Capital Gains Whether the Assets Revalued and Credited into the Capital Accounts of the Respective Partners by a Firm is a “Transfer” liable to Capital Gains Attracting the Provisions of Section 45(4) of Income Tax Act, 1961

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The Tax Publishers Income Tax--Capital Gains Whether the Assets Revalued and Credited into the Capital Accounts of the Respective Partners by a Firm is a 'Transfer' liable to Capital Gains Attracting the Provisions of Section 45(4) of Income Tax Act, 1961 Akhilesh Kumar Sah In this write-up, the learned author dwells upon an important issue as to whether the assets revalued and credited into the capital accounts of the respective partners by a firm is ' transfer' liable to capital gains attracting provisions of Income Tax Act, 1961. Sub-section (4) of Section 45 came to be amended by the Finance Act, 1987 w.e.f. 1-4-1988. while introducing Section 45(4), clause (ii) of Section 2(47) which exempted the transformation by way of distribution of capital assets from the ambit of 'transfer' came to be omitted. The word 'or otherwise' is used in Section 45(4). Recently the Apex Court in the case of CIT v. Mansukh Dyeing and Printing Mills (2022) 2022 TaxPub(DT) 7828 (SC) decided the controversy on this issue. On the basis of this judgment the author concludes that on assets of revaluation and the credit into the capital accounts of the respective partners by a firm, is a 'transfer' and the provisions of Section 45(4) inserted by Finance Act, 1987 w.e.f. 01-4-1988 shall be applicable. 1. Introduction In CIT v. Mansukh Dyeing and Printing Mills, passed by the High Court of Bombay in Income Tax Appeal No. 1074 of 2009 (relating to assessment year 1993-94) and the judgment and order dated 24-6-2013 passed in Income Tax Appeal No. 1174 of 2009 (relating to assessment year 1994-95) being aggrieved and dissatisfied with the judgment and order dated 24-6-2013, a partnership firm, the High Court had dismissed the said appeals and had 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 had preferred the appeals before SC, (CA Nos. 8258 of 2022 and 8259 of 2022) which were decided on 24-11-2022 [(2022) 2022 TaxPub(DT) 7828 (SC)] by the Supreme Court. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Capital Gains

Whether the Assets Revalued and Credited into the Capital Accounts of the Respective Partners by a Firm is a 'Transfer' liable to Capital Gains Attracting the Provisions of Section 45(4) of Income Tax Act, 1961

Akhilesh Kumar Sah

In this write-up, the learned author dwells upon an important issue as to whether the assets revalued and credited into the capital accounts of the respective partners by a firm is ' transfer' liable to capital gains attracting provisions of Income Tax Act, 1961. Sub-section (4) of Section 45 came to be amended by the Finance Act, 1987 w.e.f. 1-4-1988. while introducing Section 45(4), clause (ii) of Section 2(47) which exempted the transformation by way of distribution of capital assets from the ambit of 'transfer' came to be omitted. The word 'or otherwise' is used in Section 45(4). Recently the Apex Court in the case of CIT v. Mansukh Dyeing and Printing Mills (2022) 2022 TaxPub(DT) 7828 (SC) decided the controversy on this issue. On the basis of this judgment the author concludes that on assets of revaluation and the credit into the capital accounts of the respective partners by a firm, is a 'transfer' and the provisions of Section 45(4) inserted by Finance Act, 1987 w.e.f. 01-4-1988 shall be applicable.

1. Introduction

In CIT v. Mansukh Dyeing and Printing Mills, passed by the High Court of Bombay in Income Tax Appeal No. 1074 of 2009 (relating to assessment year 1993-94) and the judgment and order dated 24-6-2013 passed in Income Tax Appeal No. 1174 of 2009 (relating to assessment year 1994-95) being aggrieved and dissatisfied with the judgment and order dated 24-6-2013, a partnership firm, the High Court had dismissed the said appeals and had 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 had preferred the appeals before SC, (CA Nos. 8258 of 2022 and 8259 of 2022) which were decided on 24-11-2022 [(2022) 2022 TaxPub(DT) 7828 (SC)] by the Supreme Court.