TaxTMI 
TaxTMI 
2010 (1) TMI 54
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....s. 1.1 to 1.7 read as under: "1.1 That the learned CIT(A) has erred on the facts and circumstances of the case and in accordance with the provisions of law and past history of the case in confirming the addition of Rs. 6,01,78,261 being the surplus arising on land brought into the common stock of the partnership firm M/s DLF Commercial Developers. 1.2 That the learned CIT(A) has erred on the facts and circumstances of the case and in accordance with the provisions of law in holding that the stock in hand brought into the common stock of the partnership by the company by credit, at an agreed value, to the company's capital account amounted to a transfer of the asset to the partnership giving rise to a taxable profit. 1.3 That the learned CIT(A) has erred on the facts and circumstances of the case and in accordance with the provisions of law in holding that the amount of Rs. 6,01,78,261 determined for credit to the capital account is a consideration and a profit derived from the business and in any case a benefit arising to the appellant from such business. 1.4 That the learned CIT(A) has erred on the facts and circumstances of the case and in ....
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....mmercial Developers, in which the assessee became a partner with share of 76 per cent. All the right in the said plot of land became the property of the partnership firm w.e.f. 16th day of March, 1992. The assessee's contribution of capital in the newly constituted firm represented the market value of the said plot of land. The market value was determined at Rs. 11.50 crores. In the assessee's books of account, the said land contributed towards capital in the partnership firm was shown at a cost of Rs. 4,40,62,419. The said newly constituted partnership firm credited the capital account of the assessee company by Rs. 11.50 crores being the value of the land contributed by the assessee as capital. The assessee also recorded the value of said land contributed as capital in the firm at Rs. 11.50 crores in its books, and the surplus amounting to Rs. 6.01 crores was credited to the P&L a/c, but was claimed as not exigible to tax in the return of income filed by the assessee. The assessee claimed the surplus being difference between the value at which the land was credited in assessee's capital account in the firm in which assessee became a partner and the book value, credite....
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.... the decision of the Hind Construction Ltd. stands modified to that extent; fourthly, on the reasoning that since the land so transferred represented the stock-in-trade of the assessee, the profits were chargeable to tax under s. 28 of the Act, which stands on different footing with the gains arising from the transfer of capital or fixed assets, and lastly, on the reasoning that the present partnership firm newly constituted is not genuine in as much as it has been constituted or formed with the sole object of evading payment of taxes and, therefore, the assessee's reliance on the ratio in the case of Hind Construction Ltd. was totally out of context and irrelevant. 6. Being aggrieved, the assessee has preferred this appeal before the Tribunal, and the Tribunal vide order dt. 30th March, 2007 dismissed this ground raised by the assessee and upheld the order of the learned CIT(A) by deciding the issue against the assessee. The Tribunal vide order dt. 30th March, 2007, decided the issue against the assessee on merits in the light of detailed reasoning given in para Nos. 6 to 29 of that order. The Tribunal declined to accept the contention of the assessee, in the light of inser....
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.... force from 1st April, 1988 which was, therefore, not applicable in respect of the asst. yr. 1985-86; secondly, that some of the decisions cited before the Tribunal in the present matter were not cited on the earlier occasion; thirdly, that the issue raised was 'sensitive' and was not deliberated upon by the Tribunal on the earlier occasion. On this basis, the Tribunal declined to follow the order passed in respect of the asst. yr. 1985-86. It is now well-settled that when one Bench of the Tribunal takes a view, then another Bench of the Tribunal cannot pass a contrary order but must, if it disagrees with that view, have the conflict resolved by referring the matter to a Larger Bench. This is not only a matter of judicial propriety but also a matter of judicial discipline. In Union of India vs. P.D. Sharma & Ors. 2004 III AD (Del) 131, a Division Bench of this Court observed as follows: 'It is now trite law that a Co-ordinate Bench of the Tribunal cannot take a view contrary to a view expressed by earlier Bench rendered earlier. In case it differs from the decision of the earlier Bench, the only course open to it is to refer the matter to a Larger B....
