" " 5 '+570 008.
{I3Y SR1 5P3.R. INDRA KUMAR, ADV. ,)
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THEEJWDAY OF DECEMBER, go. V
PRESENT .1 % :3'
THE HONBLE MR.JUSTICEI
AND .v & ' '_ % _ 2
THE HONBLE
I.T.A NO. 13'-§l;VVV2_Q_(};_QV
I.T.A Nos. 135/2000, i.3V6g2OwQQ,' vV13"7/:"3?.O00, 138/2000,
139/2000, 140/2000, 144,.I_'2000',' 46/2000 8:
IT.A.NO. 134g::'040§;.%,i-
B. RAGr:VIURA;viA*VpI3A13HUVEsf1'A'I:?..
EXECUTRDC. 'sis/1T;M.. _KAVERI' BAI
No.38, F1RsT--1vmI1x;
YADAVAGIRL " _ '_ 2 " .
MYSORE ---- 570 Q20.
...APPELL.ANT
[BY 'ski I§iii,i»:g;RNI FOR M/S. KR. PRASAD, ADV.,]
AM)'
_JOIN'I""~COMIVII$f§SIONER OF INCOME TAX
(ASSESSMENT), SPECIAL RANGE,
.. .RESPONDENT
K)
ITA. NO. .13-4/2000 IS FILED UNDER SECTION 2'6__0--A
OF TIIE INCOME TAX ACT. 1965} AGAINST THE ORDER D.'_I'.
31.07.2000 IN ITA Nos. 949, 952, TO
959/SANG/I998 FOR THE ASSESSMENT YEA_R""'19V9«5_~€}6
PRAYING TO EEXCLUDE THE ENTIRE SRA_R--E- '
APPELLANT IN THE SUM OF RS. 92 CRORES,VFROM:' THE " -9.,
TAXABLE INCOME OP THE APPE3_LIA~~IN'T AND4"ExCwDE"'._.
THE ENTIRE SHARE OF THE APPEI,I.AN'I* «--IN~_ITI»1EV._Si--IM OE j
RS. 9,57.57,007 FROM THE INCOME OF'~"FPIE~.AI7PELL>ANT'~.
OR EVEN IF INCLUDABLE AS ALREAD3? TAx,.--'I+IAS 'I3E;E'N
PAID NO FURTHER AMOUNT SE D_EMANDED_AND-..ETC.
IT.A. NO. 135 g 2000
BETWEEN
SMT. M. PUSHPALATI-IA, '
NO37, "PANCHA'\./--'A'FI7'
GOLULAM ROAD, _ _ .
JAYALAKSHI\§iPI';RAMI;.,_
MYSORE A I2 <i__ ' '
-------- ...APPELLANT
{BY SRI I§U'LKARN1 POR I'a€{R':.I§.R. PRASAD, ADVS. ,)
AND
JOINT COMM;i"SS_ISOI~I.ER "OP"II\ICOI\/I_E -A. 'At
_ {ASSES3.SME3NT). SPECIAL. RANGE.
MYSORE +j~57'0_OO8. """ "
'{"E:y'*SRI' KUMAR, ADV. ,)
...RESPONDENT
ITA 'I35/2000 IS FILED UNDER SECTION 260~«A
. 013' THE INCOME TAX ACT. 1961 AGAINST THE ORDER DT.
"-J'3_1'.07t.I2000" IN ITA NOS. 946, 952, TO 957 &
.959/BANG/1998 FOR THE ASSESSMENT YEAR 1995-96
'I?RAYIN-'I: TO EXCLUDE THE ENTIRE SHARE OP THE
___"A'PPl'§ZLLANT IN THE SUM OF RS. 92 CRORES FROM THE
'i'lI)<Z-ABLB2 INCOME OP TIII: APPEI.LAN'I' AND EXCLUDE
...ww.......mm»w«maa
IT.A. NO. 137 g 2000
BETWEEN
SR1. M. JANARDI---LANA RAO,
No.38, FIRST MAIN ROAD.
YADAVAGIRI. ..
MYSORE670 020. A
[BY SR1 KULKARNI FOR M/S. K, R. PRASAI3, ADIV--;'.;} I V' '
AND 'V
JOINT COMMISSIONER ,OE,_IN'c.OME~.'IAxRA-._
(ASSESSMENT), SPECIAL"~RANG.E. ;
MYSORE-- 570008.
-_ _ ':.[.'RESPONDENT
[BY SR1 ER. INORA KUI\/fAR,_,AI")V'.«,] I
ITA N'O..VV.13.?',.§20O'O' ISFILED UNDER SECTION 260--A
OF THE ,IN--COMgE '}*21';;T§£.A'(ifI";\. IQSFRRAYINO TO EXCLUDE
THE ENTIRE SF£fl,.RE'QB"-THE AP'_PEI.LANT IN THE SUM OF
RS. 92 <:.RO-RES 'FIf<O_4IvI»T.TI4.E"-- TAXABLE INCOME OF THE
APPELLANT AND'EXC1L[JDE"TI4£E ENTIRE SHARE OF THE
APPELLANT°'IFN"THE SUM OF RS. 9,57,57,00? FROM THE
INCOME OF THE APPELLANT OR. IF INCLUDABLE3 AS
ALREAEY TAX IIAS..I3EEI\j; PAID NO FURTHER AMOUNT BE
" AND ETC'. "" "
-
” ” ” ‘Sim. ‘TM. IIEII ALATHA,
2987/ I~,TEI\/IPLE ROAD,
-» ._ – “Viv MOHALLA.
_ MYSORE–57o 002.
. . .APPEI.L,./XNT
}_~ i
(BY SR1 KULKARNI FOR MR. KR. PRASAI). ADVS.,)
AND
JOINT COMMISSIONER OF INCOME} TAX
(ASSESSMENT). SPECIAL RANGE.
MYSORE W 570 008. –
[BY SR1 ER. INDRA KUMAR, ADv._)
ITA NO. 138/2000 IS EII,EO’UNOEH.SECTIOIsI 260–A
OF THE INCOME TAX ACT, 195_1\_PRAY_1NG THA’_I’ POP THE
REASONS STATED THEREIN THIS A..HON-‘BLE COURT MAY
BE PLEASED TO EXCLUDE ‘TI«iE2.j_EN’I’IE_’%E”SH,ARE OF THE
APPELLANT IN THE SUM OF RS192 _.CVR.QRES FROM THE
TAXAELE INCOME OF’ .THE fAPPAE.LIAI$1T’I’AI\ID EXCLUDE
THE ENTIRE SHARE-OF]THE_;APPEL1i5«NTj’1N THE SUM OF
RS. 9,57,57,00? INCOME OETHE APPELLANT
OR EVEN IE “II~éC_LLIDABLE«.._ASV_ALREADY TAX HAS BEEN
PAID NO EURTHEH;AMOUNT]’E.E’OEMANIJED AND ETC.
I.T.A. NO. V1v–39;/2OOO*f’V-~
BETWEEN
SRI- MAURESH
890/ I ,” PRASAD
MYSOI{E+57O ‘Q04,
HAPATAN SAS’I:IgY ROAD,
IIAXSIIMIPOHATI/I’, _ ‘
. . .APPELLANT
IBKSR1 XULHARNI FOR MR. K.R. PRASAD, ADVS.,}
.II’O’IN*I? COMMISSIONER OF INCOME TAX
{ASSESSMENT}, SPECIAL RANGE,
” ‘
(3
IVIYSORE — 570 008.
…RESPONDENT
[BY SRI ER. INDRA KUIVIAR. ADV.)
[TA NO. 139/2000 IS FILED UNDER
OF THE INCOME TAX ACT, 1961 PRAYING THAT ‘
REASONS STATED THEREIN THIS I-IONBLEHCOIJRTT/IAY _
BE PLEASED TO EXCLUDE THE SI’IARf}P_OI*””THE I
APPELLANT IN THE SUM OF Rs. 92 CRORES -FROM THE
TAXABLE INCOME OR THE APPELLANT ;fExcLUDE’ ” TI–.-IE’
ENTIRE SHARE OF THE APPELLANTTN THE SEj1\/I”O’E’ Rs}.
9,57,57.007 FROM THE INCOMEOF “IHE APPELLANT OR
EVEN IF’ INCLUDABLE As ALREADY TAXTHAELBEEN PAID
NO FURTHER AMOUNT BE DEMANDED ANDETC. 1
IT.A. NO. ]40g2000
BETWEEN
SMT. M. vATsA1,A.SII_ENOY’,””‘T1’:, _ _
38, FIRST ~
YADAVAGIRI,__. ” ” 1. »
MYSOREm57Q o.2_0_,
–. ‘ . = .._APPELLANT
[BY sRI KuI,IIARN~I,,ADfV_ ”
AND I
“‘JOINT:I:OIAMI.ss1ONER”OE INCOME TAX
IASEESEMENTJ’; «SPECIAL RANGE,
I/IYEORE “-.5’70’~QQ8,
…RESPONDENT
(BY. ‘INDRA KUMAR, ADV.,]
ITA T40’/2000 IS FILED UNDER SECTION 260–A OF
” [INCOME TAX ACT, 1961 PRAYING THAT FOR THE
4 REASONS STATED THEREIN T I-IIS HONBLE COURT MAY
” IJLF.ASI*II) TO EXCLUDE T HE ENTIRE SHARE OF THE
‘–APPF;3LI,AN’I’ IN THE SUM OF’ RS. 92 CTRORES FROM THE
TAXABLI3 INCOME O17 TI-IE APPELLANT ANI)EXCI.UDEI TIIE
ENTIRE SHARE OF THE APPEI,I.ANT IN TIIE SUM OIWRS.
9,57,57,007 FROM THE INCOME OF THE APPEIJLANT OR
EVEN IF INCLUDABLE AS ALREADY TAX HAS EEI:N’RA–I_D-..
NO FUR’IH}E3R AMOUNT BE OEIVIANDED AND A :-
IT.A. NO. 14452000
BETWEEN
JOINT COMMISSIONER OF INCOME TAX
(ASSESSMENT), SPECLAL RANGE;-~~ ‘
OPP- STERLING THEATRE,
VISVESWARANAGAR.
MYSORE M 570 008. I _ I ...APPELLANT
{BY SR1 ER. INDRA KUMAR, .;AD\/;;} ”
A__l\iQ
ARATIII SI~IEI§IOI*,<«..V ~
38, 18'!' MAIN ROAD;
YADAVAOIRI, ., _ ”
MYSORE,
‘ …RESRONDENT
[BY SR1 KOIIKARNI PRASAD, ADVS.,)
,I7I§”AINO. 14?}:/–2000 «IS FILED UNDER SECTION 260-A
” CE’ Tf{E€’II’JCOIVIE TAXHCT, I961 AGAINST THE ORDER DT.
v.O3I,.O:?_,2o00VI IN-., ITA NOS. 946/I3/I998 FOR THE
ASSESSMENTYEAR 1995436 PRAYING TO WHETHER, ON
THE =EACTS”AND}CIRCUMSTANCES OF THE CASE, THAT
PART “OF TIIE-“AI:>REI,I.ANTE ORDER OF THE VICE
I PRESIDENT’ -EIRECTINO THE RECOMRUTAITON OF
CAPITAL .. GAINS BY THE ASSESSING AUTHORITY IN
i;j’«RESPECT-O’I«” GOODWILL. TRADE MARKS, TRADE NAME
‘AND COPY RIGHT, IS SUSTAINABLE IN LAW CONSIDERING
‘-TI;IE’vRQSITION THAT TI-IIS IS ONLY THE OPINION OF THE
=V.–IC£}PR’£¥3SII)ENT ALONE AND DOES NOT RIEJPRESENT
“*-TIIE OPINION OF THE IVIAJORITY OF TIIE Two JUDICIAL
MEMBERS WHO HAVE NOT CONSIDERED AND
ADJUDICATED SUCH ISSUES’? AND ETC. ‘I
I.T.A. NO. 145/2000
BETWEEN
JOINT COMMISSIONER OF INCOME « I
(ASSESSMENTS), SPECIAL RANGE, – =
OPP. STERLING THEATRE,
VISVESWARANAOAR,
MYSORE W 570 008. .
