Anewera Marketing (P) Ltd. Vs. Assistant Cit, Range 17(2) - Court Judgment

Excerpt:
1. the learned acit, range 7(2), mumbai erred in confirming the action of the assessing officer, wherein the assessing officer had initiated reassessment proceeding and completed reassessment. 2. the learned acit erred in confirming the action of the assessing officer insofar as the assessing officer has levied capital gain tax on the appellant firm on account of the restructuring in the appellant-firm. while doing so, the learned acit erred in confirming the levy on altogether new and different ground and substituting/shifting the very base as adopted by the assessing officer for levying capital gains tax. 3. the learned acit erred in holding that capital gain tax liability arose on account of admission of three new partners to the appellant-firm.2. the main grievance of the assessee is.....

Judgment:
1. The learned ACIT, range 7(2), Mumbai erred in confirming the action of the assessing officer, wherein the assessing officer had initiated reassessment proceeding and completed reassessment.

2. The learned ACIT erred in confirming the action of the assessing officer insofar as the assessing officer has levied capital gain tax on the appellant firm on account of the restructuring in the appellant-firm. While doing so, the learned ACIT erred in confirming the levy on altogether new and different ground and substituting/shifting the very base as adopted by the assessing officer for levying capital gains tax.

3. The learned ACIT erred in holding that capital gain tax liability arose on account of admission of three new partners to the appellant-firm.

2. The main grievance of the assessee is that the assessing officer has charged capital gains on the firm on the pretext that there is a transfer of assets by the firm at the time of its restructuring. The facts of the case are that return was filed by the firm on 29-9-1997 and it was processed, accordingly. The firm was constituted on 21-3-1981. Subsequently, the assessing officer noted that the assessee-firm was liable to capital gains. There were three partners in the assessee-firm, viz., Mr. Sharad A. Doshi, Mr. Vikram A. Doshi and Mr. Vineet A. Doshi. The assets of the firm were revalued and assessce-firm was converted into a private limited company on 22-10-1996. According to the assessing officer, on revaluation of the assets on conversion of firm into company, the firm was liable to pay tax on capital gains. The case was reopened under Section 147/148. The assets of the firm were revalued on 15-1-1996. The assessee-firm held tenancy right in a property being plot No. 14, Lalwani Industrial Estate, Wadala, Mumbai. The tenancy rights, which was valued at nil prior to revaluation, was valued at Rs. 401.3 lakhs. Other assets such as electrical fittings, furniture were revalued at Rs. 18.6 lakhs against the book value of Rs. 3.80 lakhs. The difference between revalued figure and the original figure were directly credited in the current account of three partners in equal ratio as each held equal shares. Thus, each partner was credited with a sum of Rs. 137.45 lakhs.

On 1-4-1996, the firm was re-constituted by admitting four new partners and capital of the firm was fixed at Rs. 1,00,000. Among the four new partners, one was M/s. Atco Industries Ltd., a company incorporated under Companies Act. The other three were ladies, namely, Smt. Pragna S. Doshi, Mrs. Leena V. Doshi and Mrs. Rithu V. Doshi. On 1-4-1996, itself, the firm gave sub-tenancy right in the plot No. 14 at Wadala to M/s. Atco Industries, the newly admitted partner, who paid a sum of Rs. 4.5 crores to the firm in lieu of this sub-tenancy rights. Out of the cash so received, the existing three partners, viz., Sharad A. Doshi, Vikram A Doshi and Vineet A. Doshi withdrew the money out of their current accounts, which was credited when assets were revalued on 15-1-1996. Subsequently, on 22-10-1996, the newly constituted partnership firm was converted into a private limited company with a capital of Rs. 1,00,000 in the name and style of M/s. Anware Marketing Pvt. Ltd. The existing and new partners received the shares in the new company against their capital contribution in the firm as under: 3. The assessing officer considered the some more facts from which he inferred that the said firm could not have sub-let the tenancy rights as condition No. 10 of agreement dated 1-4-1989 with landlord prohibited such transfer of tenancy rights. According to assessing officer, the Sub-clause 10 of the agreement reads as under: 10. The tenants shall not directly or indirectly transfer, assign, re-let, sublet, under let the said premises or any part thereof to or in favour of any body or part with the possession use of occupation of the said premises or any part thereof as licensee, caretaker or otherwise howsoever.