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.... of the partnership firm M/s DLF Commercial Developers, and by credit, at an agreed value, to the assessee's capital account, amounted to a transfer of the asset to the partnership firm and can be assessed as the business profits of the assessee?" 11. The matter was then heard at length by the Special Bench on various dates i.e., 14th Oct., 2008, 20th Oct., 2008, 11th Nov., 2008, 17th Nov., 2008 and lastly on 18th Nov., 2008. However, in the course of dictating the order, it was felt that the question framed as above was restricting powers of the Bench to consider all aspects of the matter involved in ground Nos. 1.1 to 1.7 in as much as, in the question, a limited issue was framed to decide as to whether surplus from the contribution of land to a firm can be assessed as business profits of the assessee, though, in the course of hearing of the appeal, reliance was placed by the Department upon the applicability of s. 45(3) of the Act, as so referred to and relied upon by the authorities below in their orders, and also referred to by the Tribunal in its order dt. 30th March, 2007passed in first round of this appeal. The matter was again put up before the Hon'ble President....
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....than cost price to it, the surplus does not result in the taxable amount as there was no sale at that time. Likewise, there was no sale of stock-in-trade at time when the new partnership firm was created and the land was contributed by the assessee to a firm as its capital contribution. He further submitted that without prejudice, even if the transaction of contributing land stock as its capital is treated as transfer, no gain arises to the assessee on the transaction in question as the biggest difference lies in the fact of the present case is that the assessee transferred its stock-in-trade and not any capital asset. In this respect, the decision of apex Court in the case of Hind Construction Ltd. was relied upon by the learned counsel for the assessee by saying that the facts of the case of Hind Construction Ltd. were identical to the facts of the instant case of the assessee. In support of his contentions, the learned counsel for the assessee has also relied upon the following decisions: (i) Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC); (ii) Sir Kikabhai Premchand vs. CIT (1953) 24 ITR 506 (SC); (iii) Sanjeev Woollen Mills vs. CIT (2005) 199 CTR ....
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.... the view that the surplus arising on revaluation of its stock-in-trade at the time of contributing the same to a partnership firm is profit or gain chargeable to tax as the transaction amounts to a transfer of stock-in-trade from a partner to the firm is completely misleading and against the settled legal positions on the matter involved. 13.2 Having contended as above, the learned counsel for the assessee proceeded to argue that there is no charging provision in IT Act to tax this nature of transaction of making over a stock-in-trade as capital contribution to a firm in which the assessee is or becomes a partner. He further contended that if any transaction does not fall within the ambit of taxation, the tax cannot be imposed on the grounds of morality or equity. Similarly, in the converse situation, tax imposed by the statute must be levied in spite of its causing hardship to a taxpayer. In this connection, reliance was placed upon the following decisions: (i) CIT vs. Keshavlal Lallubhai Patel (1965) 55 ITR 637 (SC); (ii) Smt. Mohini Thapar vs. CIT 1972 CTR (SC) 214 : (1972) 83 ITR 208 (SC); (iii) CIT vs. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC)....
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....amount more than the cost to a partner. He submitted that the case of contribution of stock-in-trade by a partner to a firm is fully covered by the decision of Hon'ble Supreme Court in the case of CIT vs. Hind Construction Ltd. and not by propositions laid down by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT r/w s. 45(3) inserted in the statute w.e.f. 1st April, 1988. He urged that even the application of the provisions of s. 45(3) of the Act inserted w.e.f. 1st April, 1988 has not brought any change for bringing to tax the surplus arising from contribution of stock-in-trade by a partner to a firm at an amount more than the cost to the assessee because in the newly inserted s. 45(3) of the Act, the words "transfer of capital asset" are used though in the instant case of the assessee, it was a contribution of land which was held as stock-in-trade by the assessee. Thus, according to the learned counsel for the assessee, the decision of apex Court in the case of Sunil Siddharthbhai is of no help to the Revenue as their Lordships in that case were concerned with the situation where transfer of capital asset and not stock-in-trade was involved. 13.5 Wi....
