| The Tax Publishers2022 TaxPub(DT) 7828 (SC) : (2022) 449 ITR 0439 : (2023) 290 TAXMAN 0354 INCOME TAX ACT, 1961
Section 45(4)
Surplus on revaluation of the assets of pertnership firm credited to partners' capital account in their profit sharing ratio involves transfer under section 45(4) as amended vide Finance Act, 1987 by insertion of the expression 'or otherwise' therein.
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Capital gains - Taxability under section 45(4) - Transfer of amount on revaluation of assets of firm to the capital accounts of respective partners -
On 01-1-1993, assets of the assessee-firm were revalued and an amount of Rs. 17.34 crores was credited to the accounts of partners in their profit-sharing ratio. As per AO revaluing of the assets, i.e., land and building and subsequently crediting it to the respective partners' capital accounts constituted 'transfer', which was liable to capital gains tax under section 45(4). High Court deleted addition made by AO. Revenue approached Supreme Court. Held: Credit of the assets' revaluation amount to the capital accounts of the partners was, in effect, distribution of the assets valued at Rs. 17.34 crores to the partners and during the years, some new partners came to be inducted by introduction of small amounts of capital ranging between Rs. 2.5 to 4.5 lakhs and said newly inducted partners had huge credits to their capital accounts immediately after joining the partnership, which amount was available to the partners for withdrawal and in fact, some of the partners withdrew the amount credited in their capital accounts. Therefore, assets so revalued and credited to the capital accounts of the respective partners was 'transfer' and which falls in the category of 'otherwise' and therefore, the provision of amended section 45(4) inserted by Finance Act, 1987 w.e.f. 01-4-1988 would be applicable. The words 'or otherwise' were specifically added by way of amendment to section 45(4) vide the Finance Act, 1987. Therefore, addition made by AO was sustained.
Distinguished:CIT, West Bengal v. Hind Construction Ltd., (1972) 4 SCC 460 : 1972 TaxPub(DT) 0292 (SC)Applied:CIT v. AN Naik Associates and Another, CIT v. Rangavi Realtors and Another. (2004) 265 ITR 346 (Bom.) : 2004 TaxPub(DT) 0785 (Bom-HC)
REFERRED :
FAVOUR : Against the assessee.
A.Y. : 1994-1995
IN THE SUPREME COURT OF INDIA
M.R. SHAH & M.M. SUNDRESH , JJ.
CIT v. Mansukh Dyeing and Printing Mills
Civil Appeal Nos. 8258 to 8259 of 2022
24 November, 2022
Appellant by: Rupesh Kumar, Adv. Mr. Raj Bahadur Yadav, AOR
Respondent by: Kaustubh Shukla, Adv. Ms. Nancy Shamim Adv Lakshmeesh S Kamat Adv Ms. Isha Vatsa Adv Mr. Parijat Kishore Adv Mr. Rahul Shyam Bhandari Adv Mr. Konark Tyagi Adv Mr. Ankur Kashyap Adv Mr. Hasan Murtuza Adv Mr. Abhay Singh Adv. Smiriti Ahuja Adv Mr. Vinodh Kanna B. AOR
M.R. Shah, J.
Feeling aggrieved and dissatisfied with the impugned judgment and order dated 24-6-2013 passed by the High Court of Bombay passed in Income Tax Appeal No. 1074 of 2009 (relating to assessment year 1993- 1994) and the judgment and order dated 24-6-2013 passed in Income Tax Appeal No. 1174 of 2009 (relating to assessment year 1994-1995) by which with respect to the same assessee M/s. Mansukh Dyeing and Printing Mills, a partnership firm, the High Court has dismissed the said appeals and has confirmed the respective orders passed by the Income Tax Appellate Tribunal (hereinafter referred to as ITAT) deleting the short term capital gains addition made by the assessing officer (AO), the Revenue has preferred the present appeals.
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