— .APEELLANT
(BY SR1 ER. INDRA KUMAR, ADR/”.’;)’A
AND
M.PUS§IPAI.A’I’IjIA–.l
No.38, 1ST MAIN ”
YADAVAGIRL ”
MYSORE. ” A I ‘ …RESPONDEN’I’
(BY SR1 K_.R I-ERASAD, ADv.,I
ITACNVO’; 145/2(§;O{5″I;’3:CA”I?’I{;ED UNDER SECTION 260~A
OF THE INCOME TAX A C’T,._”_.I96I AGAINST THE ORDER DT.
31.97.2000 IN ‘ITA NOS. 952/B/1998 FOR THE
ASSIEESMENT YEAR 1995-96 PRAYING TO ON
TI~IE’-FACTS AND CIRCUMSTANCES OF THE CASE, THAT
‘r_PART OE.TI;IE, APRELLANTE ORDER OF THE VICE
‘P_RESID.ENT ~ DIRIECTINO THE RE~CO1\/EPUTAITON OF
C’APETAL”” G_AI_NS’*’EY THE ASSESSING AUTHORITY IN
RES:é_ECT_OE_OOODWILL, TRADE MARKS, TRADE NAME
I _ AND COPY RIGHT, IS SUSTAINABLE IN LAW CONSIDERING
POSITION THAT THIS IS ONLY THE OPINION OF THE
‘–VICEAPRESIDENT ALONE AND DOES NOT REPRESENT
‘THE OPINION OF THE MAJORITY OF THE TWO JUDICIAL
_ »MEM’BERS WHO RAVE NOT CONSIDERED AND
..__”ADJUDICATED SUCH ISSUE :2 AND ETC.
9
I.T.A. NO. I46/2000
BETWEEN
JOINT COMMISSIONER OF INCOME TAX
{ASSESSMENT}, INCOME TAX OFFICES
SPECIAL RANGE,
OPP. STERLING THEATRE.
VISVESWARANAGAR.
MYSORE M 570 008. ..
{BY SR1 E.R. INDRA KUMAR, ADV.,}
AND
M. SURESH RAO.
38. I37′ MAIN ROAD,
YADAVAGIRI, .0 _ ._ AA
MYSORE.
{BY SR1 KUI,KAIa§NI}.AI>V, ,:§_rQR[IvIR,”I{;_I2_, PRASAD, ADVS. ,)
ITA NO. S’I.*I»5/2000 .1S~.FILED UNDER SECTION 26()~A
OF THE INCOME “1’A:’X_ACT;–A.C1 SS1 AGAINST THE ORDER OT.
31.012000 “IN ‘N0S’;«.I~” 953/E/I998 FOR THE
ASSESSMENT_YEAR_1995:9″f3′ PRAYING TO “WHETHER, ON
THE FACTS AND CIRCUMSTANCES OF THE CASE, THAT
PART,.{OI«’~ THE ‘ “AI?PE1,LANTE ORDER OF THE VICE~
‘PRESI.D’ENT DIRECTINS THE RE-COMPUTAITON OF
‘~,CAI>ITAI,._ GAINS BY THE ASSESSING AUTHORITY IN
‘I2_ESp_ECT’*I«OE “G_O’QDWI1,L. TRADE MARKS, TRADE NAME
AND”COPYfRIOIIjI’.” IS SUSTAINABLE IN LAW CONSIDERING
THE POSITION THAT THIS IS ONLY THE OPINION OF’ THE
A _VICE?.PRESIDvEN’F ALONE AND DOES NOT REPRESENT
OPINION OF THE MAJORITY OF THE TWO JUDICIAL
WHO HAVE NOT CONSIDERE’D AND
‘AD-JUDICATED SUCH ISSUE ‘2 AND ETC.
I
I.T.A. NO. 147/2000
BETWEEN
JOINT COMMISSIONER OF INCOME TAX
IASSESSMENII,
INCOME TAX OFFICES, SPECIAL RANQE.
OPP. STERLING THEATRE.
VISVESWARANAOAR, , – =
IVIYSORE — 570 008. V ‘-.,..ARREL,LAN’I” ‘
{BY SRI ER. INDRA KUMAR,
AND .
VATSALA SHENOY , , 38, 15'I"I\/IAIN ROAD, V YADAVAGIRI, _ - ' MYSORE. _ ___-..._.._._.;RESPONDEN'F
(BY SRI _KULI{ARN”_I’EOR* Iv: ADV.,)
ITANO’ ‘II*45k”./,20I§fOV’1S:”EII.ED IINDER SECTION 260~A OF
THE INCOME ‘ITAXu”AC”I’, “1_9’6–1 ‘AGAINST THE ORDER DT.
31.07.2000-,IN«.ITA N.GSl~V954,7-‘B,/I998 FOR THE ASSESSMENT
YEAR 1.99596 PRAYING,*I’O”‘*iWHE’rRER. ON THE FACTS AND
CIRCUMSTANCES – OR CASE. THAT PART OF THE
I”.PPEI.I_:f ‘-ITE ‘I.”f{E VICE-PRESIDEMI’ DIRECTINO THE
C.-.-,… ._.– …….-…
.~’v.RE–C()K{!PUTA’I’iON ‘DE’..___(_3APITAI, GAINS BY THE ASSESSING
A’O’I’HIOR1TY’AIN”I’RESPECI’ OP’ OOODWILL, TRADE MARKS, TRADE
I”.I\IAI\/II~;’–._ AND. gCOPY RIGHT, IS SUSTAINABLE IN I.AW
CONSIDERING»TEI«:’*I3OSIfrION ‘I’I~IA’I’ THIS IS ONLY THE) OPINION
OF .T’E.E«VICE-..PRES’IDENT ALONE AND DOES NOT REPRESENT
THE’ VOPINIQNTLOF’ THE IVIAJORITY OE ‘I”HEJ TWO JUDICIAL
M.EMB'”ERS._jWRO HAVE NOT CONSIDERED AND ADJUDICATED
SIICE ISSUE AND ETC.
S’ ‘IC«*I.iI–IESE I.T.A.s HAVING BEEN HEARD AND RESERVED
A ON FOR PRONOUI\ICEMENT ‘I.’HIS DAY. SABI-IAI-IIT J..
–_ 4 fDE’I~ IIVERIJID ‘I’}~iE F’OI…I,(.)WI NC}: —
11
JUDGMENT V
I.T.A.Nos.134/2000, 135/2000, 136/2000. 13.:e,€200’0,
E38/2000. 139/2000. 140/2000, 144/2000,;5..a%L5}?20.00…_f’0.
14?/2000 and 146/2000 arise ou._t_..mf_eon;:ihonigguiiige-lent.V’
passed by the Income Tax Appellate i3a.Ii§a-!.orej_’
Bench, Bangalore. {hereinafteriioalied
952 to 957 8: 959/Bang/1998 “i’i:;arv¥19é5–1996)
dated 31.07.2000 _ disrnissed the
appeais and confirmed._V:._Ehe”V._fl by the
Commissioner of ( J). The appeals
ITA No.:144i/20.00, anefizie/2000 are filed by the
Revenuextbeingi observations made by the
Vice-President of A”L’_£1bu’ha1 regarding calculation of the
* ‘I’he”s”e’ aopeals along with the other five appeals
filed’ by ifieiventie against the order of the Tribunal was
disphosedv’oi5f_hy’vVcon1mon order dated 19.12.2002. Being
‘oaggrievedebyhf the said order of the division bench of this court
‘:fdated_.’}9i:12.2002 cm1Appeais Nos_4232. 4242, 4234. 4233.
— and 5322/2005 were filed. Similarly. ITA Nos.69~
7’0/200} are filed by the revenue being aggrieved by the
order passed by the income Tax Appellate Tribunal in Appeal
Nos.946, 952 to 957 and 959/Bang/1998 dated
for the assessment’. year 1995-1996. The _
Court has passed common order o1iM28.O1.2t3G5..:along with
other appeals filed against. the lncolrie ‘l’;_:1-X .0
aside the order passed by thi-s__ coulit in
140/2000 and remitted the to this fresh
disposal in accordance’ leulv thelllsulbstantial
questions of law. obe(1.i€p_ee of the Hon’ble
Supreme Court substantial
questieilislllloli” in these appeals after
hearingvlthe for the parties:
on facts and in the circumstances
._of the Tribunal was right in holding
l_th:at–..the Capital gains arising out of the sale of
‘.’7ft’h.evllassets of the firm was assessable in the
hands of out going individual partners of the
eistwhile firm’?
R
iii)
Whether. at any point of tinie. any association of
persons eompriseci of ‘7 outgoing partners had
come into e.x:ist.enee which can be said to
become owner of the assets of the firn_t§”ar1’ci..’_’1i–a_ci
soid the same to the Association off-}?e»rsons43′?«.
Whether on the facts ariti inthe f
of the case. it eaI1Vbe4__he1diT+_hat. the»’transier’:’;ot;”
business of the firm goiI_1g coi-1e&ern’: irigfavour
of the Association of thi*”e’e_ ;)e’i~*soI1s was merely
relinquishmentof’ heidibyfvotiier out going
pa1’t;ner’s? ‘
iv)?’ t’he.:’faCts_”VVofV the present case, the
‘ irihunai’ in concluding that the capital
gair1s’ arising_ out: of the sale of the business of
the firrn’~——–sVa going CO1/lC€I’I1 was liable to be
In the individual hands of the erstwhile
‘ pa_1’tiiie1’s, except the three. who as association of
persons have purchased the assets of the firm?
14
V} Whether the sale of the assets of the firm was a
slump sale and if so, whether it was liable to
capital gains tax’?
Vi) Whether the Vice~President of the
committed an error of iaw in 1ayin_g;’dotttn’* it
manner in which the eapita41’~–;gainS’ is ‘–to._
computed?
vii} Whether in the V the
case, the ‘7£’riIé)’:mr.1«a1 holtiing that the
income earnect of
13 person.s for antjer1gqd..5_{.._234′:1:tays that is, 1:111
was..:asses.sah1e in the hands of those
13 ;V)erso’1’ti:_s*
2. The above V_suvbtS’tar1._tiai'”questions of law were explained
thetttttlearnevrj. cotins’ei”appeari.ng for the parties and the
h’1et_arne”cIreotiriseltivappearing for the parties agreed that the
abovefiwere”xsortiir substantial questions of law that are
_ required. thg_be answered by this court.
it Vtttfhe materials facts of the case giving rise to the above
“tsaityi substantiai questions of kaw are as follows:
” “L
I5
111 1939. late S.Ra.ghL11’aI1’1 Prabhu started the business
of inaniifacrttiring beedies. Subsequentfy. his brotheif-ir1~1euV.
