Section 47(ii) — the law in short
What the courts have decided on section 47(ii), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Chalasani Venkateswara Rao v ITO
High CourtHelps taxpayerNo later treatment found
A partner took money in full settlement of his share when the firm was dissolved. Is he personally liable to capital gains?
No. The Andhra Pradesh High Court held that a partner who receives the money value of his share on dissolution is not making a transfer; he is having his account made up. The Court also held that when Parliament inserted s.45(4) with effect from 1 April 1988 it deliberately placed the charge on the firm and not on the partner. On that second point the position is unchanged after the Finance Act 2021: both s.9B and the substituted s.45(4) charge the specified entity, not the partner.
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CIT v A.N. Naik Associates
High CourtHelps department
Our family split the firms by a settlement and gave assets to the partners who retired. There was no dissolution, so section 45(4) cannot apply, can it?
It can. The Bombay High Court held that otherwise in section 45(4) is not to be read ejusdem generis with dissolution. It goes with the words transfer of capital assets by way of distribution of capital assets, so where a subsisting firm hands assets to a retiring partner the firm's right in the property is extinguished and there is a transfer chargeable under section 45(4), with the fair market value on the date of transfer deemed to be the full value of consideration. The Court accepted that there was no dissolution and that the family settlement was genuine and not a device, but allowed the Revenue's appeals and restored the assessments.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