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....hen the assessee claims that he contributed its stock-in-trade to a firm, and treated the sale value as its capital credited in its capital account in the books of a firm, the transaction is nothing but is, in reality and substance, a transaction by way of sale at a given value, which was to be paid by the firm to the assessee partner. If it is the case of the assessee that stock-in-trade is given as stock-in-trade to a partnership firm for business, it is a case of trading or commercial transaction and is to be considered as sale at a given value at which assessee's capital account is credited in the books of a partnership firm, and thus the surplus arising therefrom is to be charged to tax as a business profit. 14.1 He further submitted that the intention of the assessee with regard to the transaction in question is to be gathered or judged from over all conduct of the assessee and the entries made by it in its books of accounts. From perusal of entries made in the books of accounts by the assessee, it is clear that the assessee has treated the transaction as sale of stock-in-trade by it to a firm in as much as, the assessee has itself credited the amount of sales and resu....
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....om the cases where a partner sales his assets including stock-in-trade to the firm, where tax consequences would be the same as in the case of sale to an outsider. He then submitted that the present case is a case where stock-in-trade has been in reality sold by the assessee to a firm in which it became a partner as would be clear from the treatment given by the assessee to the transaction in its books of accounts, by crediting the amount as sales, and by crediting the resultant profit in its P&L a/c. 14.5 It was further submitted by the standing counsel for the Department that in the case of CIT vs. Hind Construction the apex Court examined the question only from the point of view of sale, and not from the point of view whether there was any transfer of asset from a partner to a firm, which question has been considered and answered by the Hon'ble apex Court in the case of Sunil Siddharthbhai holding that when any asset is contributed by a partner to a firm as its capital, it amounts to a transfer even under the general law. Senior standing counsel for Revenue has also placed reliance upon the following decisions: (i) Addl. CIT vs. M.A.J. Vasanaik (1979) 116 ITR 110....
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....t, inserted in statute w.e.f.1st April, 1998. 14.8 To sum up, the learned standing counsel for the Revenue submitted that the Revenue's arguments are twofold as under: (i) If it is assessee's case that it is case of capital contribution in the form of stock-in-trade, there is a change of ownership or extinguishment of right in that stock-in-trade of the assessee partner against the consideration credited in the assessee's capital account, and the surplus arising therefrom would be taxable as business profit. (ii) If it is case of assessee that it is a case of capital contribution in the form of capital asset, the amount credited in the assessee's capital account shall be deemed to be consideration received by the assessee on transfer of capital asset to a firm, and capital gain arising therefrom would be chargeable under the head "Capital gain" under the newly inserted provisions of s. 45(3) of the Act, inserted from 1st April, 1988. 14.9 As against the contention of the learned counsel for the assessee that there is no provision in the Act to bring to tax the surplus arising from revaluation of stock-in-trade at the time when same is contrib....
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....e of capital contribution or extinguishment of rights in the land of the assessee partner, and the surplus arising from change of ownership or extinguishment of right of the assessee would thus, be taxable as business profit, and is to be taxed accordingly. On question whether this is change of ownership or extinguishment of right of the assessee in the land in question, a reliance was also placed upon the decision of Hon'ble apex Court in the case of CIT vs. Mrs. Grace Collis & Ors. (2001) 166 CTR (SC) 201 : (2001) 115 Taxman 326 (SC). 14.11 He further submitted that position of apex Court in the case of Hind Construction Ltd. would be of no help to the assessee in as much as the transaction of constituting firm by contributing land held by the assessee at higher value than the cost to the assessee is nothing but a colourable and calculated device to evade payment of correct taxes in respect of the surplus amount credited in the assessee's capital account by the firm when the resulted profit has been credited by the assessee in its P&L a/c, but has not offered it to tax. He, therefore, submitted that the transaction of contribution of capital of land in a partnership fi....