4. The assessing officer inferred that sub-letting to M/s. Atco Industries vide agreement dated 1-4-1996 was illegal. Though the said premise was sub-let for a period of 11 months, it was renewed after every 11 months and continued thereafter. Thus, the security deposit of Rs. 450 lakhs was still remained deposit with assessee-company.

According to the assessing officer, it is not possible that tenancy rights valued at Rs. Nil as on 1-4-1989 would appreciate to Rs. 401.3 lakhs as on 15-1-1996.

5. The assessing officer then applied the provisions of Section 45(4) and held that the assessee has transferred an asset to the company for a sum of Rs. 416.5 lakhs and, therefore, there are short-term capital gains on that sum. According to him, the conversion took place in the year relevant to assessment year 1997-98. Therefore, the short-term capital gains are taxable in the year.

6. Before the Commissioner (Appeals), it was submitted that conversion of firm into company on 22-10-1996 does not amount to transfer or distribution of its assets. Therefore, provisions of Section 45(4) are not applicable at all. According to learned authorised representative, there was no distribution of capital asset belonging to firm and when a partner firm is converted into a company under Section 575 of the Companies Act, it would become the owner of the assets of the firm from the date of incorporation. No transfer deed or conveyance deed is required to be executed. The learned authorised representative relied before the Commissioner (Appeals), on the decision of Hon'ble Supreme Court in the case of Sakti Trading Co. v. CIT , wherein it was held that when there is a change of constitution and business is succeeded and continued then it is not a case of dissolution but it is case of succession or re-organisation of business. A similar view was taken by Hon'ble Kerala High Court in the case of CIT v. S. Koder (1988) 233 ITR 620 (Ker). Some more decisions are relied upon by learned Counsel for assessee before the Commissioner (Appeals). The learned Commissioner (Appeals), however, rejected the claim of the assessee by observing as under: Rival contentions have carefully been considered. The only dispute is about the applicability of the provisions of Section 45(4) of the Income Tax Act, 1961 to the facts of the appellant's case. In this regard, I am agreeable to the learned authorised representative of the appellant that the important condition to be fulfilled for application of Section 45(4) should be (b) That such profit and gains should arise from the transfer of capital asset by way of distribution of capital asset and (c) That such distribution takes place on the dissolution of the firm or otherwise.

According to appellant there is no dispute about the first condition that it had certainly resulted into profit and gains in the hands of the partners of the firm whose accounts were credited by the amount of capital revaluation reserves and subsequent withdrawal by them by receiving the funds from its associated concern viz. M/s. Atco Industries Ltd. as a deposit of Rs. 450 lakhs was given to the firm on account of sub-lease agreement entered into by M/s. Atco Industries Ltd. with the appellant-firm. As far as the dissolution of the firm is concerned, the appellant has not over-emphasised its arguments for not getting this condition satisfied. Contrary to that it has stated that for the sake of arguments it can be assumed that there was dissolution of firm by the operation of law - the element of agency between the erstwhile partners having come to an end once the firm became a company. However, the learned authorised representative of the appellant had vehemently argued that 3rd condition of the distribution of capital assets belonging to the firm has not been satisfied because in the absence of definition of the word 'transfer'as including the distribution of capital on the dissolution of the firm may have two possible views. One view is an in built definition of the word 'transfer' roping in the Act of distribution of capital asset on the dissolution of the firm or otherwise and again assuming that there was dissolution of firm by operation of law, is still requirement that there should be distribution of capital asset of the firm has not been fulfilled.

According to appellant what has really happened is that when firm was converted into company all the assets and liabilities of the firm became the company's assets and liabilities and, therefore, there was no distribution of capital asset in specific accounts of partners, However, I am not agreeable to the contention of learned authorised representative. In view of the recent decisions of Hon'ble Bombay High Court in case of CIT v. A.N. Naik Associates 265 ITR 347 (Bom) wherein it was held that profits and gains arising from the transfer of capital assets by a firm to a partner on dissolution or otherwise would be chargeable as the firm's income in the previous year in which the transfer took place. The provisions of Section 45(4) to attract capital gains tax have clearly stated that the transfer of capital asset by way of distribution of capital asset either on account of dissolution of firm or otherwise resulting into gain shall be chargeable to tax as an income of the firm. The expression'otherwise'has to be that with the words 'transfer of capital assets'. If so read, it is clear that if when a firm is in existence and there is a transfer of capital asset, it comes within the expression 'otherwise'. The word 'otherwise' takes into its sweep not only cases of dissolution but also cases of subsisting partners of a partnership. In the case of the appellant the assets being tenancy rights and other assets such as electrical fittings, furniture, etc., having the value at Rs. Nil and Rs. 3.81 lakhs respectively were revalued at Rs. 416.1 lakhs and Rs. 18.6 lakhs respectively. The revaluation reserve so generated were credited in the current account of 3 partners by 1/3 of the amount each, i.e., Rs. 137.45 lakhs on 15-1-1996. On 1-4-1996, the firm was reconstituted by admitting 4 new partners and capital of the firm was fixed at Rs. 1,00,000. One of the newly admitted partners viz.