Sri Madhav Shenoy also joined him in the business
partner and thus 1VI/ s.l\/Iangaiore Ganesha Beedi \*J015iis__’_{‘i’or_”
short ‘MG-BW’}. the firm. came into existence w.it,_1»19′
28.03.1940. Thereafter, the said
time to time. The last reC0nstitL1t’.ioIi’–._0f Af.’1I”1’1″‘1 v.=,ré;sr 9′
evidenced by a partnershig etnd
according to the averments rriéide deed; “ti1e last
reconstitution of the fi1’ni’b$e_can1e .:Vief:fectix;%e_»..t’rcrn 06.06.1982
and according to t.Eiev._deeL} firm Comprised
of the i’0?i0wing’i
S1.No. Name otitlie %age of share
1’ ” » _ 1-arna Prabhu I 4 . 50%
02: A it . ‘ii5I’;ti.einardhana1 Rao 7.65%
.. §\./vIx.Ananda Rao 7.85%
M.Vinoda_R2_,1o 7.50%
Mpushpazatha 12.50%
W/0 Subraya Baliga
2,_, =-._{.
16
06. Heiiialatha I 2 . 50%
w/o RaghL1nath Shenoy
O7. M.S’u1~esh Rao 7.55%
08. M.VIshw2u1ath R210 7.55%__;””‘ t
09. 1\/E.Ramanatha Rao 2.500/g_ ”
10. Jagarzatih Shenoy .2′:E-0% V t
1 1. Vatsaia Shenoy
D/o M.Janardhana_R_ao ‘ ‘ .
12. M.Gopinath Sherzoythi
13. A1’athiSheno3r…. * -L’; .””nt-..47.550’/5″‘
D/o M.Janardhana–.F{aio ;
4. Clause (3) the for the
durai.iorit._o1′ the .. st’; “reads as “under:
“3. ” The d.u.rai=–s;on ofthc-“Partnnership shall befive
“”- V’ ‘ ‘ “9 :’ 1/1 {‘ 1′
gears in the -_fi.i.si instance; but uy rnutuai
.» ijigVTé€FnenlRffi(?.p_qi’f.;€S hereto may extend the said
if during the subsistence of this
of the partners desire to retire
h_’;”ror11«t’}.iej_ gaartnersftip he or she can do so. ifail the
Eotlieri parizners agree to the said retirement.
TL However, if all the other partners do not agree to
“the said retirement, the partner intending to reiire
shall give six months’ notice in writing of his or
s _’ ‘:
;:x,–2 x
i.
17
her intention to retire and on expiration of the ._
period of the said notice the said Partner shall
cease to be a Partner and subjec to Para 14
from that date all his or her liabilities is
as a Partner of the firm shall come’ to an e’n’d;–‘–‘.: g ”
5. Clause (16) of the partnership lEleet£~__lz1ad
provisions for the manner in whieh the affairs”v_ofl’*~tl9ie”‘firm
were to be wound up afterjts dissC>1~nti0ri-;i__ It reaitisasvlunderz
“16. If the Partnership the going
concern earned or;/tinde’r zoflstlie Firm
MANGA;oR§t;ivisAryft:se(_BEtfDt’Won.t<:s and all the
trade the said business
by 'the.Asat.d ritndemtzhlch the business of
the on shall vest in and
belongto offers and pays or two
or rriorelPartr:ers._v jointly ofier and pay the
fhlgltesl prleeltlierefor as a single group at a sale to
then heldvlasl among the Partners shall be
it The other Partners shall execute
it in 'favour of the purchasing Partner
ore-._'Pd,rttters at his/her or their expense all such
deed, instalments and applications and otherwise
A aid him/her or them for the registration his/ her
"name or their names of all the said trade marks
and do all such deed, acts and transactions as
are incidental or necessary to the said transferee
or asstgnee Partner' or Partners."
6. Pursuant to Ciause 3 of the Partnership
partnership stood dissolved by efflux. of time
however. by mutual agreement 2.ifn’Io’ng; the .14p_art.1;eVrs.f;as’g
provided in ciause (3) itself. the duratioirtzvas eigteiidediv
further period of six n1onths’v–.ii’}i’§e.b, unto. sand it
therefore the firms .s*»90d i~~d’isefo1v’etii._ \vitfh”i–.eft7eet from
06.12.1987. Thereafterf ‘the ferret;-s fair firm had to be
wound up aftenfitus “Clause 16 of the
Partnership’ Deed’as’1V’jVre1’erreVd.._to’5ab”ovxe_.~ However. because of
the difT[ere_n_ee opn3i.ni()n”‘a’rr10_ng the erstwhile partners, the
affairs of the_firrn_eo:uld4’n_ot’be wound up. Therefore, two of
the ‘;_:a.1’t:ne1’sf Bf “i;’hve fi’rni”.fi1ed a petition before this court
the lbrovisionfsffovl’ Part X of the Companies Act, 1956,
uuipt;-1′ the affairs of the firm in terms of Section
555:? (4}.[a}t.hereof. The petition was registered as
Co.P.1/V__f3Q88. in the said petition by order dated
1 1.1988, this court permitted the group of partners
i (7) having eontroiling int.e1’est to contmue the business as an
/’E
i”‘§
‘=5
Vzfix
J
i.11te1″im arraI1gemer1’:” till the Completion of winding up
proceedings.
14.06.1991.
scheme for winding up of the affairs of the firm A’
assets as 8. going concern. Paragraph
contains the scheme. Clauses (1), (iii) &1I1::C.’1′(*,’]””§)f ‘1i’Ah1’.s
19
in moc1ii’icai,ion of the eariier order framed__i’.he
are reproduced hereunder:
“( 1′}
The dissolved paririersh.ip firinyiflkiaiigaioredwd
Ganesh Beedi Works’ axgoing” ‘concern
shall be soid”–.trJ such {of iis.VLj9ar£1jier/ s, who
makes an Qfffefojf iiigk-:esi”~prie1£f… fghe same
not_.bei_n’g. less ihe”~rwgiriiri1i:.iIi {reserved}
T’ crAores'”‘(Rs.Thirty crores)
= wi:h.in if -.ij.’o._7f1–9_9*1 aeceptingfuriher liability
‘ topay.iriieresiaaf $1 5% per annum towards
‘V ..b1J”‘dVo'[Ter for purchase of the dissolved
i’ii’},'”=_
_amo1’ini”oj’ frie price payable to partner/s
_[ro:n’os.. 5987 an the date ofdeposii.
ah’:-:”;_ ¥=-inf! 9!-‘#¢=f€ *-‘k-‘k
.”f3iL}’?’i}’I€FS:11ip form as a going concern.
.Cid.veried io in clause (ii) above, is received
iviirhirz the stipulated time or if any of the
Qffers made by the pariner/s is not
accepted by the court, the Qfliciai Liquidator-
shaii irxviie Qffers for purchase of the
.’k/_zC’}¥3’3
xs
HO\V€Vt3l’. subsequently by order dated
iv)
v)
20
dissolved partnership firm as a going
concern from the public if1Cll.t.CliT1g the
partners by giving publicity in three_..__
consecutive issues of two English dai.ig,;l_i’-.”_li~.
national newspapers which have
circulation in the country and one Kannada: l”‘l
daily newspaper havingpicle circi.illa’i’io’_r’i.
Kamataka, the time allOLU:/Jdl’ I.f’or_ f
offers being at least 45 bet.iue_’en’ the
last publication hcliaie’
receipt ofthe Q[fers…_.___”-..V_ —
muse >I::~1e>t< .$wé:.=:._' Me
if the sale of theltiissoliied_pc:jft.nership firm
as a going cohc'em'j:n';,ri1ri:our'.Q,£t'r:ng partner
or fpar;l%ie_rs.vor a_nVoat¥s.iclerl'i3"accepied by
_ the'C'oi.irt;'Vsuch"QIj"c.rer shall, within 60 days
fromthe acceptance of the ofjer,
'deposit' i_uiii1'lihe'i'Ql_7'icial Liquidator the price
or part of the price together with
interest olnfltlie total amount of the price at
"per annum from 06.12.1987 till the
V ' l.".'<;tai"eloj'deposit", which may become liable to
' paid to the partner or partners towards
their share of the price in the partnership
firm together with interest on such amount;
7'. The above said scheme was assailed by some of the
partners before the Hon'b1e Supreme Court in Special
Petition in SLP 10680/ 1991 which was ult.imate1y "
as withdrawn in 1994. hi response to the SC}1eI11E._§E1'aI}'iwtoti
this court by order dated 14.06.1991"; 1seV'era1"–.13artn1ers eithervh»
individually or in groups offered t1ieir.bid_sz.'
by an association of persons eonipi'ised of 't11r'eeu'Vpai*t'ners,
namely M.Vishwanath .1330. a9Shendy and
M.Gopinath Shenoy as the 'AOP~3')
was found to 'orores and the
same was §aeeepte.d–';1-_V'oy«.:_th'is_ oou–.rt vide its order dated
o§§1'éi5was passed on the said
day: 1 9 V I 9 9 .
j’.”1’he h’ig1_iesieVibidianiount of Rs.Ninety two erores is
V-‘:._.:aC.Cepted group of persons offering the said
it directed to deposit within 60 days from
the Official Liquidator the entire amount of
two crores together with actual profits earned
99 Vd”‘~«_.i’ro9m 06.12.1987 t.i1l 31.03.1994 and proportionate
H profit from 01.04.1994 t.i11 the date of deposit. in terms
2 — ,~ ‘
_§% /*3′
E’\.)
to
of the O1’C1£:’.1’S of this Court. eariier issued in
C.A.No.313/1994.”
