. After the dissolution, the partner who got the land and factory building continued the business as a proprietorship one. The capital gains on transfer of land and building on the dissolution of the firm and distribution of assets was assessed by the AO. The valuation was challenged by the assessee in appeal and during the pendency of the appeal, the CIT suo motu set aside the assessment under Section 263 of the Act on the ground that valuation made by the AO ignoring the valuation report prepared by the approved valuer of the Department is incorrect. In view of Section 263 order directing revision of original assessment, first appeal filed against the original assessment was closed against which the assessee filed second appeal. Besides this, the assessee filed separate appeals against Section 263 order issued by the CIT and another appeal against CIT(A) s order confirming the revised assessment issued based on Section 263 order of the CIT. Before the Tribunal the assessee raised an additional ground stating that there was no transfer in the distribution of assets of the firm on the dissolution of the firm and consequently computation of capital gains was unauthorised. The Tribunal permitted the assessee to raise this additional ground and after hearing the parties, all the appeals were disposed of holding that the dissolution of the firm with two partners and taking over of land and factory building by one partner did not involve any "transfer" as defined in Section 2(47) of the Act. Consequently, the Tribunal cancelled all the impugned orders pertaining to assessment on capital gains. In view of this decision, the Tribunal did not go into the dispute on valuation which was the issue originally raised in all the three appeals. So far as ITA No. 219 of 2002 is concerned, the position is the same inasmuch as the Tribunal has considered only whether there is capital gains arising on the dissolution and reconstitution of the firm during the relevant previous year.

(3.) Since the question raised pertains to interpretation of Section 2(47) and Section 45(4) of the IT Act, we extract hereunder these two provisions for easy reference: