The assessee-firm originally consisted of four partners. Under a family settlement in 1991, the share of one of the existing partners was reduced and three new partners were admitted. Thereafter, three partners retired and reconstituted the firm with four partners. On November 1, 1992, the firm was again reconstituted and three more partners were admitted. The reconstituted partnership deed mentioned that two partners had decided to withdraw part of their capital. On January 1, 1993, the assets of the firm were revalued and the amount was credited to the accounts of the partners in their profit-sharing ratio. Some of the existing partners withdrew part of their capital. The Assessing Officer  held that the revaluing of the assets, and subsequently credit to the respective partners’ capital accounts constituted a transfer liable to capital gains tax under section 45(4) of the Act. As land and building were involved, and the assessee had claimed depreciation on the building, the Assessing Officer assessed the short-term capital gains under section 50. The Commissioner (Appeals) confirmed the addition but the Tribunal set it aside observing that revaluation of the assets and credit to the partners’ accounts did not involve any transfer. The High Court dismissed the Department’s appeals.  On appeal by the Revenue  allowing the appeals the Court held that the assets of the firm were revalued and the revalued amount was credited to the accounts of the partners in their profit-sharing ratio and the credit of the assets’ revaluation amount to the capital accounts of the partners could be said to be in effect distribution of the assets valued to the partners. During the years, some new partners came to be inducted by introduction of small amounts  and the newly inducted partners had huge credits to their capital accounts immediately after joining the partnership, which amount was available to the partners for withdrawal and in fact some of the partners withdrew the amount credited in their capital accounts. Therefore, the assets so revalued and the credit into the capital accounts of the respective partners could be said to be “transfer” and which fell in the category of “otherwise” and therefore, the provisions of section 45(4) inserted by the Finance Act, 1987 with effect from April 1, 1988 would be applicable.(AY.1993-94, 1994-95)