8- At the in.st.a.n.Ce of the three pa.rt.ne1’s offe1*i1’1g
bid, Clause (1) of the order defer1dant.21..09..i.:§’9¢if_’vfiétrgfts-V____”‘_
amended by a subsequent order defenptazit. The ‘t
modified clause (1) of the orcler de1:e.r1de.j.r1t..’2.
as under:
“”I’ he highest bid. amount O_fi>R$.:?it1tyitDO
accepted and the. Qwgap offetihg the
said amount” are dtfeeted’ part of
the bid CUTlOtt.t1vE’ of riineiy which
is proportiorifgte t’o:7.t.h=’e the out»
gaii’ig”‘to_ge~thet whihtheptofits on the same
tilt the date of deposit.
withinéhat pe:+:{§cé7.’qff”‘6r.’3:_”‘:t};¢gs from 29.09.1994 in
_m_1y ofékrhev nationfgatised banks in the name of the
Lit’.f[Lid.QEQ3′. The rest” of our order
deter1d.c4ih.tv.21.O9. 1994 remains in tact. ”
‘V the above order. the AOP~3 deposited the
bid ‘<":t'I"I;.lO'{.11'"1iV'v'-jtfui'£25.92 crores on 17.11.1994 with the official
. 1iqL1itfi':1t0'2f ahei as per the order passed by this court, the
h oi?-ihlie firm as 3. going Concern were to be treated
been sold to the "I3'L1.rehasin,c_{ AOP" on 20.1 1.1994. It
»
-E 7,’
‘,L.$’ .<
3
to
J
is again a matter of 1’€CO1’Cl that the business of the firm
along with its assets were handed over by the official
liquidator attached to this court to the A0138 on
vicle his report 10/1995 and sale proceeds eilonggivitlt ~
interest aeC1’ued thereon were dist.ri.bL1__ied offiCi.alvs.v
liquidator under the orders of this :’e.ou;ftjah”1or1_gst.:”thle IouAt::;_’
going partners on 02.02. l995.”9_}ioj.weveAr~-, the shot!
be wound up due to one or t,he__ot.h.er’reasohand the same
was continued even the?-eafte1i_ u3j1cle’r=–_Vthe’tsupervision and
direction of this court arlri th_e”ifina1vi.ord’er oiiwinding up was
passed by this Heweivler, firm nor AOP~3
nor the:Vassesse.ev_urhoV amoiiht towards the realisation
of the asxsetsol;t,he’§oiri9g«eo–r1eerned did not disclose the said
amount 1’eeeiyed as .eap_ital_’..gain during the assessment year
l994«–.il99E~. iiieome of the business for the period
toaglissolution of the firm from 19.12.1987 till up
to the year 1994-95 was all tlirotigh returned as
ineorne of and was accepted as such by the
lx_tiepart.me1″3t.. Despite. this fact, the assessing officer took the
VfV1’ew”t.~l1at’ ii} the assessees were liable to pay capital gains tax
“‘\,’~~i-‘%–‘= .
V’?
24
on their respective share in the sale price of the assets of the
firm being Rs.92 erores and {ii} they were also liable t.o be
assessed on their share in the proportionate/ notional p_1’ofit
for the period during which the business was run ajf1C1’t’oT1;_”
behalf of AOP~l3. The Assessing Officer
objections regarding cthargeability oflhthebleapital ‘gAai.r:1s*
on the pleas that {1} sale was sltimpdint’i1atu1’e:.aZi§:i’ [ii] V
transaction amounted to their 1’etire’1’nent /A013
or relinquishmerit of t:he°ir,_ share: * aggriei’/’edvvvbynthe
same, appeal was filed before tl*i;eE’Coniniitsspioner of income
Tax (Appeals) ~« 1.lE;lE$’angaf_;iorei _the “appeal was partly
allowed; same, the respondent-
assesseeiiled an the income tAx Appellate
T1’ibu1’1V?l1_, Bangalore’ aggrieved by the said order,
ha}/e 1151-e’:-‘e*r:%ed ITA No.134–140/2000 under
of”tlie income Tax Act {hereinafter called as
‘the the Revenue has filed ITA Nos.144/2000,
_ ‘Vti47/2’ooo;tn’d 146/2000.
“Vile have heard the learned Counsel appearing for the
ix”,I:appellan.t,s in ITA Nos. 134-140/2000 and the learned
\i~-sf?
f ,
’25
counsel appearing for the revenue/appellants in l’i’A
l\los.144/2000. .147/2000 and 1.46/2000 and reply
argtiments of the assessee azricfl the Revenue in these appeals.
li. Learned COLiI1S€l appearing for the appellan’t1*sfL’—.
I.T.A.No.134 to 140/2000 submit.tedw
raised the question relating to issue.
capital gains directly in the hiiiids o’fllindivi:duall:’
who are erstwhile partners/ irivtheldissolvedg firm of
MGBW and the AOP the husiness of
MGBW as a going eoI1ee.rn._:s1’riee dissolution
06.12.1987 Slexierllllap-pellant.s have been
taxed aszil’ their respective interests in
the same ‘businesslandwhat1took place on 20.11.1994 was
not the sale’as’vaV going Concern of the entire business as
n
ordered by this” in the Company Petition. It is
1.2 is distinct and separate from an A0?
o.I'”.’:.’»_.» tilt. of 12 which was taxed since the firm
was efflux of time as per Clause 16 of the deed
— for a ‘nt1n1bei’f()i~ assessment. years up to and inclusive of the
_as.se,-éssnient year i994~95. Ij)uri1’1g the course of the previous
g,ie,-=,,=.?”>
year ending 31.03.1995 for the assessment year 1.995436,
the business as a going concern of the said AOP of 12—-__fwas
sold because of a dispute among the erstwhiie
MGBW to give effect to the provisions of clause” ”
partnership deed which provided that only kl
groups among them could bid for t’he7biisiness”a,s 21
Concern. Learned Counsel –t_’tir.t_.her .”subn1itteda_:that” an * V
association of persons 3 nie–mb’ers”«.iiot of the
present appellants madel”the– and the business
of MGBW was 4accordi;I’1’gly* them by this
court. These rn_en1bers__weregalsol the 12/13 who
const.ituted ViArh’ieh”was’_’ca’riying on the business till
the date–.o’f«. au.et.ion.Vllotfllasésgzts of the firm. Depreciation
was allowed”.in”respects Vofllthe assets of the business of t.he
pal-t11¢;%sm..:i_ie hands of the AOP of 12/13 till the
allowed by the department proving that the
departnientf’jreeognised that the business as a whole was the
asset ..oV”l”«:_the said AOP of 12/13 for owners alone can be
gtraiituped depreciation. It is further contended that the
business was sold as a going concern which is the very
27
essence to the very concept. of a slump sale which was
recognised by this court in 264 ITR 124 passed on the earlier
occasion and therefore could not be taxed. It isffaiso
contended that we valuation has been made ,:Atvht¥~iV.
directions of this court when the appellants v§7e_refnot’
members of the said firm and the Zaripeiiants
any offer and when the six rnerribersA:’e;§_<]or_esseci»their inabfilityr.
to make a proper offer as the bu_:s"I~1fi.ess.he::.d'n.o:t"v.3:)een'"Vahied if
the Court thought it app-ropriate**t.o."ti1;ili.ze the 'services of the
Chartered Accountant t:o"fin'd of the business
to enable t.hemset_lyes to VTh.erefore, it was not
a Valuation that niatieyin an _'agreement to sell, it was not
bindingfit: was .r1otV"at°the—"instance of any of the partners
much _less the 'preVs'enAt~.Vapp'el1antos and it was with reference
.._to date of thAe'"dis.so1ution of the firm on 06.12.1987 and
the " Chartered jfaecountant had only considered the tangible
assets of apart from goodwiii. They took no account:
of the personnel, the business organisation, the structure of
fitheibtisiiiess etc. of the going concern and therefore in View
— decision of the Apex Court in 307 ITR 75, the reference
U
28
to the transfer as a going concern has specifically observed
that a business undertaking consists not onty of tangible
items and good will but aiso manpower. tenancy rtgl1ts–._a’nd
any ticenses etc held by the business and in–‘the” ‘ih;<5ttai'1t'.g«
case. there were about 150000 wor1{ers_-'"direct,/itndirecig
number of tenanted premises, va*1ues"'eo.f tr'ade1narR§-su,,,.an1fi'
copyrights amounting to licenses. These Vfactiors 'were3 not –. 0
considered by the Chartered Account'ar1ts.biaearnedi counset
further submitted that _Val"uation done of the
business as a going coneem ontthetivvdate of auction
namely 20.} "wa's sale/transfer. It
was not'fas"i'feAtifiere 'Vwere'eQi'1tractin'g parties, it was not as if
any such c.ontracting:par'ti.es entered into an agreement
where the dtfferen,t a.ssAe.tsV'o"f a going concern were got valued
Alxjurpose of brining about the transfer and
t'h.er"e~ was tno'-.iAd'e–ntity of minds necessary for an agreement
etiiz It is or1–iy_ vxfiherr there is such an agreement". between the
'gcontractiivng parties which spells out the itemized figures of
,.'th.e'tVario'us assets comprised in the business, there is a
— 0f.–po’ssibi1ity oi’ apportioning the stump sale considerat:io1’1 as
~..é
99
4…
laid down by the Hon’ble Supreme Court in 307 ITR 75
(P.N.B.FINANCE LIM1’Tt?.D VS. COMMISSIONER OF INCOME
TAX} and where the transfer of the entire business as a
concern involved and the contract. indicates git;e.tii.-tjvise_”
consideration. Section 4} (2) would stand _att.i*aetedfwitli’~t
regard to the amount of SL1I’}3Il.IS:.'[O:’th§3″‘.§3XtEl”ft:”Qfv_V’1;1;iVt3
difference between the written down va.1ue._of t.he_’de’preeia-bled it
assetts) so transferred and the cost”the’i’eof.
counsel also relied upon’t:h_e deteisi’oVn;of”n{.he Sup1*e1’1ie Court
in 227 ITR 260 {COMM’ISSIO’N$RV VS.
ARTEX. MANUFAe§3foR1N:G Ctj;.3 inV’sn’pport”:of his Contention.
Learned that the decision in
Artex’s case will not’be_»tap;ii’i»ea*b1e in View of the subsequent
decision o1’theV_V’Hon’bAI’e Suprenie Court in 227 {TR 278
“‘~1.(eoi~§?ti§11s–s1o.3;sR2″‘on INCOME TAX vs. ELECTRIC
MFG. CO}. Learned counsel further
subrnitted .thé1tAibi1ee the court comes to the conclusion that
‘gthere is t.1’anst”er as a going concern of the business of
V’ as established by the facts. the question of capital
gains as such can never arise directly as done in the hands
txwgfa
30
of either the partners of the firm or in the hands of the
members of an A0? depending upon whether the firm or the
A0? is the seller. Learned counsel further subn’iitted'”t.hat
not only are the individuals liable even the AOP oi’WViil”r:’ii.ot.-« K
be liable. Therefore, substantial questions of ‘lafiv ‘
answered in favour of the assessee/a’pApe’ilant;s. _ . it
12. Learned Senior Counsel Srilndra Kftintar, ‘for’
the revenue submitted that iridview. of the._o’rde_r by
this court. in Company”P.etitioii”.”‘ assets oi'”MGBW was
valued by a Chartered Aeeoiuntant as w’_COI1C€I’f1 which
included all tangihie arid intangiblepropefties and highest
bid of .ae’oept.e»d_-.ai1dadmittedly the said amount
has been’ distiribiited. lVby?”‘th;’e Official Liquidator to the
indiv’idL_1a’i pa’i’t’.i*iei”s;of’=t1ie”{irrn add AOF’–].3 in View of tllfi
“v.p_vproy1’aioi’ips of See’tio11_____4v5 (3) and (4) o the i961 Act. The
»de’e=;sion:rS1i–ed’=upon by the learned Counsel appearing for the
to the period prior to 01.04.1988 from
which date provisions of Section 45 (3) and {4} of the
_ 4′ ulnconie Act, 1961, was introduced will not be of help to
their_asse’ssee in the present. ease and the order passed by
‘=54
31
this Court’ in Company Petition is elear that the sale must be
deemed to have been made as assets of a going (‘,{)11CfC’I’11v\x,\,r’eH1″!!tf,.
auctioned among the group of partners and
appropriate orders have been passed for disst)l:.:tVionVV it
firrn and payment have also J
appellants/ every partners. ,e”i.earneld ‘counsels. furth’er”‘, V
submitted that the decision relilexdfilby ‘thel”1earn–e5d
appearing for the assesseedbes .t.hel;l)resent ease
having regard to the facts (16) of the
Partner Deed” Cthfldlissolution, the
business should be sold among
the transfer of capital asset
as defined in Seet;io’n.’:_”2_:[vl_4}—.oi].the 1961 Act and transfer as
defined _under S,§eetj.itv—.n (47) of the 1961 Act. and therefore
l.”vthe”iorder, piassedll’b=y——«the Tribunal is justified. Learned
submitted that ITA Nos.l44, 146 and
by the Revenue being aggrieved by the
V._direet.ions; given by the Vice Chairman of the Tribunal
computation of capital gains which was wholly
ugnneeessary having regard to the faets of the case and
therefore the said directions issued by the Vice President
may be set aside and submitted that when the Vice President
has passed an order concurring with the decisionfof.._.oih’er
members, he could not have by himself iss’ii-edAA«ee;rt–ai”ri.e ~
directions which cannot be sustair1ed._and _”1iabie’_’:to’V’be .set
aside and the same is also contrary;’toA.’the»._p’roi/isioihs
Section 45 of the Act and t.11e__’sdb set=tion.V it.s;eii;{.s~tates3 the
market value on the date of thextrarisfer daiiddtlierefore the
said observations and d’i~re’ctions Vice President
regarding computat.ion V0-1″”ea§’itai=gaoindsdinayfbe quashed.
