This appeal by Revenue is directed against order of CIT (Appeals) holding that tax was not exigible on either capital gains or profit u/s. 41(2). 2. facts found are as follows. There was firm constituted by deed dated 3-4-1959 consisting of seven partners. That firm was carrying on business of hotel called " Hotel Ashoka ". company called " Madras Hotel Ashoka Private Ltd." was incorporated on 13-3-1973, with same seven partners as t h e shareholders. On 16-3-1973 firm was re-constituted admitting company as eighth partner. company contributed capital of Rs. 2,80,000 to existing capital of firm which was comprised of Rs. 40,000 per individual of remaining 7 partners. Clause 9 of deed of 16-3-1973 provided that partner No. 8, viz. company, has been taken in as partner on condition that it shall not have any right or interest in any of assets or properties of firm excepting share capital contributed by it during continuance of firm and in event of dissolution of firm or retirement of partner No. 8 it will be entitled either to recover share capital standing to its credit till date of dissolution and any undrawn profit or to share in assets of firm equivalent to share capital contributed by it and in any undrawn profit, but not in profits of dissolution, if any. 3. On 5-12-1973, agreement was entered into between assessee and one K. Jeyaraj Ballal in which it was recited that assessee-firm intended to take necessary steps to vest exclusively hotel business with all its assets and liabilities in company and thereafter all shares of company were to be transferred to Mr. Ballal and his nominees for consideration of Rs. 55,00,000. sum of Rs. 5,00,000 was advanced by Mr. Ballal to first partner L.G. Balakrishnan on 5-12-73 and another sum of Rs. 10,00,000 on 17-1-1974 which were brought by him as his funds into firm's accounts. On 2-2-1974 company resolved at meeting of Directors to take over business of running hotel and on 2-5-1974 Ballal was co-opted as Director of company. On 25-4-74 full shares were allotted to seven partners. On 10-5-74 25,000 shares were transferred by partners to Mr. Ballal and his nominees at par and remaining 75,000 shares were transferred on 22-7-74 at small margin of profit by partners. consideration of transfer of shares were credited to account of transferors and debited to accounts of Jeyaraj Ballal in books of L.G. Balakrishnan who had received money. 4. On 12-7-1974 Deed of Dissolution was executed stating firm was dissolved with effect from 31-1-1974. Clause 6 of that deed recited that each of partners 1 to 7 have assigned their respective shares in assets of partnership firm in favour of 8th partner, company, which by virtue of this deed of dissolution continues to enjoy assets of firm as going concern and discharges liabilities and keeps other parties indemnified against such liabilities. deed also recited that company had already paid to 7 partners sum of Rs. 7,18,000 by way of allotment of shares and sum of Rs. 19,78,555 in cash by way of adjustments in accounts and further agreed to pay sum of Rs. 25,00,000 under Promissory Notes of value of Rs. 3,57,250 each. After adjustment of credit balance in favour of company in books of firm amounting to Rs. 6,53,445 total value came to Rs. 58,50,000 in settlement of accounts of firm upon dissolution. book value of assets and liabilities was Rs. 20,60,196.14 as on 31-1-1974 according to balance sheet of firm. 5. company has been assessed to income-tax for assessment year 1973-74 on 19-8-1975 and for 1974-75 on 21-5-1976 including share of income from firm. formation of company, commencement of its business has been duly reported and other necessary approvals have been accorded by various Government Departments including recognition of Gratuity Fund for employees by CIT. 6. On these facts, assessment was originally made on 23-8-1977 by which ITO came to conclusion that dissolution of firm amounted to sale of business as going concern by firm to company and that partners have actually realised profit by revaluing assets before dissolution. He accordingly brought to tax sum of Rs. 16,31,492 as profit under section 41(2) apart from disallowing depreciation in amount of Rs. 1,24,249 and development rebate in amount of Rs. 2,215 and also added sum of Rs. 23,69,208 as capital gains arising from transfer of property. When this was confirmed on appeal, matter was taken up to Tribunal. By order dated 25-11-1980 in ITA No. 2628/Mds/79 Appellate Tribunal set aside orders of authorities below and remitted matter to ITO to probe further into matter to ascertain when steps for dissolution of firm were initiated and whether induction of company as partner was step towards transfer of firm to Mr. Ballal. Tribunal also directed that Shri Ballal should be examined, but unfortunately he passed away before he could be examined. 