THE COMMISSIONER OF INCOME TAX – 23 versus M/S. MANSUKH DYEING AND PRINTING MILLS on 24 November 2022

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 24.06.2013 passed by the High Court of Bombay passedin Income Tax Appeal No. 1074 of 2009 (relating to A.Y. 1993-1994)and the judgment and order dated 24.06.2013 passed in Income TaxAppeal No. 1174 of 2009 (relating to A.Y. 1994-1995) by which withrespect to the same assessee – M/s. Mansukh Dyeing and Printing Mills,a partnership firm, the High Court has dismissed the said appeals andhas confirmed the respective orders passed by the Income Tax AppellateTribunal (hereinafter referred to as “ITAT”) deleting the short term capitalgains addition made by the Assessing Officer (AO), the Revenue haspreferred the present appeals.

2. The facts leading to the present appeals in nutshell are as under:- 2.1 The respondent assessee, a partnership firm originally consistedof four partners (all brothers) engaged in the business of Dyeing andPrinting, Processing, Manufacturing and Trading in Clothing. Under the A

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AFamily Settlement dated 02.05.1991, the share of one of the existingpartners – Shri M.H. Doshi having 25% profit share in the firm wasreduced to 12% and, for his balance 13% share, three new partnerswere admitted namely, viz., Smt. Ranjan Doshi (11%), Shri PrakashDoshi (1%) and Shri Rajeev Doshi (1%). It appears that thereafter, ShriM.H. Doshi, Shri Manohar Doshi and Shri V.H. Doshi retired from theBpartnership and reconstituted the partnership firm consisted of the partnersnamely, viz., Shri Hasmukhlal H. Doshi, Smt. Rajan H. Doshi, Shri PrakashH. Doshi & Shri Rajiv H. Doshi.

2.2 That on 01.11.1992, the firm was again reconstituted and threemore partners, namely, viz., Smt. Vaishali Shah (18%), Smt. BhavnaCDoshi (9%), Smt. Rupal Doshi (9%) and M/s. Ranjana Textile Pvt. Ltd.(10%) were admitted as partners. The contribution of new partners wasas under:-

• Smt. Vaishali Shah – Rs. 4.50 lakhs

D• M/s. Ranjana Textiles Pvt. Ltd. – Rs. 2.50 lakhs

• Smt. Bhavna Doshi – Rs. 2.25 lakhs

• Smt. Rupal Doshi – Rs. 2.25 lakhs

It was mentioned in the reconstituted partnership deed that twopartners, namely, viz., Shri Hasmukh H. Doshi and Smt. Ranjan DoshiEhad decided to withdraw part of their capital.

2.3 On 01.01.1993, the assets of the firm were revalued and anamount of Rs. 17.34 crores were credited to the accounts of the partnersin their profit-sharing ratio. Two of the existing partners, viz., namelyShri Hasmukhlal H. Doshi & Smt. Ranjan Doshi withdrew part of theirFcapital which was roughly Rs. 20 to Rs. 25 lakhs. Thus, according to theRevenue, the new partners were immediately benefited by the credit totheir capital accounts of the revaluation amount, as Rs. 3.12 crores wascredited to Smt. Vaishali Shah (who contributed Rs. 4.50 lakhs); Rs.1.56 crores to Smt. Bhavna Doshi (who contributed Rs. 2.25 lakhs); Rs.G1.56 crores to Smt. Rupal Doshi (who contributed Rs. 2.25 lakhs); andRs. 1.73 crores to M/s. Ranjana Textiles (who contributed Rs. 2.50lakhs only).

2.4 The respondent filed its Return of Income for the relevantassessment years. The Return of Income was filed for A.Y. 1993-1994H@ Rs. 3,18,760/-. The same was accepted under Section 143(1) of the Income Tax Act, 1961. However, thereafter, the assessment wasreopened under Section 147 of the Income Tax Act by issuance of thenotice under Section 148. The assessment was reassessed under Section143(3) read with Section 147 determining the total income of Rs.2,55,19,490/-. Addition of Rs. 17,34,86,772/- was made towards shortterm capital gain under Section 45(4) of the Income Tax Act. Similaraddition was made for A.Y. 1994-1995.

2.5 As per the A.O., the assessee revalued the land and buildingand enhanced the valuation from Rs. 21,13,225/- to Rs. 17,56,00,000/-for A.Y. 1993-1994 thereby increasing the value of the assets by Rs.17,34,86,772/- and therefore the revaluing of the assets, and subsequentlycrediting it to the respective partners’ capital accounts constitutes transfer,which was liable to capital gains tax under Section 45(4) of the IncomeTax Act. As land and building was involved, the assessee had claimedthe depreciation on building, and the Assessing Officer assessed theamount of short-term capital gain under Section 50.