13. leaifhed’counsedlv”afipearing for the assessee
submitted”V.re1ied upon by the assessee is
helpful to’evfe1’1_ a’£tez”…ir1c1usion of Section 45 (3) and (4)
ifromAAOl».vQ.-441988 and the decision of the Tribunal
V is «cent-‘raV”i ‘i:o”}’aw as er the decision relied u on b him and
_ 7 _ P i3 Y
sub’1ii1tted’.’–‘¥,j1?§1’t the appeals may be a”0WCd-
.VVV_e:’ have given careful consideration to the contention
“.AAof.,_th.e learned counsei appearing for the parties and
VV scrtitinised the material on record in the Eight of the
2;
33
decisions relied upon by the learned counsel for the parties
in these appeals. Before Considering the contention of the
parties. it is necessary to bear in mind the legislative histo1*y
pertaining to Section 45 (1).
15. it is necessary to bear in mind the legis!.at.iv*e.xhistory l
the provisions of Capital Gain presently_icorxtainedin’
45 of the 1961 Act. Tlue present section
Section 1213 of the Income Tax 922 jhwalseconched
in the following terms: V
.’T.J;’ZB(5U;§–.’_”I*h:e tax sliall. oewpayable by an
iasessee ‘u.n,ci’erf–.ctheheadCapital gains’ in
respeet of aiiylp-rof_’1t:s gains arising from
segue-, “e>p;”change’;”V relinquishmerzt or
._ -t1’a1′;’sfe_r”‘of capital asset effected after the
p ._3l~-‘*1. lVl.l£1iTCl1v,.’.’V’l-9535 and such profits and
gai1″1s’xsh’a11_be–,_d’eemed to be the income of
the’ Vp1″eviou’s.>’ year in which the sale,
‘relinquish.ment r t ansfer too};
.__place;”‘ ….. .. v
of the Income Tax Act, 1961 . however,
reads as iciimis:
“45. Capital gai.ns:– Any profits or gains
” arising from the transfer of a capital asset
effected in the previous year shall, save as
otherwise provided in sections 53 and 54,
be chargeable to ineome~t.ax under the head
‘Capii.a1wgains’, and shall. be deemed to be
17.
1964. following new sub–sect’ions were inserted as fiiriderjij’ ”
In the year 1964, by See
34
the income of the previous year in which the
t1*ansfer took place.”
{2} Notwithstandiiig a11yt,hir”1g–.con-taiifledlfinlll’ V
sub-section (1), every equity Sh3l’€hO1C1€i7__tDVVx__’ ”
whom any shares are “allotted by” the ~
company by way of-4_bontis_ shall, e.1;ir1le’ss
such shares are ‘1ssu__ed_ wholly out v.of*,the..e
share premium accou’nt’be chargeable }to
income~tax under the—heAad_ ‘C.apital” gai11s’_7in
respect of suVc.h”‘sha.resV_o1’i 31,1 lamount ‘equal
to the fair market Va_.l;ja*e} ofV”st:eh–.. shares on
the date nextH_fol1owiVn§f the ‘expiry of the
pe1″lod.:of_ thirty days iroin the odate of such
allotnaeirztl and i such» darhount shall be
d.~e’erned~–.. be: the lI1CQII1€ of the previous
year–f_ir.; whieh”=t’he’ ‘da;te’=_next following the
~~c.a:-‘;5vi:¢sa’:a;_ p_er.i__od__ of ‘the_thi§1*ty days falls:
. V’V’P:’1’oVidbed.eVt11aI; income~tax shall not be
eh_argeab1je._u’1fld’e1f,.–~th.is subsection if such
shaifesV’areincl”u.ded in the stock~in«trade of
the _asse;ssee orif such shares were allotted
beforethe 1*’ April, 1964:
Provided further that nothing
convtained in section 48 shall apply to the
“_*v_v.ii1oo1he chargeable under the head ‘Capital
. gaiins’ under this sub-section.
Explana1ion:– For the removal of
doubts. it is hereby declared that income
chargeable under the head ‘Capital gains’
under this subsection shall. for the
purposes of this Act. be treated as capital
tion 12 of the Finance
WI//N4 »M.»«..-aa~z;a»4¢.>»;¢;’¢,:,-4,,
U9
Lh
gains relating to capital assets other than
short term capital assets.
(3) Where any shares in respect of which 6′ _
assessee is chargeable to income tax 1.1Ij1’Cl’\’3«!’_’V’._ ‘ S , ‘
the head ‘Capital gains’ under sub~se’ction_ ‘
(2) are transferred by him before 1h.e.,e§<;»;)Viry.:" <
of the period of thirty days "I'!3'lA€I'~'1'"E3ClMt"C)~:vl1'1V'
that sub~section, any }_prof_i,1sj or "
arising from such irans'i'er7._shlall 'not, be ».
included in his toial=in__come;' ._ '-
(4) Save as otherw1's'e.._l"provide~d_ sorb-
section (3), .—-;ii1othing——- _c'0–nt"a.ined "in SL_1lD-
section {2} s1:gill«.be.'deenie.;i .to'~.prec1udAe"the
inclusion of ariy5profili;.s:v and" géiins arising
from the transfer of anj-7 s.'nares~.1_4e_;.i'erred to
in that' submsection in~.ih_e t;oizi1': income of
theiassgessee Toriariy f)re'vi.ouVs__yfea1' in which
s~Li'c!?i.._sh:–1r';es"a:i.r titansfeijted by him."
18. The ablovelvsuhllsecfiiens iiainelyl, (2) to (4) of Section 45
were h.ovi/eyer, ornit:i:_ed._l’b§[“‘Se;:tion 13 of the Finance Act.
1966 with 6fr€Cl:.lfFOi1T1 17% Aplril, 1966. However, the Taxation
.”‘Laws l:{Am«en’dnie11ll)’:5iet;” 1984 inserted a new sub–section (2)
1-fit April, 1985 i.e.. from the assessment year
19’8_6–86 .oni}i?;”i.i5(ls and by Finance Act, 1987 which came into
*._effect. irom W April. 1988, in subsection (1) of Section 45,
lw_oi*ds “54E. 54F and 54G” were substituted for “543 and
6417” and after $L1b”S€C1’lO11 (2). the present: sub–seci.ions (3),
n
L 41 :3
V’;-
(4) and [5] were inserted. At that time. clause {a} of sub-
section {5} contained the words “in which such COH1f)€I1SE3.uti*D_Ii’*.
or part. thereof. or such consideration or part. t.he1_’e”o’i’.«5 _._ it
first. received” in place of “in which the transi’erV–tooi:pvplace”
and clause (0.) was not there. Sub~seet_io1is.t[Sft
were in existence between. 1.5′ April, 196-4 and {%viV–5’A.l:\/iareli,
1966.
19. The scope and effect ofthef’;alnot}el.’:tairiendments was
explained by the in it
“CapitafI.ga’.in’s tot: ‘t’rans;”e}’. oj’_]irnis’ assets to
partrzjers ajtct Dice .’ L’€_i.’SCI»_ and by way of
i..Cofii;)tLlso_,_ry_ ar:”qt£1i.3itto_n—-~«24.1 One of the
deviees u1″§;.ed_b;1.”aissesVsees to evade tax on
capital.gainsis”-to*convert an asset held
«irtdividtialfbr “1n_to.a;n asset of the firm in
‘which “the’.A’indi’vtidual is a partner. The
V deeisionof t’:_1e.*Supreme Court in Kartikeya
Sarah-hot u CIT has set at rest the
<:ontrovervsy~'i'ell outside the scope of capital
_ , gain taxation. The rationale advanced by
.i1l'ie._C'o'L1i't: is, that the consideration for the
f"t,ran'sfer of the personal asset is
pdindeterminate, being the right which arises
._ or" accrues to the partner during the
subsistence of the partnership to get his
share of t.he profits from time to time and on
dissolution of the partnership to get the
value of his share from the net partnership
assets.
‘Kg, fa;
€ 3
24.22 With a View to blocking this escape
route for avoiding capital gains tax. the
Finance Act, 1987 has inserted new sub; ._
section (3) in Section 45. The effect of ‘
amendment is that profits and gains ar_i_sing–«-. ~
from the transfer of a capital assettby
partner to a firm shall be cnha1*geab1_e’.sas~._: .
the partners income of the “;3revtou_s yiear’-.iio
which the transfer took plaee.:-Fofi’ p,ur’pos.es=.
of computing the capital gains, the val__ue Vol: ”
the asset recorded in the books of the=£’ir11’1
on the date of the tra–nst’e1~ shall be_deen1_e’d’
to be the full Value of the considieratioin
received or aztcruedi-“‘asfaV”-result.’oft the
transfer of the-..ca«pital
24.3 Conversion” of pa1*t,nersVhip:’V*assets into
individuavlg assets~ onf._ dissolution or
othermse-l also =i.for’ins* the same
sg.hei:.1_el~–o.f;Tta:»:._:avo.idance.v Accordingly. the
Finaiict: Act,» has inserted new subm
——– –.secttcon”t»;i7t}V.in.._Section.__§15v,of the Income Tax
Aet’;f1V9617°._ effect _isWthat profits or gains
;1ris.ing9frorr.y thetran-sfer of a capital asset
baby a ‘Eirinf.to”..a”‘».pa~rtner on dissolution or
“otherwise ‘shall’be chargeable as the firm’s
indcomecciin thelprevious year in which the
transt-er took place and for the purposes of
1 computat’iU1’1Vof capital gains the fair market
_ vrvallue of the asset on the date of transfer
sh’a_ll”be deemed to be the full Value of the
,,,/..ao11.sideration received or accrued as a
‘reisstilt of the transfer.
24.4 As a consequential measure, clause
[ii] of Section 47 has been omitted and sub
clause [b] of clause (iii) of section 49{l] has
been amended.