7. ITO in pursuance of order of Tribunal examined Shri L. G. Balakrishnan on 11-2-1983 and he stated that negotiations were started with Mr. Ballal in 1973 after company was floated on 13-3-73 and that company itself was formed only for purpose of converting business held by firm into business held by company so as to expand business by obtaining loans and encouragement from Tourism Development Corporation which was available only for companies. He also stated that there was agreement for dissolution on 1-12-74 which was followed by dissolution deed dated 12- 7-74 and that intimation to various Government departments regarding take over of business by company had been given on 28-2-74 itself to Registrar of Firms and on 15-2-74 to ITO. Thereafter, ITO passed order dated 28-2-83 in which he came to conclusion that dissolution of firm after inducting company as partner was only for purpose of transferring business to Mr. Ballal and therefore there was transfer of business which gave rise to taxable capital gains and profit u/s. 41(2). He thus repeated same assessment as before. 8. On appeal, CIT (Appeals) found that incorporation of company, its induction into firm, dissolution of firm and transfer of shares in company to Ballal group, were all in eye of law valid acts by which assessee was able to avoid capital gains tax because there was no transfer in case of distribution of assets on dissolution of firm. He also held that since depreciated assets had not been sold or otherwise transferred when firm was dissolved it was not possible to withdraw depreciation and development rebate. 9. Revenue is in appeal to contend that transaction of dissolution was device for avoiding capital gains and, therefore, it should be probed into to ascertain real transaction which was transfer of property by firm to Mr. Ballal and consequently assessment of capital gains arising from such transfer should be restored. On other hand, it was contended on behalf of assessee that transactions were all genuine and not sham and since they did not amount to transfer in law, there could not be any levy of tax on capital gains purported to arise from such transaction. 10. On consideration of rival submissions, we are of opinion that order of CIT (Appeals) has to be confirmed. property belonging to firm could be converted into property belonging to company in two ways. first is right royal method of executing deed of transfer and in case where immovable property is involved it has to be by way of instrument in writing duly registered. If there had been such transfer by instrument duly registered, as required by section 54 of Transfer of Property Act, then of course it will be transfer within meaning of section 45 of Income-tax Act and capital gains arising therefrom would be taxable. Such is admittedly not case here. 11. other well-recognised method is that for firm to convert its property into property of company by itself becoming company. In other words, individual partners themselves form company which becomes partner of firm and upon dissolution of firm entire property is allotted to company which holds it as property of company. This method is so well- recognised that Legislature has taken note of it in section 33 of Income- tax Act where Explanation states that where firm is succeeded by company in business carried on by it as result of which firm sells or otherwise transfers to company any capital asset, sub-clause (3) which excludes withdrawal of development rebate shall apply to firm and company provided all property of firm relating to business immediately before succession become property of company, all liabilities of firm relate to liabilities of company and all shareholders of company were partners of firm immediately before succession. In fact, it is because of this provision that CIT (Appeals) has succession. In fact, it is because of this provision that CIT (Appeals) has reversed withdrawal of development rebate made by ITO and significantly Revenue has not appealed against that decision. 12. It has been held by Supreme Court in case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 reiterating decision in case of CIT v. Dewas Cine Corpn. [1968] 68 ITR 240 (SC) that upon dissolution of firm and distribution of assets to one or other partners there is no transfer in law. underlying principle is not far to seek, especially in case as in present case, where same individuals who were partners are shareholders of company which has taken over property and it is that ownership has never changed. This is reiterated by section 47(ii) which states that nothing contained in section 45 shall apply to distribution of capital assets on dissolution of firm, body of individuals or other association of persons. 