Case: COMMISSIONER OF INCOME TAX Vs. WELL PACK PACKAGING

1. Delay condoned. 2. Revenue has filed this appeal. By the impugned order, the High Court has dismissed Tax Appeal No. 368 of 2001 filed by the revenue, by observing that no question of law much less substantial question of law arises from the order of the Income Tax Appellate Tribunal (the Tribunal) passed on 22-5-2001. 3. The respondent-assessee was a partnership firm. On 30-8-1995, it filed its original return of income in respect of assessment year 1995-96 declaring total income of Rs. 1,93,930. The said return was processed u/s 143(1)(a) of the Income Tax Act, 1961 (the Act) on 29-1-1996. Subsequently, the assessing officer noticed that the assessee revalued the depreciable assets and enhanced the value at Rs. 1,28,13,831 on 31-7-1994. It was also noticed by him that the partnership firm was converted into a company under Chapter IX of the Companies Act, 1956 and was registered as such u/s 567 of the said Act on 17-10-1994. It was further observed that while the respondent had claimed depreciation value of the depreciated assets available on enhancement of the amount of revaluation on the date of conversion as capital gain though there was a transfer of assets from the partnership firm in the hands of the company which is a separate entity. Thereafter, proceedings u/s 148 of the Act for reassessment were initiated and thereafter a notice u/s 143(2) of the Act was issued. After considering the explanation of the respondent, the assessing officer determined the total income of the respondent at Rs. 1,30,07,761. The respondent disputed the impugned addition and filed an appeal before the Commissioner (Appeals) which was dismissed and the addition was confirmed. 4. Being aggrieved, the respondent filed an appeal before the Tribunal. The Tribunal accepted the appeal and set aside the orders of the Commissioner (Appeals) and that of the assessing officer. 5. Being dissatisfied with the order of the Tribunal, the revenue filed the abovementioned Tax Appeal before the High Court raising the following four questions of law said to be arising from the order of the Tribunal: (1) Whether the Income Tax Appellate Tribunal is right in law and on the facts of the case in holding that revaluation of the assets of the assessee firm and subsequent conversion of the firm into Limited Company under Chapter IX of the Companies Act who has taken over such assets at the enhanced value will not result into any capital gain liability under the Income Tax Act? (2) Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in holding that there is no transfer involved when the assessee gets itself registered under Para IX of the Companies Act, 1956? (3) Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in holding that the assessee is not liable to any capital gain tax either u/s 45(1) or 45(4) of the Income Tax Act? (4) Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in directing to delete the addition of Rs. 1,28,13,831? 6. The High Court, by the impugned order, has dismissed the appeal by passing a short order observing, as noted above, that no question of law much less a substantial question of law arises from the order of the Tribunal. 7. We do not agree with the view taken by the High Court. In our opinion, a the questions of law raised by the revenue before the High Court are substantial questions of law which arise from the order of the Tribunal. The High Court should have decided these questions by recording its findings thereon.

Decision:
1[ds]7. We do not agree with the view taken by the High Court. In our opinion, a the questions of law raised by the revenue before the High Court are substantial questions of law which arise from the order of the Tribunal. The High Court should have decided these questions by recording its findings thereon.