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Shri Sarangan further submitted that even Section 45(1) is held not applicable in such a situation. Though provisions of Section 47(xiii) were not subsisting during the asst. year in appeal before Hon'ble Bombay High Court, the same are brought on the statute book w.e.f. 1.4.1999 and the present asst. year is being 2001-02. Even under the provisions of Section 47(xiii), the conversion of partnership firm into a company do not attract capital gain. Learned CIT(A) erred in holding that conversion of firm into a company do not amount to succession and hence exemption available Under Section 47(xiii) will not apply. Since there is no transfer between a firm and a company, neither Section 45(1) nor 45(4) applies and even if it is held that there is a transfer, by virtue of Section 47(xiii), the capital gain is not chargeable to tax. He further submitted that at any rate since there is also transfer of land, the transfer thereof does not give rise to short term capital gain as computed by the Assessing Officer.

5. Learned DR Shri Rajguru strongly relied upon the appellate order. He firstly submitted that at first instance, the partnership firm revalued its assets from the small sum of Rs. 3.96 crores to Rs. 20 crores and more. The surplus was credited to the capital accounts of the partners. Thereafter, the firm is dissolved and the company is incorporated. The assets are transferred to the company. In such a situation, provisions of Section 45(4) are clearly applicable. Once Section 45(4) is applicable, the result is obvious, resulting into computation of capital gain as per Section 45(4) itself. Section 45(4) can be invoked when there is distribution of capital assets on dissolution of firm or otherwise. The word 'or otherwise' will be attracted even when the firm is converted into a company and hence learned CIT(A) was justified in holding that Section 45(4) is applicable. He further submitted that situation like conversion of firm into a company under Part IX of the Companies Act, 1956 is not envisaged in Section 47(xiii) of the Act and accordingly, such conversion do not amount to succession within the meaning of Section 47(xiii) and accordingly, the capital gain is not exempt on the ground that there is no transfer.

6.2 The insertion of Section 47(xii) has not changed the situation. Section 47(xiii) merely excludes certain transfer from the purview of the definition of the word 'transfer' as provided in Section 2(47) of the Act. To bring to charge the capital gain Under Section 45(4), what is required is distribution of capital asset on dissolution of firm or otherwise. In the present case it is seen that there is no distribution of capital asset to the partners. There is no dissolution of the firm. The persons who were either to register under the parinership Act are now registered under the Companies Act and accordingly, Section 45(4) will not apply in such a situation. We accordingly hold that no capital gain is chargeable in such "a situation as there is no distribution of capital asset on dissolution of firm or otherwise.

6.3 When a conversion of a firm into company takes place under the provisions of Companies Law, such conversion can be construed only as occasioned by operation of law. Hence, no controversy can arise on the application of this principle even for purposes of capital gains Under Section 45(4) of the Act. By insertion of Section 47(xiii) in the Act, it cannot be said that the conversion of a firm into a company under Part IX is to be first treated as dissolution of firm within the meaning of Section 45(4) and only if condition as contained in Section 47(xiii) are complied, the exemption will be available. Section 47(xiii) applies only to a case of transfer by sale, but there is no authority for capital gain at all in the absence of a transfer under Part IX of the Companies Act in as much as such conversions do not fall within the definition of transfer Under Section 2(47) of the Act. Section 45(4) would have application only when there is distribution of assets to the partners so that its application cannot be justified, firstly because it can apply only, when there is transfer and secondly only when there is distribution of assets to the partners. This is neither in the conversion of a firm into a company. It is also seen that Section 47(xiii) is also complied with if it is held That There is transfer of capital asset to a company. AW the clauses of Section 47(xiii) are fulfilled and thus even if it is held that there is a transfer of capital asset by a firm to a company as a result of succession, the same is not chargeable, as the condition prescribed therein are complied with. Thus, looking at either angle, the capital gain is not chargeable to tax.