Thursday, June 10, 2010

Distribution of assets on dissolution of firm

CIT v. Kumbazha Tourist Home (Dissolved) (2010) 38 DTR (Ker) 166 Distribution of assets on dissolution of firm - Applicability of s. 45(4)


At the time of constitution of the firm the partners brought land and respective portions of building thereon as their capital contribution, and the firm claimed depreciation in respect of the building all along. On dissolution of the firm the properties reverted back to the partners at book value in the same way it was brought by them to the firm as their capital. Retransfer of properties to the partners on dissolution of firm involves transfer of properties and, therefore, s. 45(4) is attracted.


Finding of the Tribunal that s. 55A has no application to the facts of the case also is not correct. Sec. 55A authorises the AO to refer any capital asset to find out its fair market value for the purpose of assessment of capital gains. AO was free to refer the assets for valuation as the transfer value shown is the book value.


Further, the finding of the Tribunal that the transfer of building in the course of dissolution of the firm is assessable as short-term capital gain under s. 50(1), and since the transfer was made at book value, there is no capital gain is not sustainable. Distribution of assets at book value among the partners in the course of dissolution of the firm is to be assessed under s. 45(4), and the same is not covered by s. 50(1). 



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