2.6 The Commissioner of Income Tax (Appeals) [CIT(A)] byorder dated 30.07.2004 confirmed the addition on account of Short-TermCapital Gains and held that there is a clear distribution of assets aspartners have also withdrawn amounts from the capital account. CIT(A)also observed that value of the assets of the firm which commonlybelonged to all the partners of the partnership have been irrevocablytransferred in their profit-sharing ratio to each partner. To the extentthat the value has been assigned to each partner, the partnership haseffectively relinquished its interest in the assets and such relinquishmentcan only be termed as transfer by relinquishment. Therefore, accordingto the CIT(A), conditions of Section 45(4) are satisfied and therefore,the assets to the extent of their value distributed would be deemed asincome by capital gains in the hands of the assessee firm. The CIT (A)also observed that the transfer of the revalued assets had taken placeduring the previous year and, therefore, the liability to capital gains arisesin the A.Y. 1993-1994. The CIT(A) relied upon the decision of theBombay High Court in the case of Commissioner of Income Tax Vs.A.N. Naik Associates and Ors., (2004) 265 ITR 346 (Bom.) anddistinguished the decision of the Bombay High Court in the case ofCommissioner of Income-Tax Mumbai Vs. Texspin Engg. andMfg. Works, Mumbai, (2003) 263 ITR 345 (Bom.).

2.7 In an appeal preferred by the assessee, the ITAT by judgmentand order dated 26.10.2006 and relying upon the decision of this Court in AB

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Athe case of Commissioner of Income Tax, West Bengal Vs. HindConstruction Ltd., (1972) 4 SCC 460 allowed the appeal and has setaside the addition made by the A.O. towards Short Term Capital Gainsby observing that as observed and held by this Court in the aforesaiddecision, revaluation of the assets and crediting to partners’ account didnot involve any transfer. The ITAT observed and held that the decisionBof the Bombay High Court in the case of A.N. Naik Associates andOrs. (supra) shall not be applicable and held that the decision of theBombay High Court in the case of Texspin Engg. and Mfg. Works,Mumbai (supra) shall be appliable.

2.8 Relying upon the decision of this Court in the case of HindCConstruction Ltd. (supra), by the impugned judgment and order theHigh Court has dismissed the appeals preferred by the Revenue. Hencethe present appeals being Civil Appeal No. 8258 of 2022 (relating toA.Y. 1993-1994) and Civil Appeal No. 8259 of 2022 (relating to A.Y.1994-1995) have been filed by the Revenue.D3. Shri Rupesh Kumar, learned counsel appearing on behalf ofthe Revenue has vehemently submitted that in the facts and circumstancesof the case and in law both, the ITAT as well as the High Court haveseriously erred in deleting the additions made by the A.O. towards shortterm capital gain. It is vehemently submitted that in the present case asEthe assets of the firm were revalued to increase the value by an amountof Rs. 17.34 crores on 01.01.1993 relevant to A.Y. 1993-1994 and therevalued amount was credited to the accounts of the partners in theirprofit-sharing ratio and the credit of the asset’s revaluation amount tothe capital account of the partner was in effect distribution of the assetsvalued at Rs. 17.34 crores to the partners and that during the years,Fsome new partners were inducted by introduction of small amounts ofcapital ranging between 2.5 to 4.5 lakhs and these partners have hugecredits to their capital accounts immediately after joining the partnership,which amount was available to the partners for withdrawal, the amountso revalued and credited in the capital accounts of the respective partnersGcan be said to be “transfer” and therefore, the provisions of Section45(4) inserted into the Income Tax Act w.e.f. 01.04.1988 shall beapplicable.

3.1 It is submitted that the Hon’ble High Court has not properlyappreciated the object and purpose of introduction of Section 45(4). It issubmitted that the introduction of Section 45(4) was accompanied byH

the omission of clause (ii) of Section 2(47). Section 47(ii) omitted,exempted transform by way of distribution of capital assets from theambit of the definition of ‘transfer’. It is submitted that this helped theassessee in avoiding the levy of capital gains tax by revaluing the assetsand then transferring and distributing the same on dissolution. This loopholewas sought to be plugged by insertion of Section 45(4) and omission ofSection 2(47)(ii).

