Law:

Section:

Section 45, read with sections 50 and 55A, of the Income-tax Act, 1961 - Capital gains - Chargeable as - Assessment year 1994-95 - Whether distribution of depreciated asset among partners in course of dissolution of firm is not covered by section 50(1), but is to be assessed under section 45(4) - Held, yes - Whether in order to make an assessment under section 45(4), Assessing Officer is free to refer any asset for valuation because when transfer value shown is book value, necessarily fair market value has to be determined for purpose of determination of capital gains - Held, yes FACTS The assessee-firm was constituted with four partners to take over 14.25 cents of land and a building thereon for running lodging business. The firm continued its business up to the assessment for assessment year 1993-94 and was dissolved with effect from 1-4-1993. Under the dissolution, the land and building brought as capital of the partners went back to the same partners. The Assessing Officer initiated proceedings for assessment of capital gains under section 45(4). The assessee raised objection against assessment for capital gains under section 45 by saying that transfer, if any, was of depreciable asset. The Assessing Officer substantially accepted the contentions of the assessee and limited the levy of capital gains to the extent of land involved. Since the building was sold at the book value, i.e.,depreciated value, the Assessing Officer accepted the transaction as one falling under section 50(1) which would not attract any capital gains because the transfer was at the book value. The Commissioner, in exercise of powers under section 263, set aside assessment order holding that the entire transaction attracted tax on capital gains under section 45(4). On appeal, the Tribunal decided in favour of the assessee holding that the reference to valuation was not justified and, therefore, assessment for capital gains did not arise. On the revenue's appeal : HELD The order of the Tribunal could not be upheld for more than one reason. In the first place, the Tribunal had not considered the applicability of section 45(4) for the purpose of assessment on dissolution of the firm and…

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