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....ibuted by the assessee to partnership firm towards its capital, is nothing but is a contribution on capital account, and, thus, it has to be treated as capital asset. Therefore, even on this analogy, the surplus arising from the transaction in question by way of contribution of land as capital in a firm in which the assessee became partner at an amount more than the cost to the assessee, which has been credited in the capital account of the assessee in the books of the firm, is to be assessed under s. 45(3) of the Act if not found to be assessable under s. 28 of the Act. Rejoinder by the assessee 15. In the rejoinder, the learned counsel for the assessee reiterated that the main argument of the Revenue that the assessee has reflected the surplus in its P&L a/c and has shown the sales of land in the books, and, therefore, the treatment given by the assessee in its books of accounts clearly proves that it was a transaction of sale and it is only in the IT return that the assessee was claiming the surplus to be exempted from tax, is not tenable and acceptable in as much as it is well-settled that the entries in the books of account are not conclusive or determinative in deciding....
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.... record. 16.1 The question that arises for our consideration is whether, having regard to the facts and circumstances of the case, the surplus of Rs. 6.01 crores arising from the transaction of contributing the said land as capital by the assessee in a newly constituted partnership firm in which assessee became a partner, is liable to be taxed in the hands of the assessee as its income under IT Act, 1961. 16.2 In the light of the treatment given by the assessee to the transaction in its books of accounts, the main case made out by the Revenue is of sale or transfer of stock-in-trade by the assessee to a firm as against the assessee's claim that it is the case of capital contribution of stock-in-trade by a partner to a firm and not the case of any commercial or trading transaction in the business sense, and thus no sale or transfer of stock-in-trade had taken place. The answer to the controversy, in our opinion, rests mainly and primarily upon the determination of the nature of transaction made by the assessee as a partner with the firm in which assessee became a partner. We, therefore, find it necessary and proper on our part to first ascertain and determine the true natu....
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....een sold or transferred or otherwise transferred or employed in any transaction is a capital asset or not is to be decided, is the date of such sale or transfer, and not the time when it was acquired. We have to consider the changes in circumstances under which the asset is subsequently employed, from the circumstances prevailing on the date of its acquisition. It is also to be considered whether the case is a case of conversion of asset from one nature to another. In other words, it is also to be seen whether any capital asset has been converted into a stock-in-trade or vice versa, which can be determined with reference to the combined effect of all the factors appearing in any given case including the nature of the transaction in which it is employed and the intention of the party. 16.4 As held by various Courts time and again, for determining the real nature of income, the entries in the books of account are not decisive or conclusive. Whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto, and not on the view, which the assessee may take on his rights nor can the existence of entries in the books of accounts be....
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....the receipt or the transaction, as the case may be. In that event as already observed above, true nature and character of the transaction or receipt or asset in a given case is to be determined on a consideration of the totality of the circumstances of the case. Nature and character of transaction of making over personal assets of whatever character by a partner to a firm as capital contribution, in which he is or becomes a partner, and the nature of asset at time when it is employed therein 16.7 In the instant case before us, we are called upon to determine the true and correct nature of the transaction of contribution of partner's personal asset as capital contribution in the firm in which he became a partner. The facts of the present case reveal that the assessee company was carrying on a business of real estate, besides others. In the course of carrying on business of developing and dealing in real estates, the assessee held certain lands and right in lands as stock-in-trade of its business. The assessee company entered into a partnership with four of its subsidiaries companies and one individual as evidenced by the memorandum of partnership executed at New Delhi on 2....
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....r person as in law, there could be no sale to itself, and the readjustment of the value of its lands held by the assessee as its stock-in-trade could not in law result into any profit chargeable to tax. The assessee placed reliance upon the decision of Hon'ble Supreme Court in the case reported as CIT vs. Hind Construction Ltd. 16.8 For ready reference, the relevant portion of recitals made in the deed of partnership executed on23rd March, 1992between the assessee and five other persons, and made effective from16th March, 1992, are being reproduced here as under: "Partnership deed This memorandum of partnership made at New Delhi the 23rd day of March, 1992 between 1. M/s DLF Universal Ltd., a public limited company incorporated under the Companies Act, 1956 and having its registered office at Model Town, Faridabad in the State of Haryana of the one part; 2. M/s Apollo Land & Housing Co Ltd. also a company incorporated under the Companies Act 1956 and having its registered office at 1-E, Jhandewalan Extension, New Delhi of the second part; 3. M/s Moonlight Builder & Developers Ltd. also a company incorporated under the Companies Ac....