3.2 It is submitted that therefore, in the facts and circumstancesof the case, the A.O. rightly made the addition towards the short-termcapital gains invoking Section 45(4) of the Income Tax Act, which wasnot required to be deleted by the ITAT.

3.3 It is submitted that after the insertion of Section 45(4),distribution of capital assets to the partners’ account is deemed transferof capital assets and therefore assessable as capital gains in the handsof the firm.

3.4 Now, so far as reliance placed upon the decision of this Hon’bleCourt in the case of Hind Construction Ltd. (supra) relied upon bythe assessee, it is vehemently submitted that the said decision shall notbe applicable as the said decision was considering the provisions prior toinsertion of Section 45(4) of the Income Tax Act. It is submitted thatthereafter Section 45(4) of the Income Tax Act has been inserted withspecific object and purpose. It is submitted that therefore the said decisionshall not be applicable while considering the effect of Section 45(4) ofthe Income Tax Act.

3.5 It is submitted that on the contrary, the decision of the BombayHigh Court in the case of A.N. Naik Associates and Ors., (supra)shall be applicable with full force as the same was dealing with Section45(4). It is submitted that in the case of A.N. Naik Associates andOrs., (supra), the Bombay High Court has interpreted the words“otherwise” used in Section 45(4) of the Income Tax Act and hasobserved and held that the word “otherwise” used in Section 45(4) takesinto its sweep not only cases of dissolution but also cases of subsistingpartners of a partnership, transferring assets in favour of a retiring partner.

3.6 Making above submissions and relying upon the decision ofthe Bombay High Court in the case of A.N. Naik Associates andOrs., (supra), it is prayed to allow the present appeals.

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A4. Both these appeals are vehemently opposed by Shri KaustubhShukla, learned counsel appearing on behalf of the respondent assessee.

4.1 It is submitted that in the present case, admittedly there wasno dissolution of partnership firm and/or revaluation on dissolution of thepartnership firm. It is submitted that in the present case, there wasBreconstitution of the partnership firm and on revaluation, the surplusamount on account of such revaluation was credited to the partners’capital account. It is submitted that the surplus on account of suchrevaluation credited to the partners’ capital account cannot be said to betransfer as per the provisions of Section 45(4) of the Income Tax Act.

C4.2 It is submitted that as per the provisions of Section 45(4) ofthe Income Tax Act, two conditions were required to be fulfilled. Firstly,there must be a transfer by way of distribution of capital assets, secondly,that, such transfer should be either on account of dissolution of partnershipfirm or otherwise.

D4.3 It is submitted that in the present case, during the year therewas neither any distribution of assets of the partnership firm nor dissolutionor otherwise of the partnership firm has taken place. The surplus onrevaluation of assets was notionally credited to the partners’ capitalaccount of all the partners. It is submitted that therefore as rightlyobserved and held by the ITAT confirmed by the Hon’ble High Court, itEwas not a case of transfer/deemed transfer under Section 45(4) of theIncome Tax Act and therefore, both, the ITAT as well as the High Courthave rightly deleted the addition made towards the short-term capitalgains.

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4.4 Learned counsel appearing on behalf of the assessee in supportFof his above submission that as there was no dissolution of the partnershipfirm and therefore the transfer of the amount on revaluation to the capitalaccounts of the respective partners cannot be considered as capital gains.Heavy reliance is placed on the decision of this Court in the case ofHind Construction Ltd. (supra) as well as decision of the BombayGHigh Court in the case of Texspin Engg. and Mfg. Works, Mumbai(supra).

4.5 It is submitted that there can be no income just due torevaluation of capital asset unless the capital asset is also transferred. Itis submitted that whenever an asset is revalued, even as per theaccounting norms the corresponding notional surplus due to revaluationH

is required to be credited to revaluation reserve account in case ofcompanies or credited to capital account of partners in case of partnershipfirm. This is only notional or book entry which is not represented by anyadditional tangible asset or income. It is submitted that once it isestablished that there is no profit or gain accrued to firm on revaluationresulting in real income, there can also be no distribution of such profitsand gains and therefore, the same cannot be added in the income of thepartnership firm as capital gains.