..’;W’
,..,.,,,,mM,HM.4wms»emaa>>;«erm9swsy:a:.»’ ,
(ii)
” l ‘ –._ tyhligf ._ vi l’;3ub_~cla use,
personal effects. that is to say.
movable property {inclL1di.ng..
wearing apparel and fttrnittircf’
held for personal use
assessee or any member oflhisiyy ” ‘
family dependent on
excludes —
(21) jewellery:
(bl a1’chaeological . collect_io’ns”1_: V
[cl drawing_si:’ ~ . __ ‘
(VCi}..fiaini-ings.
[el (_.)1.”i” ‘ we
ll
Eicplanationit. Fe-r”tl’ie purpose of
A “jewellery”
in’clude–s–_–?
{a}Vl”O_r1:.a1ments made of gold,
._ ‘=syil’v__er, platinum or any
_ Hotiier precious metal or any
‘..-alloy containing one or
more of such precious
metals, whether or not
containing any precious or
serni–precious stone, and
whether or not worked or
sewn into any wearing
apparel;
(bl Precious or sernbprecious
stones. whether or not set
in any furniture. utensil or
other article or worked or
sewn into any wearing
apparel:_)
(iii)
agricultural land in India. not 1 it
4()
being land Slltiailfii-~”
la]
in any area whic’n”*
the,’
comprised within, V_ _’
jurisdiction’ Of ” ._ V
rnur1icipa.1ity__ f. ”(.whe’t.her,y_ ‘
known as. a7._niunicipal_ity.
niuiiieipal *-e()rpo,r–atio’Ii.:’ y
notifi.e’ci~._ area eo_rnmitt_ee–.,.
town area committee,-I town
eornnaittee, or by any
«.nar.ne}_ V or’ .alW,eantor1″In’ent
ll board El_r1d’r_”‘\’\[hiCh has a
of ~T_i’/\f11’!;i{‘,i’l V the
‘{l”igures ‘
hp-‘3.pu_laiion–‘«.of not less than
thotisand iaoeording to
itlie last’ preeefding census
L V relevant
‘ have been
_ Vp-1;i1:s1ishe:§<:l before the first
b"._"day oflthe previous year; or
any area within such
ficiistanee, not being more
' than eight kilometres, from
the 'roe-ai limits of any
municipality or
Cantonment board referred
to an item (a]. as the
Central Government. may,
having regard to the extent
of. and scope for.
urbanisation of that area
and other relevant
considerations, specify in
this behalf by notification
in the Official Gazette;
41
(iv) 6 ‘xi per cent Gold Bonds. 1977
{or 7 percent Gold Bonds, 1980] . __
(or National Defence Gold’ 7
Bonds. 1980) issued by
Cemral Governmexltz
( 2) Special Bearer Bonds;
issued by “thee Ce11t.:1.2:1
Governmerlt : ” ‘ h’ ”
(Vi) Gold Deposit V”B0’nds sissnled’ .
under G(‘)’.r:1_ qDvep’0_s1i~
Scheme, 1999 _n0t’1fied”b3,? the
C€=f1tI’a1G»0’\f€3f1″3.1Ii€.I1t. 9
21. The word “‘Lransfer” Section 2(-47)
of the Income Ta); 196 as frg11_¢5v.;;<;.:._' ''
"(:4"?h}"'transfer' .1fr;_ ie.1ati'01:i to a capital asset.
__,– . ,
‘V3_[i) _ “the séilev. exchange or
‘ “r_e1i1’.1qu-ishment of the asset:
(ii) Vtiie extinguishment of any
‘ rights therein: or
(iii) the Compulsory acquisition
thereof under any law: or
(iv) in a Case where the asset is
Converted by the owner
thereof into or is treated by
him as. st0cknin–t,1’ade of a
business carried on by him.
such. ctonversioxl or
[I’€at1’I1€I1i’.;
(ix-Ia] the maturity or redemption of a
zero coupon bond: or
(V) any transaction involving t.h;e””
allowing of the possessioiji”o{7. 1
any immovable property”
be taken or retainec_1.~ii–r1,.__part–._’
pe1’formanc.f:’ “er ” b cc_nt.racft ..of V
the nature re.fe1’rveci-_ to’ H
section 53A of the Tran-s_fer of
Property.__ Act}, 3.’8821={4A.VVof
1882} ” V _
{vi} any trarisaciion {whether by
sway of-“beco1n–i..ng a “1’ne_IAI1ber
‘ or.’ acqLi’iri11g”~-sha1’es in. a
co~o’per_ai;ii;=e _ society.
corripany o’ther[_’a.ssociation
f of ‘perso1isc».o1* bypyway of any
agire’ement’ we any
. ” ..arr’angement or in any other
;_ ” ‘ rnannevri’ Whatsoeve1′} which
——– _ ‘1:;:_ –._has t11e__effect of transferring,
it A’ p or enabling the enjoyment of.
iinmovable property.
t _ ££k_p1ar1ation~–For the purpose of sub-
b_ clauses “”(v} and {vi}. ‘immovable
property’ shaii have the same
by me’aning as in clause {(1} of section
269UA.
22f that Section 45 may be attracted. there must
the trarisiei’ of a capital asset. The expression ‘transfer’ is
in Section 2 (47) and ‘capital asset’ is defined in
Seiction 2 (14) of the Income Tax Act. Such transfer must: be
‘E.
X. {-
‘s_j««-
43
effected in the previous year and some profit or gain must
arise from such transfer. if these conditions are
Section 45 provides that such profit or gain is char;geabIe— :_. S
income tax under the head ‘capital gains’ and t_h~a:–
be deemed income of the previous year i1’1:N,3i,’,1’1:i,;C]’I:Iu,>th,I’3′ transfer f
has taken place. Since Sectionercreatesdan”item ‘artificia1
income’ its provisions shouid coi1struVed..d2§ Tiius
Section 45 brings to charge itsdingredients
are: H . . . * . ..
i) the eXis;t,e.nce:3._of owned by the
‘ .« ,
ii} the o’f,s:t:ch« during the previous
E7.3:reard: -V V S S H .
iii) _v of gains from transfer of such
a??$§tshand ——–
S * iv} profits and gains must accrue and arise to
the oissessee.
.. 11:1″a:’recent decision in COMMISSIONER or INCOME
ofiAV:><;,–.. EARIDABAD vs (3-HLANSHYAM {HUF} {(2009) 8 sec
the Hon'b]e Supreme Court had an occasion to
45
short’. Section 45 defines ‘Capital gains’, it
makes them chargeable to tax and it allots
the appropriate year for such charge. It
also enacts a deeming provision. Section 48
lays down the mode of computation of”–_
Capital gains and deductions therelrom.’fm~._V *
24. The Contention of the counsel appearing for;i’fl’1’e..’pa._rti+:s
and the decisions relied on by them has to be..c_o’riside1’ed in’
the light of the above said provisions of
Act.
firm MGBW was dissolved on and_tl1ereE was no
further’«._ agreeAnie’nt.__vtlie.’ partners to Continue the
busiriessofpthe firm”: dissolution of the firm, the
L. .3 ..;”.’Q-m..§ “””” ..-..m..: .,. Ln 4-,. -1… “,4 ,….n.,. n
1.. ‘ lifiii WCiC lCL1L1llCU ‘iu um: ulatfluuicu axixuixgai.
proportion to their profit sharing ratio.
of Clause 16 of the Partnership Deed
wlie~r_ei11V__Vit Aelearly stipulated that a sale shall be held
‘I’.}t1€ partners by which sale nobody other than
i’ partners shall be entitled to bid and a Company Petition was
before the High Court for winding up the business of
E
2»
LJ
25. The material on recorcilll?-“‘t1»l.1ld ciezariy. s1fi,c§{z4ro’t«t1aa.t.–»5 the » ‘
46
the firm as per Clause 16 of the Partnership Deed and in the
said Company Petition l/1988. this court directed that in
the interest of more than 1,50.000 employees “tvhovkeere
employed throughout. the State. the business 3
continued till the actual winding up proceedingslweotzlicl. V’
to an end and therefore the business continue;Cl.as_per’~t’he’.
direction of the Company Court. in the intev_res»t. of
employees and in View of c1ause_;”1~ep of Eieed
and after 1987′. the asse’ss111en.ts’were tiled Asasoejiation of
Persons upto 1994-95 lshowiixgil’ and claiming
depreciation in respect the firm. It may also
be notiedlmlatrt gift-1e”r”‘ the Winding up of the
partnership. and process started, one of the
partners Mr’;Vinod assigned his shares in favour of 7
..V_oth.ejri<part11ers bjf'a.s.si.gnn1ent dated 03.07.1993. Thereafter
Va.ss'e–ssm_er'1tiwas_being filed by A01'-'wl2. The fact that this
cctirt passed Sfariotis orders including the valuation of the
assets bf the firm and ordered that the partners or
9' 2..j't./Xsso.ciation of Partners shall submit their bid and highest
tvoulcl be accepted and on the basis of the valuation
"3
z-*'
1;»)/s
47
made by the Chartered Accountant. the basic price was fixed
at Rs.3O crores is also not in dispute. The fact that 8
partners [hereinafter caiied AOP43} submitted their bid 7
other partners also submitted their bid 3
submitted by 3 partners was for Rs.92 crores was
be the highest bid and the same w,s;s”a(:cept.ed
and the Officiai Liquidator was ._recVei«.ve
amount and distribute the ‘sartie ahiongeVthetfvotitgtoing ”
partners cannot be disputed sin”xr.ipewV’*~of the’speciii’1c order
passed by this court and)thef’:<ri:atereial,V:io:1 record wouid
further show that finai:'order:ind Petition was
passed:'ori'VdV2GA.A.};v53 : the 3 partners who had
submitted their Vhi:gi1esvt.._'dbids..~for R892 crores sought for
modificatior1V.of' §~:der7' for deieting the direction that
amajdiit;.ati_ributab}–e——««to them as artners from bein
'deposiAtevd:"a:rid:2'the same was accepted and thereafter the
said' 3 'par't'ners whose bid was accepted have
deposited: the amount of bid in respect. of the
jwshares of 9 other partners and a statement was also
' p'.jepa1'ed regarding the Value of the assets of the firm and
48
after deducting t.he liability of the 9 partners. the net value of
t.he assets was arrived at and distributed among t.he.._9;.
partners and the direction given by this court. i’or__i’ili1#.g’~anl’7
undertaking that the 3 partners would Cent~ihtie’i-l.:’t’,he
business oi” the firm and the other pjarttifzers would.’
interfere with Carrying on b’usi11ess__by the 3 partinepsllwhose
highest. bid has been accepted and…_xt’heV order Court.
dated 14.06.1991 and siniravvvtpages
10 and 12) is also indispntable_ regard
to th.e above facts of the
case, it is or the firm MGBW
on O6. proeeedings were taken in the
Con1panyi?etii:ioi”:’ of the partners for dissolution
of the ~l-1’vl'[I1 _realising_ the assets of the firm in View of
dlfjlaufise’ 116: oi’ the l?art’r1ership Deed and that the out going
partne’rs;?a.ppel1.arits herein have received their net share of
the valuev.o’l”tl§fieeil’assets of the firm out of the amount received
V’-by way of sale of assets of the firm as a going concern
x’~t_’,0FiCl.t.i_(‘.t.€d per order of this court after deducting their
individual liability in the firm earmot. be disputed and
49
therefore it is clear that there was transfer (sale) of capital
asset and the assets of the firm were purchased 23.
erstwhile partners of the Partnership Firm and by at
of this court. dated 14.06.1991 and 20.11.1994’theyfjaise’ 1″
undertook by filing an undertaking i:}:et’ore_
the order passed by this co’ur’t:-._o11 20,vi’1.I99V451.thatf’ it
would not interfere with the of the the
successful bidders the
value of the highest bid offered thereafter
as per order partners who
purchased the succeed to it: and
c0nstit.ut.e if thtefhfsarne name ‘MGBW” and
thereafter has distributed the amount
amongst’.pt11e”9 ._pa:t;ners. including the appellants herein after
,,.,ded’uct.i5n’g the liability’ of each of the partners and therefore
the partners is the Value of the net asset
of fi.rn1″ftiszestablished and therefore the capital gain is
attracted~ observed by the Hon’b1e Supreme Court in
eoivrM1ss1oNER or INCOME TAX. FARIDABAD VS.
