B Raghurama Prabhu Estate vs Joint Commissioner Of Income Tax on 23 December, 2010

[Cites 23, Cited by 0]

Karnataka High Court

B Raghurama Prabhu Estate vs Joint Commissioner Of Income Tax on 23 December, 2010

Equivalent citations: 2011 (3) AIR KAR R 270

Bench: V.G.Sabhahit, B.Manohar

" " 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,_, =-._{.

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.

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 Ct<'>j;.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;

(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».<w-ac»-»::ae-_a-..m>;

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.

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Karnataka High Court