4.6 It is submitted that the decision of the Bombay High Court inthe case of A.N. Naik Associates and Ors., (supra) shall not beapplicable as in that case before the Bombay High court, the assets ofthe partnership firm was transferred to a retiring partner by way of adeed of retirement and as a family settlement was entered into and thebusiness of those firms as set out therein was distributed in terms of thefamily settlement as the party desired that various matters consisting ofthe business and assets thereto be divided and separately partitioned. Itis submitted that once that be the case, the transfer of assets of thepartnership to the retiring partners would amount to transfer of capitalassets in the nature of capital gains and business profits which arechargeable to tax under Section 45(4) of the Income Tax Act. It issubmitted that in that context, it was held that the word “otherwise”takes into its sweep not only cases of dissolution but also cases ofsubsisting partners of a partnership, transferring assets in favour of aretiring partner. It is submitted that in this context, the Bombay HighCourt held that Section 45(4) shall be attracted.

4.7 Making above submissions, it is prayed to dismiss the presentappeals.

5. We have heard the learned counsel appearing for the respectiveparties at length.

6. The short question, which is posed for the consideration of thisCourt is the applicability of Section 45(4) of the Income Tax Act asintroduced by the Finance Act, 1987.

7. The relevant portion of Section 45, with which we are concerned,is sub-section (4), which reads as under:- “(4) The profits or gains arising from the transfer of a capitalasset by way of distribution of capital assets on the dissolution ofa firm or other association of persons or body of individuals (not ABC

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Abeing a company or a co-operative society) or otherwise, shall bechargeable to tax as the income of the firm, association or body,of the previous year in which the said transfer takes place and forthe purposes of section 48, the fair market value of the asset onthe date of such transfer shall be deemed to be the full value ofthe consideration received or accruing as a result of the transfer.”B7.1 Sub-section (4) of Section 45 came to be amended by theFinance Act, 1987 w.e.f. 01.04.1988. From a reading of the above sub-section, to attract the capital gains, what would be required is as under:-

1. Transfer of capital asset by way of distribution of capital assets; Ca. On account of dissolution of a firm;

b. Or other association of persons;

c. Or body of individuals;

d. Or otherwise;

Dshall be chargeable to tax as the income of the firm, associationor body of persons.”

7.2 The object and purpose of introduction of Section 45(4) wasto pluck the loophole by insertion of Section 45(4) and omission of Section2(47)(ii). While introduction to Section 45(4), clause (ii) of Section 2(47)Ecame to be omitted. Earlier, omission of Clause (ii) of Section 2(47) andSection 47(ii) exempted the transform by way of distribution of capitalassets from the ambit of the definition of “transfer”. The same helpedthe assessee in avoiding the levy of capital gains tax by revaluing theassets and then transferring and distributing the same at the time ofFdissolution. The said loophole came to be plucked by insertion of Section45(4) and omission of Section 2(47)(ii). At this stage, it is required to benoted that the word used “OR OTHERWISE” in Section 45(4) is veryimportant.

7.3 In the present case, it was the case on behalf of the assesseeGrelying upon the decision of this Court in the case of Hind ConstructionLtd. (supra) that unless there is a dissolution of partnership firm andthereby the transfer of the amount on revaluation to the capital accountsof the respective partners, Section 45(4) of the Income Tax shall not beapplicable. It is the case on behalf of the assessee that there can be noincome just due to revaluation of the capital assets unless capital assetsH

is also transferred. According to the assessee, the amount credited onrevaluation to the capital accounts of the partners is only notional orbook entry, which is not represented by any additional tangible assets orincome. Therefore, the sum and substance of the submission on behalfof the assessee is that unless there is a dissolution of the partnershipfirm, and there is only transfer of the amount on revaluation to the capitalaccounts of the respective partners, Section 45(4) of the Income TaxAct shall not be applicable.

7.4 However, in view of the amended Section 45(4) of the IncomeTax Act inserted vide Finance Act, 1987, by which, “OR OTHERWISE”is specifically added, the aforesaid submission on behalf of the assesseehas no substance. The Bombay High Court in the case of A.N. NaikAssociates and Ors., (supra) had an occasion to elaborately considerthe word “OTHERWISE” used in Section 45(4). After detailed analysisof Section 45(4), it is observed and held that the word “OTHERWISE”used in Section 45(4) takes into its sweep not only the cases of dissolutionbut also cases of subsisting partners of a partnership, transferring theassets in favour of a retiring partner. While holding so, it is observed inparagraphs 14, 21, 22 and 24 as under:- “14. Pursuant to the inclusion of sub-section (4) in section 45, onthe dissolution of a partnership the profits or gains arising fromthe transfer of capital asset are chargeable to tax as income ofthe firm. It is contended on behalf of the assessee that even afterintroduction of section 45(4), the position will be the same as thedefinition clause i.e. namely section 2(47) has not been amended.Secondly it is contended that the expression “otherwise” must beread edjusdem generis with the expression dissolution of firm.So considered, there is no dissolution on the firm. So considered,there is no dissolution on the facts of the case. On behalf of therevenue, it was, however, argued that the amendment was broughtabout to remove the mischief occasioned by parties avoiding topay tax, considering the law as declared and to plug the loopholes.The expression otherwise must be read to mear transfer of capitalassets of the assessee firm include to a partner. As the section isa self contained code, there was no need to amend the definitionof transfer under section 2(47) of the Act. The Position therefore,will have to be examined in the context of the law as amendedafter 1988………………..

