I.T. OFFICER vs. PRADEEP AGENCIES

O/TAXAP/309/2004 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 309 of 2004 With TAX APPEAL NO. 310 of 2004

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ I.T. OFFICER....Appellant(s) Versus PRADEEP AGENCIES....Opponent(s) ================================================================ Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI Page 1 of 5

O/TAXAP/309/2004 JUDGMENT and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 10/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, the appellant- Revenue has challenged the judgment and order dated 13.11.2003 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “C” in ITA No. 227/Ahd/97 for AY 1991-92 and ITA No. 3052/Ahd/97 for AY 1991-92. 2. While

admitting

these

appeals

on 9.5.2005,this Court has framed the following substantial question of law in both these appeals: “Whether on the facts and in the circumstances, the Income Tax Appellate Tribunal is justified in law in holding that on dissolution of a firm, there would be no transfer within the meaning of Section 45(4) of the Income Tax Act, 1961 ?” 3. The facts of the present case are that the assessee filed return of income on 30.10.1991 and assessment order u/s. 143(3) passed on 19.10.1992. Subsequently, notice u/s. 148 was issued and served on 16.3.1994. The Page 2 of 5

O/TAXAP/309/2004 JUDGMENT representative of assessee attended the Revenue from time to time and the case was heard. The assessee firm stands dissolved w.e.f. 31.3.1991. As per deed of dissolution Shri Harshadrai K. Shah, Partner of erstwhile firm has taken over the business as proprietary concern. Thus, value of goodwill of erstwhile firm which is subject to capital gain tax u/s. 45(4) r.w.s. 55. The value of goodwill works out to Rs. 3,62,250/-. Since the partnership firm of the assessee was dissolved on 31.3.1991, the assessee is liable to Capital Gain. Therefore, after considering the material on record, the assessment order came to be passed. Against the said assessment order, the assessee has preferred an appeal before the CIT(A). The CIT(A) has partly allowed the appeal. Against the order of CIT(A), the assessee has preferred an appeal before the ITAT. The ITAT has allowed ITA No. 227/Ahd/1997 and dismissed the ITA No. 3052/Ahd/1997. Being aggrieved and dissatisfied with the judgment and order passed by the ITAT, the Revenue has preferred both these Tax Appeals before this Court. 4. Heard the learned advocates appearing for the parties and considered the submissions. The learned advocate for the appellant has pointed out that the Tribunal has committed an error in relying on the decision of the Hon’ble Supreme Court in the case of Malbar Fisheries Co. v. Commissioner of Income-Tax, Kerala, reported in Page 3 of 5

O/TAXAP/309/2004 JUDGMENT 120 ITR 49 inasmuch as that section 45(4) was introduced with effect from 1.4.1988. Section 45(4) of IT Act reads as under: 45.4). The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society), or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purpose of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.” In view of the decision of the Full Bench of Karnataka High Court in the case of Commissioner of Income-Tax and another v. Dynamic Enterprises reported in [2013] 359 ITR 83 (Karn) [FB], the decision of Kerala High Court in the case of Commissioner of Income-Tax v. Southern Tubes, reported in [2008] 306 ITR 216 (Ker), the matter is required to be re-considered by A.O. and the view taken by the Tribunal is required to be re- considered. In that view of the matter, the question raised is answered in favour of the department and against the department. However, the matter is remitted back to the Assessing Officer for re-consideration. This Tax Appeal is Page 4 of 5

O/TAXAP/309/2004 JUDGMENT disposed of accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 5 of 5