M/s. Atco Industries Ltd. had given the deposit of Rs. 4.5 crores for taking a plot on sub-lease from the appellant-firm which was utilised to pay off the liabilities of the partners which was created by first crediting their account by capital revaluation reserve and subsequent conversion into loans from them. These facts have clearly indicated that there has been distribution of the capital asset among three partners of the firm on 1-4-1996 on reconstitution of the firm, 4 new partners were admitted. Since reconstitution of the firm is very much covered by the expression 'otherwise' in view of the recent judgment of Hon'ble Bombay High Court in case of CIT v. A.N. Naik, I am of the strong view that the appellant-firm is liable for capital gain on 1-4-1996 as there has been distribution of capital asset amongst the erstwhile 3 partners on account of the reconstitution of the firm which is covered by the expression 'otherwise'. The various court citations as relied upon by the learned authorised representative gets nullified by the recent Hon'ble Bombay High Court decision in the case of CIT v. A.N. Naik Associates. However, I am not agreeable with the assessing officer that the short-term capital gains has arisen on 23-10-1996 when the firm was converted into Private Ltd. Company. In conclusion, I direct the assessing officer to work out the long-term capital gains in the hands of the appellant-firm which has arisen on 1-4-1996 on account of the distribution of the capital assets amongst 3 partners of the appellant-firm and restitution of the firm on 1-4-1996 which is covered by the expression 'otherwise' under Section 45(4) of the Income Tax Act, 1961 (i) There is transfer of asset in the form of tenancy right, which was received by partners in rupee terms.

(iii) The word "otherwise" used in Section 45(4) takes into consideration not only the cases of dissolution of the firm but also the cases of subsisting partnerships.

(iv) The reconstitution of the firm is covered by the word "otherwise".

8. Against this the learned authorised representative submitted that the Commissioner (Appeals) has misunderstood the provisions of Section 45(4) and has committed an error in not following the decision of Jurisdictional High Court in the case of CIT v. Texspin Engg. & Mfg.

Works , in which it is held that where a partnership firm is converted into a firm, there is no transfer and hence, no capital gains liability. The assessing officer/Commissioner (Appeals) have incorrectly relied upon the decision of Hon'ble Bombay High Court in CIT v. A.N. Naik Associates . The facts of the case are distinguishable. The fact of conversion of firm into company was not involved in A.N. Naik Associates case (supra). Neither the conversion of the firm into company nor the reconstitution of the firm is covered under the term "transfer" used in Section 45(4). The assessing officer has erroneously treated the succession of the firm by the company as "transfer". Whereas the Commissioner (Appeals) had considered the distribution/ withdrawal of money by the old partners as a transfer. (v) for applicability of provisions of Section 45(4) following conditions should have been satisfied: (2) Such profit and gains should arise from the transfer of capital assets by way of distribution of capital assets.

(3) That such distribution of asset should take place on the distribution of a firm or otherwise.

(4) In fact, there is no transfer of any asset. All the assets are lying with the firm (old or newly constituted and thereafter taken over by the company, which tantamount to succession only as held in S. Koder's case (supra) by Hon'ble Kerala High Court.

(5) No appeal has been filed by the revenue. Nor there is any cross objection, against the order of Commissioner (Appeals) holding that there is a transfer only in terms of withdrawal of money by the partners and not when the new constituted company took over the assets of the firm.

(6) The learned authorised representative relied on the following decisions: 9. Against this the learned Departmental Representative submitted that there is a transfer of asset inasmuch as the firm has paid money to the existing partners after the transfer of sub-tenancy rights to "ATCO".

