COMMISSIONER OF INCOME TAX Vs. UNITED FISH NETS

JUDGEMENT

(1.) THE respondent is a firm constituted under the Partnership Act and was assessed to tax. In the assessment year 1993 -94, it got itself transformed into a private limited company. The entire assets and liabilities of the respondent were made over to the company. The respective partners were issued shares by the company corresponding to the value of their share in the firm.

(2.) THE Assessing Officer took the view that there was transfer of assets from the respondent to the private limited company and thereby the capital gains tax under Section 45 of the Income Tax Act, 1961 (for short 'the Act') became payable. An order of assessment was passed to that effect on 29.03.1996. Aggrieved by that, the respondent filed an appeal before the Commissioner (Appeals). Through order, dated 12.04.1996, the Commissioner allowed the appeal. He took the view that Section 45(4) of the Act does not get attracted to the facts of the case. The Department filed further appeal being I.T.A. No. 61/HYD/93 before the Visakhapatnam Bench of the Income Tax Appellate' Tribunal. Through its order, dated 31.01.2002, the Tribunal dismissed the appeal. Hence, this appeal under Section 260 -A of the Act.

(3.) SRI Ch. Dhananjaya, learned counsel for the respondent, on the other hand, submits that this is a typical case, in which there was no dissolution of the respondent -firm in its strict sense and has simply been transformed from a firm into a private limited company. He submits that even if it is possible to assume that there is dissolution of the respondent -firm, there is no distribution of assets, since no partner of the respondent was passed on the assets corresponding to their share, much less there was distribution as contemplated under law. He places reliance upon the Judgment of the Bombay High Court in Commissioner of Income Tax v. Texspin Engineering and Manufacturing Works : (2003) 263 ITR 345.