__GHANSHYAM (HUF) (2009 (31 sec 412) as referred above.
50
The decisions rendered prior to 01.04.1988 has to be
considered in the light of the amendment of provisions of
Section 45 with effect from 01.04.1988 and deletion of-.i.he
clause in the definition of transfer in Section 2 3
£961 Act. Profits and gains arising from t1’ans’i’er oi”fca’pita]l.f_ V’
asset would clearly show that theremis”tia.§(“l–.i’or.gC:apiI._a.lV
and same is attracted as the capita-1i_zasset’,wii;hi:n–;_ut’i:1€5’~
amendment of Section 2 (14) ‘under it
Section 2(4’7′) of the 1.96,–i..Acti ant}-..tg’_11e’ llcrjucialil iquestijon is as
to who are the persons the capital gain
and whether it is’th_e o1:it”gV’oi1’ig _ers:twhile;..ersons who have
receivedlthe ‘val};e asse_tdinlVi.he firm or capital gains
has to _AOP–i3/ 12. According to the
appellants,Vll’Ehe’v a}l3pell~alnts’lV are not individually as such
i_vo’utgoi<r1gjoartners'"of…e.rstwhiEe firm MGJBW are not liable to
–on’~eapital gains as according to them they have only
received shlai-e which they already had in the firm and
.« therellisx no transfer of any capital asset and therefore it is the
li.’sass()siation of persons or firm or A()P»i3/12 i.e.. liable to
_ pa-ylllciapital gain. The Assessing Officer–the first appellate
gvg/gt
would attract capital gain and in the said eases having
regard to the facts ofthe said cases which was in respectxorii_a*_
transfer prior to 1988 before amendment of Sect.ioa;’_1″”‘rii:5tV’_~i.il3f:)3
and (4), the lionble Supreme Court heldthat. SW-o:ul.d
attract capital gain u / s 45 of the Act and} are.
helpful to the appellants in t.he
Similarly, the decision of S_t1prerne_ll:i ‘VCotl;t’t in
COMMISSIONER or LAL
VAIDYA [1971 (79) ITIVIA… were two
partners in the one partner
receiving share in assets, the
sale or to attract capital gain
11/ s 12~Blo_f4’the’ /fkct in View oi” the amended
p1’Qv.riS;it’,-‘(ES of 45’. [Stand (4) inserted by Finance Act,
lwith effect 1’i~£:.fii’o’1.04.19ss. The said decision is also
I notghel’p.fti1_ltelthe_:.appellant.s in the present case.
f 26. .It”‘is clear from the close scrutiny and consideration of
St S’ therrnaterial on record and in the light. of the decisions of the
‘AP-pleXAAlCot11’t. after the amendment, of Section 45 with effect
‘”i’ron1 0l.O4.l988 that in the present. case, the partnership
2 »
if -\
2\\}”\.\::£\*~
‘t
54
protect the interest of more than 1,530,000 employees of the
firm spread all over Karnataka and the sale has
conducted in accordance with the direction i.ssued;”‘b3,?.r’this?
court among the partners.
court has taken care to see that the isaleppaiotilld be– reahstic’
and the value should be based : on objective andscientificud”
reasons. This court got the valuatioia of the._;§.ss«§1;sa§:ie
the Chartered Accountarfiiwho ._the«’ass’ets§of the
firm with reference to the :’g§oc)’d’§vil1 and with
reference to {hp g other tangible
assets at Rs130.:crores—- this court has taken
care to see th_at’t’i,;e_ to sold among the partners
or a group ofpartners’whe_;su,b*mit the highest bid subject to
reserve crohresfx ltsis not disputed that 3 partners
. ahad” bid’lfoi'”R’s.92 crores and other 7 partners had
Asub_n’1ittefd.._phtiiVeir”bid for an amount which was less than
Rsigg croresiand therefore bid submitted by 13 partners was
‘ ‘”».accepted”_Aas the highest bid and the same has been accepted
High Court. Therefore. what was auctioned by the
Qifficial Liquidator as per the direction issued by this Court
2 _.x«
{,3
Before conducting th.eV_A’_sale:.:jthis it
was assets of the Firm –~ MGBW, of which the assessees were
the outgoing partners and what has been sold
outgoing, partners is the assets of the firm (K1LI,iCK’_dNIX’QN_V’t.
AND £30.. Vs. 0.1.1′ ((1967) 66 714 (set; 3
ordered to be deposited in the aeievottnt,dA.ei’u’-eethe.’
Liquidator attached te the Hi§3:h’..”COL1Vft’_v. sand the
Liqu.i.dat01′ has distributed the amdfiadt as pet’-.t.he’Vst3DteInVent
prepared by the out g0irigi.._._;§srtr.te.rs_ thedddefstwhile
partners by deducting theitj vV[i}’rh_’_.and vaiue of
the net asset as per the
statement anrjiexejdltd 2X’pp’11eati0n as follows:
‘Kg
27. Thereafter this court has declared by ordervxdatled
20.11.1994 that the proceeding of dissolution
and that undertaldng shall be given by
partners in favour of 3 partners
accepted and they should not .4_interfere’»– wit.h,5th.:e” said’ it
erstwhile partners carrying in
consideration of the therlrrlasllllper the
order of this courtyand of sale of the
assets of the favciiur .3_._p:ersons. Therefore,
it is clear applellants that the value
of the and therefore tax on
capital cannot be accepted as
valuation ‘be_e’n by the group of partners by
“‘v..assessin-gg the va1uev—-o17~’the assets and the assets had already
b’ce.ri’va’lued the Chartered Accountant. Similarly, there is
no nierit. irr the conterltion of the learned counsel for the
appellants that since the transactiion was only adjustment of
shares by the partners and there was no sale as such the
ayppellants were not parties to the same and the same was
59
conducted by the Official Recehser attached to the High
Court and therefore the individual e1iii;;t_s
herein who are erstwhile partners and received valaep’ ofthe
assets cannot be taxed for capital gain.
28. The nature of interest of the p:§irtiiers._iii. “the :fi_I’1″i'”§’_”
during subsistence of part.nershVip..xane1
with reference to Section 14, of the
Partnership Act, 1932; by Horfbie
Supreme Coartil’ in BHASKARS
KRISHNAPPA ism 1 see) as mews;
…. V15. 29, 3:2, 37, 38
}:ind_ tliattiiliateuer may be the
character which is brought in by
the’ partnership is formed or
li.oh.icl1 r:iaVQllbeV’ ax:-quir cl in the course of the
irj’tisii-ass iiii the partnership it becomes the
V i. of thefirm and what a partner is entitled
to share of profits, if any. accruing to the
v–par*triersliip from the realisation of this property
it upon dissolution of the partnership to a share
in the money representing the value of the
property. No doubt, since a firm has no legal
existence, the partnership property will vest in all
6}.
is true that even. during the subsistence of the
partnership a partner may assign his share to
another. In that case what the assignee tL?O1Li-‘StW’~~”.”’ ”
get would. be only that which is permitted by” ‘
( 1}. that is to say, the right to receive the
profits of the assignor and acceéfitfVt}1’e«_a’ecoi:nt”‘o;’
profits; agreed to by the partriers}’_’_’d j’o,–{
Partnership, 1 gm Ecin. RefI”‘to”ETngliesh}
Indian Case Law DiscusseVd*…_.V'”AIR 19/t_7″Ldh
(F8), Approved. Are 1959″‘z’–tfid}i”‘».Pra 380v-er.t3§),
Ajfirmedfi L 2
29. In DILVIPV vs;”coMM1ssIoNER or
1NcoME__ :rA.XAt2eo2′:t25’3j”IrR. 630), a division bench of the
Gujrath eoort. dn«._o’C1Eé1sion to consider the question
as togwlzether onthe fe.ei;s and Circumstances of the ease,
the oi ~ was liabie to be included on
I assessee. In the said case. Chinubhai
Motiketl intestate on February 20, 1.965, and was
‘ his three daughters. four sons and widow. After
‘ h1’s..deat.h. one of his properties. 21 residential house, devolved
__L_1i7pox:i his four sons. By executing 21. memorandum deed
M»–‘a.E””
Ls
;’..-I
62.
dated March 27. 1973. the said property was given to the
Hindu Undivided Families of the four sons. ThOL1gl’}V”,_:tl’}C
residential house was not partitioned by metes anrjj”‘bo’url__ds.._u
under the said mernorandum. with effect frrmx
1973. the Hindu Undivided Farniliezs of…tjhje
acquired equal share in the sa=id-._prope’rty’~and sodas ll
of late Chinubhai Motilal Shah filed lttxeiprretttrnsllafter
the execution of the 197 3
and in the returns of families. their
respective arising from the
property xriowever. it was the
contenitilon by metes and bounds
and share of Undivided Family had been
determined by, virtue of the memorandum dated March 27,
E*lDditi:ng thewassessment year 1979-80, two of the
t’a1r1ilies;«._yo’11e”e~_of.. which was the assessee, disposed of their
rights ;l.ii~ th)elp1*operty in favour of the other two families by
n€§(€Ct1’l.l_l’l’§-35 t.he sale deed dated July 7. 1978 and during the
‘prejxfiotis year ending on March 31, 1979. two families ceased
“alto be joint owners in respect. of the property whereas the
63
families of two brothers became joint. owners of enhanced
shares in the pl’Op€1′{.y’ and on the said facts, the (_3aji1-igitjh_
High Court having regard to the p1’ov’isior1s of _
observed as follows:
“It is not in dispute ihat’».._the_”asfsessee l1″1(:ic’E7’=.l__ .’
shown its share of income from thesaid pr’operty
in its return after the property teas
with effect from ;_Mar’chAy_2_oi;’~.__1 hi the
property not been». = ..j_’1′,’»lv’v:’f.}.:l’.’ e ffect” from
March 26, I973, in of the
rnemorand:-trip-_ 27. 1973. the
toould not have
showrt ‘f.~’on’~’t the said house
p_roperiy.:{5in ftledjor the assessment
years: This fact: clearly
deriotesri that “l:tF1.e””*-._assessee«Hindu Undivided
5 *F’a,rnily”h.ad got iiisllils/4”! share in the property in
p:_Aa.rs’aance”of7–.t.h.e’ memorandum dated March 27,
by virtue of the deed dated July 7.
tThe–:”assessee had sold its share to the
V f1’i:1(L’lt’LE_.’:.UrldiUid§Cl Family of Shri Jttendra
..Ci’t«int1b}1ai. Shah.
