Gujarat High Court
Dy. C.I.T vs Well Pack Packaging....Opponent(S) on 3 December, 2014
Author: K.J.Thaker
Bench: Ks Jhaveri, K.J.Thaker
O/TAXAP/368/2001 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 368 of 2001
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
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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 ?
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DY. C.I.T.....Appellant(s)
Versus
WELL PACK PACKAGING....Opponent(s)
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Appearance:
MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1
MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
Page 1 of 7
O/TAXAP/368/2001 JUDGMENT
Date : 03/12/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE K.J.THAKER)
1. By way of this appeal, the appellant has challenged the judgment and order dated 22.5.2001 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'B' in ITA No. 235/Ahd/2001 for AY 1995-96.
2. At the out set, it is to be noted that this Court has dismissed the appeal at the threshold and the matter was carried before the Apex Court by the Revenue and the Apex Court has remitted the matter back to this Court for a fresh decision on the following substantial questions of law in accordance with law.
1)Whether the Income Tax Appellate Tribunal is right in law and on the facts of the case in holding that revaluation of the assets of the assessee firm and subsequent conversion of the firm into Limited Company under Chapter IX of the Companies Act who has taken over such assets at the enhanced value will not result into any capital gain liability under the IT Act ?
2)Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in holding that there is no transfer involved Page 2 of 7 O/TAXAP/368/2001 JUDGMENT when the assessee gets itself registered under Para IX of the Companies Act, 1957 ?
3)Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in holding that the assessee is not liable to any capital gain tax either u/s. 45(1) or 45(4) of the IT Act ?
4)Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in directing to delete the addition of Rs.
1,28,13,831/- ?
3. The facts of the present case are that the respondent-assessee was a partnership firm. On 30th August, 1995, it filed its original return of income in respect of Assessment Year 1995-96 declaring total income of Rs.1,93,930/-. The said return was processed under Section 143(1)(a) of the Income Tax Act,1961 on 29th January, 1996. Subsequently, the Assessing Officer noticed that the assessee had revalued the depreciable assets and enhanced the value at Rs. 1,28,13,831/- on 31st July, 1994. it was also noticed by him that the partnership firm was converted into a company under Chapter IX of the Companies Act 1956 and was registered as such under Section 567 of the said Act on 17th October, 1994. It was further observed that while the respondent-assessee had Page 3 of 7 O/TAXAP/368/2001 JUDGMENT claimed deprecation value of the depreciated assets available on enhancement of the amount of revaluation on the date of conversion as capital gain though there was a transfer of assets from the partnership firm in the hands of the company which is a separate entity. Thereafter, proceedings under Section 148 of the Act for reassessment were initiated and thereafter a notice under Section 143(2) of the Act was issued. After considering the explanation of the respondent-assessee, the Assessing Officer determined the total income of the respondent- assessee at Rs. 1,30,07,761/-. The respondent- assessee disputed the impugned addition and filed an appeal before the CIT(A) which was dismissed and the addition was confirmed.
4. Being aggrieved, the respondent-assessee filed an appeal before the Tribunal. The Tribunal accepted the appeal and set aside the order of CIT(A) and that of the Assessing Officer.
5. Being aggrieved and dissatisfied with the order of the Tribunal, the Revenue filed the present Tax Appeal before this Court raising the above mentioned substantial questions of law said to be arising from the order of the Tribunal.
6. Heard the learned advocates appearing for the parties and considered the submissions. Learned advocate Mr. Divatia submits that the same Page 4 of 7 O/TAXAP/368/2001 JUDGMENT question came up for consideration before the Andhra Pradesh High Court in the case of Commissioner of Income Tax vs. United Fish Nets in Income Tax Tribunal Appeal No. 100 of 2002, wherein, interpretation of Sec. 45 was made and the questions of law formed raised herein were also the subject matter of decision in the said appeal. In para-14, the Andhra Pradesh High Court has held as under:
"14. The underlined portion, in a way, signifies the basic tenets of transfer of assets. The distribution must result in some tangible act of the physical transfer of properties or the intangible act of conferring exclusive rights vis.a.vis an item of property on the erstwhile shareholder. Unless these or other legal correlatives take place, it cannot be inferred that there was any distribution of assets. In the instant case, the shares of the respective shareholders in the respondent-company were defined under the partnership deed. The only change that has taken place on the respondent being transformed into a company was that the shares of the partners were reflected in the form of share certificates. Beyond that, there was no physical distribution of assets in the form of dividing them into parts, Page 5 of 7 O/TAXAP/368/2001 JUDGMENT or allocation of the same to the respective partners or even distributing the monetary value thereof. In our view, the judgment of the Bombay High Court squarely covers the facts of the case and the orders passed by the Appellate Commissioner and the Tribunal accords, with the same. The appeal is accordingly dismissed."
7. All these four questions are governed by the below mentioned decisions which are applicable in all force as discussed hereinbelow.
8. Mr. Divetia has also relied on the decision of the Bombay High Court in the case of Commissioner of Income Tax vs. Texspin Engineering and Manufacturing Works, reported in (2003) 263 ITR 345 and the decision of the Punjab & Haryana High Court in the case of Commissioner of Income Tax v. Rita Mechanical Works, reported in [2012] 344 ITR 544 (P&H), which also takes us to take the same view regarding capital gain. The decision of the Bombay High Court in the case of Commissioner of Income Tax vs. Texspin Engineering and Manufacturing Works, reported in (2003) 263 ITR 345 would ennure for the benefit of the assessee as the same has been considered by the Punjab & Haryana High Court in the case of Commissioner of Income Tax v. Rita Mechanical Works, reported in [2012] 344 ITR 544 (P&H). In Page 6 of 7 O/TAXAP/368/2001 JUDGMENT that view of the matter, we are unable to take a different view then the one taken by the Tribunal. Therefore, we are not giving any elaborate reasons and all the four questions are answered in favour of the assessee and against the revenue. The present Tax Appeal is dismissed.
(K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 7 of 7