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A21. With the above, we may now proceed to answer the issue.On retirement of a partner or partners from an existing firm, andwho receives assets from the firm, the law before 1998 wouldreally be of no support, as by section 45(4) what was otherwisenot taxable has been made taxable. Section 45(4) seems to havebeen introduced with a view to overcome the judgment of theBApex Court in Malabar Fisheries Co. v. Commissioner ofIncome-Tax, Kerala (supra) and other judgments which took aview that the firm on its own has no right but it is the partners whoown jointly or in common the asset and thereby remedy the mischiefoccasioned. Distribution of capital assets on dissolution now isCsubject to capital gains tax unless it does not fall within the definitionof transfer under section 2(47) What would be the effect ofpartners of a subsisting partnership distributing assets to partnerswho retire from the partnership. Does the asset of the partnership,on being allotted to the retired partner/partners fall within theexpression “otherwise”. As noted earlier on behalf of the assesseeDit has been contended that the expression “otherwise” would haveto be read “ejusdem generis” with “dissolution of partner or bodyof individuals” and for that purpose reliance was placed on ajudgment of the Division Bench in (Commissioner of Income-Tax, Bombay City II v. Trustees of Abdulcadar Ebrahim Trust),E1975 (100) I.T.R. 85. Section 45 is a charging section. The purposeand object of the Act of 1988 was to charge tax arising ondistribution of capital assets of firms which otherwise was notsubject to taxation. If the language of sub-section (4) is construedto mean that the expression “otherwise” has to partake in thenature of dissolution or deemed dissolution, then the very objectFof the amendment could be defeated by the partners, by distributingthe assets to some partners who may retire. The firm then wouldnot be liable to be taxed thus defeating the very purpose of theAmending Acts. Prior to the Finance Act, 1987 in case of apartnership it was held that the assets are of the partners and notGof the partnership. Therefore if on retirement a partner receivehis share of the assets, may be in the form of a single asset, it washeld that there was no transfer and similarly on dissolution of thepartnership. Another device resorted to by an assessee was toconvert an asset held independently as an asset of the firm inwhich the individual was a partner. The decision of the Supreme A

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Court in (Kartikeya v. Sarabhai v. C.I.T.), 1985 (156) I.T.R. 509took a view that this would not amount to transfer and, therefore,fell outside the scope of capital gain. The rationale being that theconsideration for the transfer of the personal asset wasindeterminate, being the right which arose or accrued to the partnerduring the subsistence of the partnership to get his share of profitfrom time to time and on dissolution of the partnership to get thevalue of his share from the not partnership asset. Parliament withthe avowed object of blocking this escape route for avoiding capitalgains tax by the Finance Act, 1987 has introduced sub-section (3)of section 45. The effect of this was that the profits and gainsarising from the transfer of a capital asset by a partner to a firm ischargeable as the partner’s income of the previous year in whichthe transfer took place. On a conversion of the partnership assetsinto individual assets on dissolution or otherwise also formed partof the same scheme of tax avoidance. To plug these loophole theFinance Act, 1987 brought on the statute book a new sub-section(4) in section 45 of the Act. The effect is that the profits or gainsarising from the transfer of a capital asset by a firm to a partneron dissolution or otherwise would be chargeable as the firm’sincome in the previous year in which the transfer took place andfor the purposes of computation of capital gains, the fair marketvalue of the asset on the date of transfer would be deemed to bethe full value of the consideration received or accrued as a resultof transfer. Therefore, if the object of the Act is seen and themischief it seeks to avoid, it would be clear that intention ofParliament was to bring into the tax not transactions wherebyassets were brought into a firm or taken out of the firm.