. it It: is pertinent to note that the said property
was not owned by a body of individuals or an
association. of persons as contended by the
teamed. advocate appearing for the assessee.
()4
There was no association. of persons or body of
ind.ivid.uals as on July 7, 19?8. which was the
owner of the entire propen”y.
hereinabove, four different families were l_u;virig5
their distinct share. though not defined
and bounds, as on July 7. 1978, Clni$:i.’i._l1l€.Sl-iLL7.I’¢VOfV V’
the assessee was in fact: sold Etc) anotl1er– Hi.nci.u.
Undivided Family on that
Looking to the above’rrfcu:ts and. leyial
position to the effect’ t’ha’ii'”the.:’properi.y not
owned by any body association
of persons. the asesseeig» ivha ‘owner of
1/ 4″? sliarelofflhthe said share on
July 2*,’ the Revenue had
righiali a–nrio.urit”azhic_h.lwas earned by the
asesseen i may y of capital gains.
A ‘Let issue from a different
_angle.’~….lIp, :3’ of the assessee that there
was an “association of persons and the said
a.ssocic1.i_ion. of persons was the owner of the
{and on July 7. .1978, there was a
” d.i.sso’l:..itliolr1 of the said association of persons and
the share in respect of each. individual had
“tievolved upon different individuals. Had it been
so. 1/4″‘ share of the said property would have
it devolved upon each. brother or the I-“Iindu
Undivi.dedfam1’ly of each brother. Thai.” is not the
5x\;I._.-ya;
As
,. …,n.N,wMxw.M.a»»;»v».;
30.
the preserit”–.case.VV’the:_eii’e_et of the sale conducted by this
the become entitled to specific share in the
65
case here.
deed dated duty 7, zers, oniy two H:ndej__”‘ee
Undévicied Familiesa had remained the owners
the said property because two Hindu UnC§ii9idea’. :”
Families, inciuding that of the assessee; “hart: r
their shares to the renraiininpr’ «taro
Undivided Families, who remain ” iii A
not only owners of their ‘re_sp.ective’ share,
atso had become owners of the shares of the tiuo
Hindu Undivided edngiizemghzeii ifidd dzspesredof,
by way of sale, their sitarestiin of the two
remaining Hindu. :uiu’i£v:icied_” the
submissiorl’ the “feaifned adi)ocate..appeanng for
the if we view the
ispsue_fron_i’thi.3_ angie._’_’ V’ t
in”yiéx;i_r of theV’p.rov.isi’atis__’of Section 45 it is clear that in
._,p’vc0uV_1″t§.a;iionvg par’tr.:e_i’_s.v and under Clause 16 of the said
‘Partner’s_hi~pDeea, is that once the partnership is dissoived,
j asset.~3nofath.e firm which is proportionate to their share in
“j.,s11aringvVthe profits of the firm and they are pieced in the
— sariieiposition as the tenants in common and for the purpose
dissoiution and 11/5 4′? of the Indian Partnership Act.
tee
In the instant case, by virtue of the
66
1932. it. is Clear that even after the dissolution of the firm.
the authority of each partner to bind the firm and the other
mutual rights and obligations of the partners;”‘e’ontiniuie_~:_A’
r1ot,withst.andir1g the dissolution so far as n’1ay~’iietxeissaiy
to wind up the affair of the l”i.1’m and to eoi.i1pfiiei.e t.rAansae;:tipons_
begun but unfinished at t.hoe-.__.tirr1e”._of~ theg,v–‘dissoiuti–on.r it
‘1’ herefore. for realisation of _tassetsl.l the
liability of the firm and oftheflpartners.
ete.. the firm wilA1._eontii11.1.e:l._to dissolution
and not for on record in the
instant ‘after dissolution of the
firm filed any return and
in viewllofi the permitting the partners to
carry –m__ the .business in the interest of employees, return
waslifiledd 15’;AOP;I3″‘eonsisting of erstwhile 13/12 partners
tor 8.'(€’..:Cl’}”e1’1’1’V’Ll’VI~ig”131’0fllS. and seeking depreciation in the assets
oi’-the f,im’1″ and continued to do business in View of the order
of this.’ court. that there was no agreement. among the
l’ .’ ‘partners to continue the business during the pendency of
fthe winding up proceedings. Further having regard to
67
Clause 16 of the. Partnership Deed of the dissolved firm, it is
clear that: the partners intended that the assets of the firm
should not be sold to an outsider. it is well settled that ..e’tre1″y
act of t.he partner would be binding on the firm 3
partners interse and Clause 16 of the Pa1’tI1ershi.p.. V’
which has been culled out sup1ji£illl’clearlyl..’
Partnership is dissolved, the going cvoncle-_1’n ca1’ri.ed* on 1:1r_id–er”.
the name of the Firm it
and all the trade ma1*ks,—-tised iVn'”eot’rrse-.of the said-‘ousiness
by the said firm and ltinderl’a.xar’i»ii;chl:l’etheVVlEntisiness of the
Partnership is carr._i_ed {5n”ls’liall_lvestV_ in and belong to th.e
Par°t.ne1j’iVWhVo’ or more Partners who
jointly o{fer’._and. price therefor as a single
group at a ls”-a..le”to be held as among the Partners shall
to other Partners shall execute and
coriip1ete_in:iat}o1,oi1′ of the purchasing Partner or Partners at
his/her’ o1**-Vihelir” expense all such deed, instruments and
flVapplicat_ilonsland otherwise aid him/her or them for the
registration his / her name or their names of all the said trade
– rnarlis and do all such deed. acts and transactions as are
tvagji
I’
68
incidental or necessary to the said transferee or assignee
Partner or Partners. The final order passed by this {?t’)t’I’1’f’t>’l=V(‘)
wind up the affairs of the firm would clearly _
property of the firm is pi.i1’cl’iased by the it
partners who submitted their highest’,-bid~ .l
partners had to give an uncleif_taking.v.that lgnot
interfere with the carrying on bulsinIess_ppwhileli in the
name of MGBW and in theueourse of
said business and th€1’E’E_lT{)V_If:’.€’~.VlV’t appellants
who are ho’t;l”si.r.eleessful bidders for
capacity of the
tangible and intangible
assets of 3 partners whose highest
bid of _Rs.9d2″‘e_r’0reVs*. Wa_sl’aeeept.ed and admittedly after the
H16 ordei””of this court. on 20.11.1994. all the
p_a’ppell.eariv1;si herein and other outgoing partners have given
reqiililsite. as per the order of this court and the
lr__MGl3W a going coneerri under the name and style MGBW
and”‘*all trademarks used in the Course of said business by
the said firm and all tangibl.e and iritangible assets of the
VQ6
69
firm vested with the purchasers erstwhile 3 partners who
paid the highest bid and the appellants have received
consicleration of the conveyance and their respective share in
the sale of net assets of the firm after their uridertakirigly:that
they cannot. interfere with the business of MGBW~~whi.cllil’jisl”
vested with all assets in favour of 3 partnershhaxifi ‘r:eceived~.l
the value of their net. asset which hasf’been:diistributeyd”by.”1
the Official Liquidator and AQP 3 who have pu_ijchas’~ecll’:.’thell’
business of the old firm, succeeded to itanti. a
new firm in the same nafne (vidiellorcieif lci”efenda1tt;”14′;l06.199l
in the Company Petition} and clear that the
order passeti theyasseslsingAuthority corifirmed in the
first appeal “arid trheijiayl’thegincoriie Tax Appellate Tribunal
[Special Benéahl hoidiAri.gf’that the appellants as erstwhile
if”‘-parltnerevareyy lial:l>lle”””tol pay capital gain on the amount
thernyytowards the value of their share in the net
assets of.thel–.V_fi.rm are liable for payment of capital gains u/s
*..45 of the’:.Aci:. The said finding is justified and accordingly
Vwe a3″_=swer the substantial question of law in favour of the
” Reveriue and against the
~.
‘xi
‘».\
-~ , irom.» facts of ‘the case that while fixing th.e auction o
70
31. Similarly. the contention of the assessee that the csale
is in the nature oi.’ slump sale and is not in respect.’4oi”-the”~..
i .
separate valuation made and therefore not assessai3~IVeV”‘i:o
capital gain cannot also be acceptedas it is ‘L’1€3E?i.T’AVf’1’k.)’iT1V this
perusal of the material on record iihiaththe saiedthvaij
conducted on the direction o1’th1s:e.’ou1’t aiiiorigt’heV”:;iarti’1ers
and the consideration i’ecei§ied not flbyv,€%1t.1.;:i”1p sale
as the shares of all the partne’1’s’ was fixed
in propoi’tionate tire” after the
dissolution business as an
associationivof#i3erso’iiifa.._aiid notllasgpartners. It is to be noted
that What has ‘present case by the outgoing
partners — MGBW. It is also clear
f
1.1 ,.
LLLC
of the-.1§’i*rrn — MGBW as a going concern, the value has
basis of the report of the Chartered
— Accot’i1’1t,ant.”obtained as per the direction of this Court and
aiso_.aft.e’r” considering the objections filed by the partners to
iIhe”s’aid report and as resewe price of ‘ 30 Crores was fixed
V’ “and no sepa1’ate valuation was made. During ai.1ct,ion. three
$5.43?)
‘ ,-
of t.he erstwhile pa1’tne1’s quantified the value of the assets of
the Firm — MGBW as ‘ 92 Crores and the offer made by
other partiiers quantifying the vaiue oi’ the assets oi”.«tl_”ieoff*”‘.i!5I11’H.
~ MGBW was less than ” 92 Crores. H
quantification made by the €1’StWhi:tE¥Mpaf1;I1£f’I’S_.'[‘h’€ii3S€?1\;’.(§S
has been accepted and what has beefii ffbyffthgé putgoiit
partners is the assets of the 1iri11.._V(F’~JoLLlC.K.N1;'(§5isI:
Vs. o.1.’r {(1967) so 714 {so}; andfiwhe’i*efo1’e’.the staid sale
would not be a slump sale’. of’the»f’1:i»ndi11g on facts,
the decision 1’e1ied_up_on bymtheiteafned fco’un&s’e1″appea1’i11g for
assessee in ..€:.’-1.4″l’.5:\_/fS;v has-R_o CHEMICALS
{{20}O} 327 not helpfui to the assessee in
the present tease. ‘ f’ f
31. Veiieonetiireht’. finiding on question of fact that value
of pr_o’fit’ du1*ing,ii1terregnt1rn period for a period of
23.4″d_ays”is”‘t:Vo b.zCvVili’€at€d as revenue income having regard to
V _ the fe–asci_iis-.assig11ed that said profit is Calculated on the
h lofasisof notional profit eaiculated on two years average profit
if .a1’€IVcVi”frOII1 this a\re1’ag{e 40% was to be deducted and the net
amoxint was to be paid, the finding unassailabie.
x
72
Accordingly. we answer the subst:ant.ial questions of law in
favour of the revenue and against the assessee. In Vi€\-‘V of the
said finding. the appeals filed by the assessee in ITA
Nos.l34, 135, 136. 137’, 138, 139 and 140/2000,:.””a:e
dismissed. The appeals filed by the revenue in
146 and 147’/2000 are allowed by setting asid.e_.th–e.
issued by the Vice President regarding»toxfiputatidripfllthe
capital gain passed by the IT/\T»,. Bangalefe.