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....ought its right in the said plots into common stock of partnership to be treated as its contribution towards the capital of the partnership; and Whereas the party of the first past has already paid an amount of Rs. 1,27,90,215 as advance towards purchase of land to its subsidiary companies from whom the land hereby brought into the common stock of partnership has been agreed to be purchased but whatever further amount becomes payable to the subsidiaries, the same will be payable by the firm; and Whereas all the other parties hereto have agreed to contribute such amounts towards the capital of the partnership firm as are mentioned hereinafter and which may be varied from time to time; and Whereas it was agreed that further amounts required for the business of the partnership will be contributed by the parties hereto as may be mutually agreed upon from time to time; and Whereas the board of directors of the parties of the first to fifth part approved the proposal for their respective companies entering into partnership at their respective meetings. Whereas the business of the partnership has already commenced w.e.f. 16th day of March, 1992....
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.... or loss of a capital nature) in the following proportion: 1. M/s DLF Universal Ltd. 76% 2. M/s Apollo Land & Housing Co. Ltd. 5% 3. M/s Moonlight Builders & Developers Ltd. 5% 4. M/s Sunrise Land & Housing Co. Ltd. 5% 5. M/s DLF Builders & Developers Ltd. 5% 6. Mr. Rajinder Singh 4% 8. That the retirement, death, insolvency or liquidation of any of the parties hereto shall not lead to the dissolution of the partnership as between the surviving or continuing parties." 16.9 From the submission of the assessee made before the authorities below as well as before us, we see that the learned counsel for the assessee has tried to make out the nature and character of the transaction in question as under: (i) That the said land contributed as capital contribution by the assessee to the firm was held as stock-in-trade by the assessee. (ii) That the stock-in-trade was contributed to the firm as capital contribution by the assessee in the capacity of a partner. (iii) That the stock-in-trade contributed to the firm as capital contribution by the assessee in the capacity of a partner was also held as st....
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....ispute between the parties. 16.12 Now, the question arises as to whether the personal asset being said land contributed by assessee towards its capital in a partnership firm at the time the assessee became a partner is to be treated as capital asset or continued to be treated as stock-in-trade of the assessee, or whether it is a case of sale or transfer of stock-in-trade or capital asset, as the case may be, from a partner to a firm. Undoubtedly, a dispute in this regard does indeed lie between the assessee and the Department, which is to be decided in this case. 16.13 As already observed above herein, the book entries do not fix or regulate the liability of the assessee to tax. Moreover, the way in which entries are made by parties in their books of account or documents or papers is not determinative of the true and correct nature of the transaction. What is to be considered in the true and correct nature of the transaction with regards to the totality of the facts and circumstances of a given case. Therefore, the entries in the books of accounts of the assessee and the partnership firm alone are not decisive or conclusive to decide the question whether the assessee has tran....
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....by them in that case will hold good if the firm or the transaction is a genuine one, and thus observed as follows: "If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain, it will be open to the IT authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The ITO will be entitled to consider all the relevant indicia in this regard, whether the partnership is formed between the assessee and his wife and children or substantially limited to them, whether the perso....
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....4 of the Act as applicable from asst. yr. 1993-94 and subsequent years was duly made, and the AO has also assessed the firm as such till dates as is evident from assessment orders for asst. yrs. 1993-94 to 1998-99, which are placed in the paper book filed by the assessee. He, therefore, contended that the genuineness of the new firm cannot be doubted. In its comments against AO's observations (placed at pp. 10-21 of the paper books dt. 1st April, 2006 filed by the assessee on 10th April, 2006/12th April, 2006), the assessee stated that "if the transaction of contribution of stock-in-trade, as capital to the new firm is sham, no transfer under (sic) law takes place as the transaction was not intended to be given effect to. In any case, the alleged surplus for enhancing the value of the land by book entries does not tantamount to sale as no one can sell to himself, in view of the law laid down by the Supreme Court in the case of Hind Construction Ltd. 1974 CTR (SC) 157 : (1972) 83 ITR 211 (SC) and considered in Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC) upholding the decision of Hind Construction Ltd. Against CIT(A)'s observation, the assesse....