22. The expression “otherwise” in our opinion, has not to beread ejusdem generis with the expression, dissolution of a firmor body or assets of persons. The expression “otherwise” has tobe read with the words ‘transfer of capital assets” by way ofdistribution of capital asset’s. If so read, it becomes clear thateven when a firm is in existence and there is a transfer of capitalassets it comes within the expression “otherwise” as the object ofthe amending Act was to remove the loophole which existedwhereby capital gain tax was not chargeable. In our opinion,therefore, when the asset of the partnership is transferred to aretiring partner the partnership which is assessible to tax ceases AB

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to have a right or its right in the property stands extinguished infavour of the partner to whom it is transferred. If so read it willfurther the object and the purpose and intent of amendment ofsection 45. Once, that be the case, we will have to hold that thetransfer of assets of the partnership to the retiring partners wouldamount to the transfer of the capital assets in the nature of capitalgains and business profits which is chargeable to tax under section45(4) of the I.T. Act. We will, therefore, have to answer questionNo. 3 by holding that the word “otherwise” takes into its sweepnot only the cases of dissolution but also cases of subsisting partnersof a partnership, transferring assets in favour of a retiring partner.

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24. Considering this clause as earlier contained in section 47, itmeant that the distribution of capital assets on dissolution of afirm etc. were not regarded as transfer. The Finance Act, 1987w.e.f. 1-4-1988, omitted this clause, the effect of which is thatDdistribution of capital assets on the dissolution of a firm wouldhenceforth be regarded as ‘transfer’. Therefore, instead ofamending section 2(47), amendment was carried out by the FinanceAct, 1987, by omitting section 47(11), the result of which is thatdistribution of capital assets on the dissolution of a firm would beEregarded as ‘transfer’. Therefore, the contention that it wouldnot amount to a transfer has to be rejected. It is now clear thatwhen the asset is transferred to a partner, that falls within theexpression otherwise and the rights of the other partners in thatasset of the partnership is extinguished. That was also the positionearlier but considering that on retirement the partners only got hisFshare, it was held that there was no extinguishment of right.Considering the amendment, there is clearly a transfer and if,there be a transfer, it would be subject to capital gains tax.”

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7.5 In the present case, the assets of the partnership firm wererevalued to increase the value by an amount of Rs. 17.34 crores onG01.01.1993 (relevant to A.Y. 1993-1994) and the revalued amount wascredited to the accounts of the partners in their profit-sharing ratio andthe credit of the assets’ revaluation amount to the capital accounts ofthe partners can be said to be in effect distribution of the assets valuedat Rs. 17.34 crores to the partners and that during the years, some newHpartners came to be inducted by introduction of small amounts of capital ranging between Rs. 2.5 to 4.5 lakhs and the said newly inducted partnershad huge credits to their capital accounts immediately after joining thepartnership, which amount was available to the partners for withdrawaland in fact some of the partners withdrew the amount credited in theircapital accounts. Therefore, the assets so revalued and the credit intothe capital accounts of the respective partners can be said to be “transfer”and which fall in the category of “OTHERWISE” and therefore, theprovision of Section 45(4) inserted by Finance Act, 1987 w.e.f. 01.04.1988shall be applicable.

7.6 Now, so far as the reliance placed upon the decision of thisCourt in the case of Hind Construction Ltd. (supra) is concerned, atthe outset, it is required to be noted that the said decision was pre-insertion of Section 45(4) of the Income Tax Act inserted by FinanceAct, 1987 and in the earlier regime – pre-insertion of Section 45(4), theword “OTHERWISE” was absent. Therefore, in the case of HindConstruction Ltd. (supra), this Court had no occasion to consider theamended / inserted Section 45(4) of the Income Tax Act and the wordused “OTHERWISE”. Under the circumstances, for the purpose ofinterpretation of newly inserted Section 45(4), the decision of this Courtin the case of Hind Construction Ltd. (supra) shall not be applicableand/or the same shall not be of any assistance to the assessee. As such,we are in complete agreement with the view taken by the Bombay HighCourt in the case of A.N. Naik Associates and Ors., (supra). Weaffirm the view taken by the Bombay High Court in the above decision.

8. In view of the above and for the reasons stated above, theimpugned judgment and order passed by the High Court and that of theITAT are unsustainable and the same deserves to be quashed and setaside and are accordingly quashed and set aside. The order passed bythe Assessing Officer is hereby restored.

Present appeals are accordingly allowed. However, in the factsand circumstances of the case, there shall be no order as to costs.

Devika Gujral(Assisted by : Shevali Monga, LCRA)

Appeals allowed.

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