JUDGMENT - REBELLO F.I., J.:---Both these appeals can be disposed of by a common order as the facts involved are the same and similar questions of law arise. The respondents hereto were parties to a family settlement dated 30th January, 1997. Pursuant to the said family settlement, there was a Deed of Reconstitution of various partnerships as set out under the family settlements. For the assessment year 1997-98, the partnerships were taxed for capital gains under section 45(4) of the Income Tax Act. An appeal was preferred against the said order by the Assessee which came to be dismissed by the Appellate Authority by order dated 16th June, 2000. An Appeal was then preferred to I.T.A.T. by the Assessee. The appeal was allowed I.T.A.T. held that there was no dissolution but only reconstitution. I.T.A.T. also held that the expression "otherwise" had to be read ejusdem generis and would contemplate situations like a deemed dissolution and consequently held that tax on capital gains was not chargeable. On the facts, it was held that the business continued to be run and there was no dissolution of the firm and consequently section 45(4) of the Act was not attracted.

The present appeals are preferred by the revenue and various were framed. At the time of hearing, however, the following questions of law have been formulated for consideration which are as under :-

1. Whether the Deed of family settlement dated 30-1-97 amounts to dissolution of partnership formed by agreement as contemplated under section 40 of the Indian Partnership Act ?

2. Whether the distribution of assets of the firm amongst the retiring partners dated 30-1-97 and Deed of Reconstitution dated 30-1-97 would amount to transfer of the capital assets which is in the nature of capital gains and business profits chargeable to tax under section 45(4) of I.T. Act?

3. Whether the word "otherwise", in section 45(4) takes into its sweep not only cases akin to dissolution of the firm but also cases of reconstitution of firm?

4. Whether the Deed of Reconstitution of Partnership by the Assessee firm is a device to avoid tax?

5. Whether on the facts and circumstances of the case, I.T.A.T. was justified in law in setting aside the assessment order by holding that there is no dissolution ?

2. By the Memorandum of Family Settlement dated 30th January, 1997, it was agreed between the parties thereto, that business of 6 firms as set out therein would be distributed in terms of the Family Settlement as the parties desired that various matters concerning the business and assets thereto be divided separately and partitioned. The Deed also recited that resorting to Civil Suits would damage the family since the entire business is a family business, the nucleus having been inherited. Under terms and conditions of the settlement, it was set out that the assets which are proposed to be divided in partition under the settlement are held by the aforesaid firm and individual partners. With reference to the firms, the manner in which the firms were to be reconstituted by retirement and admission of new partners was also set out. It also provided that such of those assets or liabilities belonging to or due from any of the firms allotted to parties thereto in the schedule annexed shall be transferred or assigned irrevocably and possession made over and all such documents, deeds, declarations, affidavits, petitions, letters and alike as are reasonably required by the party entitled to such transfer would be effected. It is based on this document and the subsequent deeds of retirement of partnership that the order of assessment was made holding that the appellants are liable for tax on capital gains.

The relevant portion of section 45, with which we are concerned is sub-section (4) which reads as under :-

"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

Click Here to Read the rest of this document