a)The assessee was a partner in Cable TV advertising business. The partnership firm had revalued network rights and corresponding credit in respect thereof was given to the partners including the assessee.
b)After revaluation of network rights, revaluation reserve was credited to partners' capital account and the assets account was debited in the books of the partnership firm. The Assessing Officer (‘AO’) held that the revalued sum was to be charged to tax as the assessee had earned short-term capital gain.
c)On appeal, the CIT(A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal
. The Tribunal held as under:
1)Crediting the amount of revaluation reserve to partner's capital account does not amount to transfer of partnership firm's assets to the individual partner. As per settled principle of law of partnership, during continuation of partnership, partners do not have separate rights over the assets of firm in addition to interest in the share of profits;
2)After revaluation also, there would neither be division of assets nor any realization of assets. Networking rights were property of partnership firm until date of its conversion into a company as per Part IX of Companies Act. Provisions of Section 45(4) would not be applicable to firm or to partners as there was no official dissolution of firm and distribution of assets of firm among partners.
3)Revaluation of assets of partnership firm and credit of revalued amount to capital account of partners in their respective profit sharing ratio would not entail any transfer as defined under section 2(47), hence, gains on revaluation could not be brought under tax net
4)Thus, there was no merit in the action of the lower authorities in bringing gains on revaluation under the tax net. – RAVINSHANKAR R. SINGH V. ITO  45 taxmann.com 359 (Mumbai- Trib.)