13. We may recall trite saying of Lord Greene MR in Henriksen (Inspector of Taxes) v. Grafton Hotel Ltd. 24 TC 457, 460 (CA): " It frequently happens in Income Tax cases that same result in business sense can be secured by two different legal transactions, one of which may attract tax and other not. This is no justification for saying that taxpayer who has adopted method which attracts tax is to be treated as though he had chosen method which does not, or vice versa." Therefore, it is not possible for Revenue to assess capital gains in present transaction deeming it to be sale by firm to company when in fact property has been converted from firm's holding into company's holding by reason of dissolution of firm in which company is partner. 14. Realising this position and taking inspiration from decision of Supreme Court in cases of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 and Sunil Siddharthbhai v. CIT [1985] 156 ITR 509, it was argued on behalf of Revenue that method adopted by assessee to convert property from firm's holding into company's holding was only device to camouflage sale of property through mode which does not attract tax and though it may be regarded as tax planning device it was in fact to be frowned upon and t h e transaction brought to tax. For this purpose, it was emphasised that conversion had taken place after negotiations with Ballal and that properties of firm have been re-valued to equalise consideration by Ballal. 15. Taking second point first, we do find that there has been re- valuation of assets of firm inasmuch as balance sheet of firm showed value at Rs. 20,60,196.14 whereas shares were allotted to partners in sum of Rs. 58 lakhs which was almost equivalent amount of Rs. 55 lakhs which Ballal had agreed to pay for purchase of shares. But re-valuation by itself cannot give rise to any profit as long as owners of assets remained same. It was then argued that motive for revaluation should be taken into account. But we are of view that when legal position is such that re-valuation of assets in hands of owner by owner himself cannot involve realisation of any capital gains, motive with which it was done or subsequent transaction of persons holding property could not affect such re-valuation because partners who were real owners of property either as partners of firm or as shareholders of company had not realised capital gains as long as they remained owners of shares of company. 16. Coming to observations in case of Sunil Siddharthbhai passage relied on by revenue is as follows: " We have decided these appeals on assumption that partnership firm in question is genuine firm and not result of sham or unreal transaction and that transfer by partner of his personal asset to partnership firm represents genuine intention to contribute to share capital of firm for purpose of carrying on partnership business. If transfer of personal asset by assessee to partnership in which he is or becomes partner is merely device or ruse for converting asset into money which would substantially remain available for his benefit without liability to income-tax on capital gain, it will be open to income-tax authorities to go behind transaction and examine whether transaction of creating partnership is genuine or sham transaction and, even where partnership is genuine, transaction of transferring personal asset to partnership firm represents real attempt to contribute to share capital of partnership firm for purpose of carrying on partnership business or is nothing but device or ruse to convert personal asset into money substantially for benefit of assessee while evading tax on capital gain. Income-tax Officer will be entitled to consider all relevant indicia in this regard, whether partnership is formed between assessee and his wife and children or substantially limited to them, whether personal asset is sold by partnership firm soon after it is transferred by assessee to it, whether partnership firm has no substantial or real business or record shows that there was no real need for partnership firm for such capital contribution from assessee. All these and other pertinent considerations may be taken into regard when Income-tax Officer enters upon scrutiny of transaction, for, in task of determining whether transaction is sham or illusory transaction or device or ruse, he is entitled to penetrate veil covering it and ascertain truth." 17. In present case, assessee-firm was initially constituted in 1959. partnership is genuine one. In 1973 same partners were shareholders i n company newly incorporated on 14-4-83 and thereafter company was admitted as partner on 16-4-1983 in assessee-firm. Though at point of taking in new partner it cannot be said that intention was established of handing over assets of firm to company-partner especially because it w s specially provided that company-partner will have no share in assets, it was made manifest shortly thereafter especially when agreement dated 5-12-1983 was executed, that firm would be dissolved and assets would go to company and thereafter shares in company would be transferred to another group. This would be case where