On Further Appeal, The Tribunal By The Impugned Order Allowed The Respondent-Assessee's Appeal By Following The Decision Of The Apex Court In The Matter Of Cit v. Asn

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1074 OF 2009 The Commissioner of Income Tax-23.vs. M/s. Mansukh Dyeing and Printing Mills. ..Appellant. ...Respondent. Mr. Arvind Pinto for the Appellant. Mr. Satish Mody and Ms. Aasifa Khan for the Respondent. CORAM : MOHIT S. SHAH, C.J. AND M.S. SANKLECHA, J. DATE : 24 June, 2013 PC: This appeal has been filed by the revenue under Section 260A of the Income Tax Act (“the Act”) challenging the order dated 26 October 2006 of the Income Tax Appellate Tribunal, Mumbai (“the Tribunal”) in respect of the assessment year 1993-94. 2)The appellant revenue has proposed the following question of law for the consideration of this Court. Whether on the facts and in the circumstances of the case and in law the Tribunal is right in deleting Rs.17,34,86,772/- being short term capital gain for A.Y. 1993-94? 3)The facts relevant to this appeal are that for the assessment year 1993-94 the Assessing Officer reopened the assessment which was completed earlier on the basis of returned income. The assessment was reopened because during the year the assets were revalued i.e. land and building from Rs.21,13,226/- to Rs.17,56,00,000/- and thereby the value of the said assets were increased by Rs.17,34,86,772/-. According to the Assessing Officer the revaluing of the asset and crediting respective partners' accounts constitutes income of the respondent- assessee and is liable for capital gain tax. The Assessing officer sought to assess the amount of Rs.17,34,86,772/- to short term capital gain under the provisions of Section 50 of the Act. 4)In appeal the CIT(A) dismissed the respondent assessee's appeal and upheld the order of the Assessing Officer. 5)On further appeal, the Tribunal by the impugned order allowed the respondent-assessee's appeal by following the decision of the Apex Court in the matter of CIT vs. Hind Construction reported in 1972 (83) ITR 211. In the above case the Supreme Court held that when a person revalues his goods/assets and shows a higher value in its books, no question of transfer and /or sale arises to attract the provisions of capital gain tax. 6)The grievance of the revenue is that since the revaluation was done for the purpose of subsequent conversion of the partnership firm into limited company the judgment of the Supreme Curt in the matter of Commissioner of Income Tax Vs. Hind Construction Ltd. (supra) will not apply. Therefore, on revaluation of land and building the assessee has to be subjected to capital gain tax under Section-45(4) of the Act. 7) We find that In the previous year relevant to assessment year 1993-94 there was no conversion of the partnership firm into limited company . The conversion of the firm into a limited company took place in a year subsequent to assessment year 1993-94. Hence, the distinction sought to be made on behalf of the revenue for non application of Hind Construction (supra) cannot be accepted. 8)Even otherwise the learned Counsel for the respondent assessee has relied upon the decision of the Punjab & Haryana High Court in the case of CIT Vs. Rita Mechanical Works reported on 344ITR 544. In that case the assessee being a partnership firm revalued its assets on 31 March 1995 and thereafter on 31 March 1995 the partnership firm was converted into a limited company. Following the decision of this Court in the case of CIT vs. Taxspin Engg. & Mfg. application of Hind Construction (supra) cannot be accepted. 8)Even otherwise the learned Counsel for the respondent assessee has relied upon the decision of the Punjab & Haryana High Court in the case of CIT Vs. Rita Mechanical Works reported on 344ITR 544. In that case the assessee being a partnership firm revalued its assets on 31 March 1995 and thereafter on 31 March 1995 the partnership firm was converted into a limited company. Following the decision of this Court in the case of CIT vs. Taxspin Engg. & Mfg. Works reported in (2003) 263 ITR 345 (Bom.) it was held that no capital gain is payable under Section 45(4) of the Act as on mere revaluation of its assets there is no transfer of capital assets by way of distribution of assets nor is there any dissolution or otherwise of a firm. 9)In view of the above, as the Tribunal has followed the decision of the Supreme Court in the matter of Commissioner of Income Tax Vs. Hind Construction Ltd. (supra) no substantial question of law arises for our consideration,10)The appeal is dismissed. No order as to costs. CHIEF JUSTICE M. S. SANKLECHA, J.