The capital gains are at least chargeable on this transfer. He heavily relied on the order of Commissioner (Appeals) and assessing officer. He also submitted that the Commissioner (Appeals) had supported the finding of the assessing officer that a capital gain is chargeable, on alternative ground when he says that there is transfer of an asset and money has been withdrawn by the old partners. This is covered by words .otherwise" under Section 45(4). He relied on the decision in CIT v.A.N. Naik Associates referred by Commissioner 10. We have carefully considered the rival submissions, material on record and case-laws cited by the parties. Let us analyse what are the events that took place and whether there is only transfer on any of these dates and if yes, of what are to whom and whether provisions of Section 45(4) are applicable on any of the events: (1) 15-1-1996: Asset in the form of tenancy right was created in the firm it was valued at Rs. 401.03 lakhs. Other assets were revalued at Rs. 18.6 lakhs as against book value of Rs. 3.80 lakhs.

Difference between book value and valued on revaluation was credited equals in current account of three parties.

(2) 1-4-1996 : The firm was reconstituted. Four new partners were inducted. Total capital of the firm was kept at Rs. I lakh.

Sub-tenancy rights were created and given to the company "Atco" which was also a newly admitted partner. In lieu of it, "Atco" paid Rs. 450 lakhs to the firm. The existing partners withdrew cash from the firm against credit standing in their current account.

(3) 22-10-1996: On this day the newly constituted firm was converted into a company with share capital of Rs. 1 lakh as described in preceding paragraphs.

11. Now let us examine Section 45(4) of Income Tax Act, 1961. It reads as under: (4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of Section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.' (1) Profit and gains should arise from the transfer of capital asset.

(2) (Such transfer of capital asset should occur) by way of distribution of capital asset.

(3) On the dissolution of the firm, or other AOP, BOI (not being a company or co-op. Society) or otherwise (4) Such profit or gain shall be chargeable to tax as the income of the firm (AOP or BOI).

(6) Full value of consideration would be fair market value on the date of transfer (of capital asset).

(iii) Such transfer should take place on the dissolution of the firm, or otherwise.

(iv) The capital gains would be chargeable in the year with respect to date of transfer (and not on the date of dissolution).

12. Now, we examine the different events on all above criteria as under: Event No. I : On 15-1-1996: A capital asset in the form of tenancy rights is created in the firm. There is no transfer of that capital asset from the firm.

Event No. 2: On 15-1-1996: When the difference between book value of assets and revalued values, is credited into partners accounts, again there is no transfer as tenancy right remained the property of the firm. it was continued to be shown as asset in the balance sheet of the firm.

Event No. 3: On 1-4-1996: When the firm was reconstituted and four new partners were inducted there is no transfer of any capital asset. On reconstitution of the firm, there is no transfer of asset as held in Kunnamkulam Mill Board's case (supra) as under: What is postulated under Section 45(4) of the Income Tax Act, 1961, is that the profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm would be chargeable to tax as the income of the firm.

Ownership of property does not change with the change in the constitution of the firm. As long as there is no change in ownership of the firm and its properties, for the simple reason that the partnership of the firm stood reconstituted, there is no transfer of capital assets. Likewise, if a partner retires he does not transfer any right in the immovable property in favour of a surviving partner because he had no specific right with respect to the properties of the firm. What transpires is that the right to share the income of the properties stood transferred in favour of the surviving partners, and there is no transfer of ownership of the property in such cases. When a partnership is reconstituted by adding a new partner, there is no transfer of assets within the meaning of Section 45(4).

The assessee was a firm. For the assessment year 1989-90, the assessing officer found that during the previous year ending on March 31, 1989, there was a change in the constitution of the firm with the retirement of five partners after receiving the credit balance in their accounts, that there had been a revaluation of the assets and it was the enhanced value of the assets that was credited equally in their accounts. The assessing officer took the view that the five partners taking the enhanced value for the assets on retirement amounted to a transfer of capital assets as envisaged in Section 45(4) and the profit arising from the transfer was liable to tax as the income of the assessee-firm. He accordingly treated that sum, i.e., Rs. 7,63,559, to be representing the difference in the value of the asset. The first appellate authority held that the provisions of Section 45(4) were not applicable in this case and this was upheld by the Tribunal. On further appeal to the High Court: Held, dismissing the appeal, that the Tribunal was right in law and facts in holding that the provisions of Section 45(4) had no application to the facts of the case and the addition could not be sustained under that section.