partnership is genuine looking to track-record of conducting business for several years and fact that only new partner was admitted. Thereafter, assessee decided to transfer its assets to company by dissolving firm. Even if this case is examined from angle of observations of Supreme Court made in case of Sunil Siddharthbhai and conclusion is reached that at point of time when partners of genuine firm decided that firm would be dissolved and assets would go to company, they had hit upon device to convert personal assets into money -- may be for their own benefit -- no action can be taken to bring to tax any notional capital gains in hands of assessee firm. This is because under provisions of section 2(47), as it then stood, if there was such device when persons brought in property into firm, then in hands of person who brought in property it may be possible to levy capital gains if such device had been adopted because there would have been transfer within meaning of section 2(47), as it then stood. case of Sunil Siddharthbhai decided by Supreme Court is authority only for proposition that under provisions of section 2(47), as it stood at material time, if partner brings in property into firm, then there would be transfer of interest. reason given was that there is reduction in exclusive interest in property, which originally belonged to partner, to shared interest, when it is introduced by him into firm and thus asset which originally was subject to entire ownership of partner becomes subject to rights of other partners in firm. But in present case no such property has been brought in by any partner in previous year. 18. What has taken place in previous year is only second limb of transaction. As far as assessee-firm is concerned, it got dissolved on 31- 1-1983. On such dissolution, there was no transfer in view of ratio of decision of Supreme Court in case of Malabar Fisheries Co., which was considered by Supreme Court in case of Sunil Siddharthbhai and which does not stand dissented from. Therefore, even assuming that assessee-firm had adopted device of taking its asset to company through medium of dissolution of firm, it does not attract capital gains because, according to definition of section 2(47) read with section 47(ii), as it then stood, such transaction would not amount to transfer within meaning of section 2(47). 19. To get over such instances apparently provisions have been introduced in form of new provisions such as section 45(4), which reads as under: " 45. (4) profits or gains arising from transfer of capital asset by way of distribution of capital assets on dissolution of firm or other association of persons or body of individuals (not being company or co- operative society) or otherwise, shall be chargeable to tax as income of firm, association or body, of previous year in which said transfer takes place and, for purposes of section 48, fair market value of asset on date of such transfer shall be deemed to be full value of consideration received or accruing as result of transfer." Consequentially definition of ' transfer ' in section 2(47) has also been amended to include: " 2. (47) " transfer " in relation to capital asset, includes,--- (vi) any transaction (whether by way of becoming member of, or acquiring shares in, co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has effect of transferring, or enabling enjoyment of, any immovable property." Further item (ii) has been deleted from section 47. Thus, it will be seen that new concept viz., where transaction has effect of " enabling enjoyment of immovable property " is also sought to be brought into definition of ' transfer '. But we are not called upon to express any opinion on scope of new amendments or ambit thereof because such amendments have come into force only from 1-4-1987 and do not arise for consideration in this case. We notice that there is material difference in provisions of section 2(47) as it stood when it was decided in case of Malabar Fisheries Co. that on dissolution there would be no transfer of assets when same is distributed to partners and in provisions of section 2(47) read with section 47 as they stand today. In light of provisions of section 2(47) and section 47 as they stood at material time and after having due regard to observations of Supreme Court in case of Sunil Siddharthbhai we come unhesitatingly to conclusion that there was no transfer, as far as this assessment year is concerned, upon dissolution which could give rise to taxable capital gains. Nor was there any transfer by firm to Mr. Ballal and his nominees of business so as to tax capital gains arising therefrom. only transfer that actually took place was transfer of shares in company with which we are not concerned in this case. Hence we confirm order of Commissioner of Income-tax (Appeals). 20. In result, appeal is dismissed. *** INSPECTING ASSISTANT COMMISSIONER v. JAGADISHCHANDRAN & CO.