Law:

Section:

Section 45 of the Income-tax Act, 1961 - Capital gains - Year in which assessable - Assessment year 1989-90 - Whether dissolution of partnership by operation of law does not imply that on that day there is a notional transfer of capital assets and that anyone or more of capital assets owned by erstwhile firm stand transferred to other partner or to other persons entitled to claim share of deceased partner - Held, yes - Assessee-firm, consisting of two partners, stood dissolved by death of one of them during previous year relevant to assessment year under consideration - Whether in view of Tribunal's finding that no transfer had taken place during year under consideration, occasion for levying tax on any capital gain did not arise - Held, yes FACTS The assessee-firm, consisting of two partners, stood dissolved by the death of one of them on 3-3-1989. The Tribunal found that there was no evidence to show that after such dissolution, the property which had belonged to the firm was transferred either to the surviving partner or to the legal heirs of the deceased partner and even after the demise of one of the partners, the business continued and assessment continued to be made on the firm. Therefore, the Tribunal held that capital gains did not arise in the instant case. On reference : HELD Section 45(4) is concerned with the capital gains arising from transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm. The said section does not deem the date of dissolution as the date on which the transfer takes place. Dissolution by operation of law as in the instant case may take place on the demise of one of the two partners. That, however, does not imply that on that day there is a notional transfer of capital assets and that anyone or more of the capital assets owned by the erstwhile firm stand transferred to the other partner or to other persons entitled to claim the share of the deceased partner. The relevant date for ascertaining the year in which the tax is to be levied is the year in which the transfer takes place. That year may or may not be the year in which the dissolution of the firm takes place. Until such time, such…

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