Thus, when there is no change in the ownership of the properties ie., properties do not change the hands on reconstitution of the firm; provisions of Section 45(4) would have no application.

Event No. 4: On 1-4-1996: There was no asset in the books of the firm called sub-tenancy right which was given to "Atco". This asset was created and transferred to "Atco". The tenancy rights as such were not transferred as it remained in the ownership of the firm and is not disputed by the department. Out of such tenancy rights a new rights called sub-tenancy right was carved out and given to "Atco".

The original asset i.e., the tenancy right, was and could not be transferred without the consent of the landlord, as such consent in the present case is admittedly not available as per clause No. 10 of the agreement with the landlord referred above. But same cannot be said about sub-tenancy rights. Owner of tenancy right is the assessee-firm. Practically this was transferred under a veil, called subtenancy right, to "Atco" for which a sum of Rs. 4.50 crores was received by the firm. Tenancy right is a right to use a property and if such right is given to some one else, that too at a cost, then such right, though technically not a tenancy right in the hands of "ATCO" vis-a-vis the landlord of the property but it is a tenancy right vis-a-vis the assessee. Creation and allocation of sub-tenancy right in favour of "Atco" is clearly a transfer at a cost within the meaning of Section 45(4). This amount was distributed by the firm to the old partners. The money received by the firm from "Atco" is the sale consideration of sub-tenancy right. This is clearly a transfer within the meaning of Section 2(47).

Event No. 5: On 1-4-1996: When the old partners withdrew the money, the withdrawal of such money cannot be said to transfer of capital asset. For the sake of argument, even if withdrawal of money from the firm is treated as a transfer, still there will not be a capital gain as book value and fair market value of such money remains the same.

Event No. 6 : On 22-10-1996 : When the firm was converted into a company, it was only a succession of the firm by a company as held in Section 170 of the Income Tax Act. It is also so held by Hon'ble Bombay High Court in the case of Texspin Engg. & Mfg. Works (supra).

The head notes of that decision read as under: Under Section 45(4) of the Income Tax Act, 1961, capital gain arising from the transfer of a capital asset will be taxable if two conditions are satisfied, namely, that the transfer was by way of distribution of capital assets and, secondly, that such transfer was on dissolution of the firm or otherwise. Once these two conditions are satisfied then, in that event, for the purpose of computation of capital gains under Section 48, the market value on the date of the transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer.

There is a difference between vesting of the property of a firm in the limited company and distribution of the property. On vesting in the company under Part IX of the Companies Act, 1956, the properties vest in the company as they exist. On the other hand, distribution on dissolution presupposes division, realisation, encashment of assets and appropriation of the realised amount as per the priority like payment of taxes to the Government, payment to unsecured creditors, etc.

The assessee-firm was converted into a limited company under Part IX of the Companies Act, 1956. It filed a return for the period 1-4-1995, up to 7-11-1995. For the assessment year 1996-97, it claimed depreciation of Rs. 27,67,000. The assessing officer was of the view that on vesting of the properties of the firm in the limited company, there was a transfer by way of distribution of the capital assets, there was a resultant dissolution of the firm and the two conditions stipulated under Section 45(4) stood satisfied.

The assessing officer computed the capital gains under Section 48 by referring to the comparative figures of the book value and the market value. The assessing officer disallowed the claim of depreciation on the ground that on the vesting of the assets in the company, there was a sale. However, the Tribunal took the view that there was no distribution of capital assets amongst the partners of the firm on the vesting of the capital assets of the firm in the company and the firm had received no consideration on the vesting of the capital assets in the company and held that neither Section 45(4) nor Section 45(l) was applicable to the case of the assessee.

The Tribunal allowed the claim of depreciation and held that the vesting of the capital assets in the company did not amount to sale.

On appeal: Held, (i) that this was a case of a partnership firm being treated as a company under the provisions of Part IX of the Companies Act.

