1997 (7) TMI 194 - AT - Income Tax

Appellate Tribunal Recognizes Partnership Firm from 1985, Directs AO on Capital Gains

CAPITAL RUBBER INDUSTRIES. Versus DEPUTY COMMISSIONER OF INCOME TAX.

CAPITAL RUBBER INDUSTRIES. Versus DEPUTY COMMISSIONER OF INCOME TAX. - TTJ 060, 071, Issues Involved:1. Whether Capital Rubber Industries was a partnership concern prior to 1985.2. Deduction of Rs. 2,11,314 made to HUDA in 1992 as part of the cost of improvements.3. Charging of interest under sections 234B and 234C.Issue-wise Detailed Analysis:1. Whether Capital Rubber Industries was a partnership concern prior to 1985:The assessee contended that Capital Rubber Industries was a partnership concern from 1983, as the industrial plot was acquired in the name of the firm. The AO observed that the partnership deed was signed in November 1985, and thus, the firm did not exist before that date. The AO held that the plot was bought in a non-existent or sham name and considered the firm as a colorable device to evade taxes. The CIT(A) upheld the AO's view, stating that the partnership did not carry on business or enter into an agreement from 1983 to 1985.However, the appellate tribunal found that the intention of the partners was to acquire the plot in the firm's name, as evidenced by the payments and receipts issued in the name of Capital Rubber Industries. The tribunal accepted the concession that the firm could be recognized from November 1985, aligning with the provisions of the Partnership Act, 1932.2. Deduction of Rs. 2,11,314 made to HUDA in 1992 as part of the cost of improvements:The AO disallowed the deduction of Rs. 2,11,314 made to HUDA, stating that these payments were for clearing malba, security fees, and extension fees, and could not be treated as the cost of acquisition of the property. The assessee argued that these payments should be considered as part of the cost of improvement.The appellate tribunal held that the amounts paid to HUDA for the cost of improvement should be taken into consideration while computing the capital gains. The tribunal directed the AO to verify the figures and allow appropriate relief to the assessee.3. Charging of interest under sections 234B and 234C:The AO charged interest under sections 234B and 234C. The tribunal directed the AO to allow consequential relief to the assessee with reference to the interest charged under these sections, based on the revised computation of capital gains.Conclusion:The appellate tribunal allowed the appeal, recognizing the partnership firm from November 1985 and directing the AO to consider the cost of acquisition and improvements accordingly. The tribunal also instructed the AO to verify the computation of capital gains and provide appropriate relief concerning the interest charged under sections 234B and 234C.