Section 45(4) was not attracted in the case of the assessee because the very first condition of transfer by way of distribution of capital assets was not satisfied. In the circumstances, the second condition treating the fair market value of the asset on the date of transfer did not arise. In the case of a transfer of a capital asset, the two important ingredients are : existence of a party and counterparty and, secondly, incoming consideration quathe transferor. When a firm is treated as a company the two conditions are not attracted. There was no conveyance of the property executable in favour of the limited company. On the vesting of all the properties statutorily in the company, the firm was treated as a company, after a given date. In the circumstances, there was no transfer of a capital asset as contemplated by Section 45(l). Even if it was assumed that there was a transfer of a capital asset under Section 45(1) because of the definition of the word 'transfer' in Section 2(47), the liability to pay capital gains would not arise because Section 45(1) is required to be read with Section 48. The consideration for the transfer of a capital asset is what the transferor receives in lieu of the assets he parts with, namely, money or money' sworth, and, therefore, the very asset transferred or parted with cannot be the consideration for the transfer and, therefore, the expression 'full value of the consideration'cannot be construed as having a reference to the market value of the asset transferred and the said expression only means the full value of the things received by the transferor in exchange for the capital asset transferred by him. In the circumstances, neither Section 45(1) nor Section 45(4) stood attracted, Even if one proceeds on the basis that vesting in the company under Part IX constituted transfer under Section 45(1), the assessee ought to succeed because the firm can be assessed only if the full value of the consideration is received by the firm or if it accrues to the firm. In the present case, the company had allotted shares, to the partners of the erstwhile firm, but that was in proportion to the capital of the partners in the erstwhile firm. That allotment of shares had no correlation with the vesting of the properties in the limited company under Part IX of the Act.

It is held in the above decision that transfer envisages in lieu of the asset, money or moneys worth. There is no distribution of any asset when firm becomes a company.

Though, in the five of the six events that took place, the basic condition that there should be a transfer of capital asset, is not satisfied and hence, the provisions of sections 45(1) and 45(4) cannot be invoked. The asset remained with the firm. In succession of the firm by a company, there is no distribution of asset involved. It is only a 'take over'. Distribution envisages a share of assets between more than one person. Part of the assets is given to one person and other parts either remain with the original entity or given to other entities. When all the assets are taken over by one entity, it cannot be said to be distribution. Thus, even though there was transfer of asset from the firm to a company but it was not on account of distribution of capital asset. However, in the fourth event there is a transfer of sub-tenancy right by the firm to "Atco".

There is no dispute with the proposition highlighted by the Commissioner (Appeals) that Section 45(4) can be invoked if there is a transfer of asset by way of distribution on dissolution of the firm or otherwise. This 'otherwise' would include reconstitution of the firm or even formation of a company. To this extent the inference drawn by Commissioner (Appeals) is right. But he ignored that sub-tenancy rights were transferred by firm to "Atco". It is a transfer of capital asset by way of distribution.

Even though, Section 47(xiii) has been enacted with effect from 1-4-1999 by Finance (Amendment) Act, 1998 to exempt from the definition of transfer, the take over of the firm by a company, but with certain conditions. In fact company law treats a firm as an un-incorporated company. Section 575 of the Companies Act provided that all the properties movable and immovable belonging to a firm on its registration shall vest in a company on its registration as a company. Therefore, even without the provisions of Section 47(xiii), there will not be a transfer of asset when the firm is incorporated as a company. Section 47(xiii) has been enacted only to recognize what it already existed. It does not mean that prior to 1-4-1999 the take over of the assets of the firm by a company would mean a "transfer" of assets within the meaning of Section 45 so as to attract levy of capital gains tax on the firm.

13. In view of the discussion held above, we are of the view that provisions of Section 45(l) read with Section 45(4) would apply as sub-tenancy rights were transferred by the firm to "Atco". It was a distribution of an asset to partner after he entered into partnership firm and for which firm received Rs. 4.50 crores from "Atco.

In view of this, we hold that capital gains would be chargeable on transfer of sub-tenancy rights to ATCO. The second and third grounds of assessee are, accordingly, decided against the assessee.

14. Another ground raised by the assessee is about validity of reassessment proceedings. We find that issue has not been seriously agitated. However, after hearing learned authorised representative for the assessee and learned Departmental Representative, we are of the view that assessment has been validly reopened. There were reasons with assessing officer that capital gains chargeable on transfer of asset on reconstitution of the firm have escaped assessment. There is no change of opinion in it. There is also no question of adopting one of the two permissible views. A view would be permissible, only when it is legally valid. Not to charge capital gains on transfer of asset as covered under Section 45(4) is certainly an escapement of income, which has been rightly considered under Section 147/148. Hence, this ground of assessee is rejected.