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....a/c prepared by the assessee. 16.19 We have considered this aspect of the matter touching the words of caution emphasized by the Hon'ble Supreme Court in the judgment in the case of Sunil Siddharthbhai. The learned counsel for the assessee has rightly submitted that these are very important observations of the Hon'ble Supreme Court. However, he submitted that in all the cases before us, no money whatsoever has been withdrawn by the assessee from the firms against the contribution of stock-in-trade made towards capital. In the light of the decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai, it is clear that it is open to the IT authority to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading ....
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.... by the assessee as valued by the expert. On a plot of land contributed by the assessee to a firm, the firm has developed/ constructed three commercial complexes namely, "Super Mart 1", "Galleria" and "Plaza Tower" since 1997 and 2000 onwards, and some portion of "Galleria" and "Super Mart 1" have been sold, but no portion of "Plaza Tower" has been sold till date. The first sale of 20 units out of total 272 units of Super Mart 1 were made in asst. yr. 1997-98, and the first sale of some units out of total 566 units of Galleria is stated to be made in the year of 2000. No business activities were carried out by the firm in the year of its constitution. The assessee's capital account in the books of a firm was credited by an amount of Rs. 11.50 crores on 16th March, 1992and it remained as closing balance as on 31st March, 1992. The capital so credited in assessee's account remained the same till31st March, 1998. However, on perusal of statement of accounts of a firm, viz., M/s DLF Commercial Developers, for the year ended on 31st March, 1993 to 31st March, 1998, filed by the assessee before us, we find that besides partner's capital account, current account of each partne....
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.... 31st March, 1998 as against capital of Rs. 11.50 crores. The aggregate amount of money withdrawn by the assessee comes to Rs. 59,31,22,721 (i.e., Rs. 59.31 crores) as against aggregate amount of profit fallen in assessee's share amounting to Rs. 5,34,22,109 (i.e., Rs. 6.34 crores) till 31st March. 1998, and thus the amount over-withdrawn by the assessee comes to Rs. 53,97,00,612 (i.e., Rs. 53.97 crores) as against capital of Rs. 11.50 crores standing in the name of the assessee as on 31st March, 1998. 16.23 In the light of the aforesaid facts establishing that the assessee had over-withdrawn net money to the extent of Rs. 53.97 crores till 31st March, 1998, the submission of the assessee that no money whatsoever has been withdrawn by assessee from the firm against contribution of stock-in-trade made towards the capital is totally misleading and false. The assessee has tried to give a totally wrong picture about the huge money withdrawn by it by debiting the same in a separate current account of partners and that too without making a whisper about it in its submissions made in this case either before the authorities below or before us. There is no dispute as to the propositi....
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.... a partner is not acceptable and is thus rejected. Therefore, even the partnership firm is considered to be genuine, the transaction of transferring assessee's land by way of capital contribution to the partnership at a market value more than the cost to the assessee represents a devise or ruse to convert the personal land of the assessee into money substantially for the benefit of the assessee while evading tax on a surplus amount arising to the assessee from the said transaction. In this view of the matter, which we have taken in the light of word of caution mentioned by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai, the amount representing the value of land contributed by the assessee as its capital in a firm in which the assessee became a partner and which has been credited in the assessee's capital account, is to be considered as a consideration received by the assessee on the transfer of its personal asset to a partnership firm. We, therefore, hold that the surplus arising from making over assessee's personal asset, i.e., said plot of land in question, to the firm as his contribution to its capital account is a profit or gain accrued to the asse....
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.... asset contributed by partner to a firm as its capital contribution should be regarded as capital asset brought in by the partner to the firm in which he became a partner. 16.27 To resolve this controversy, we think that it is appropriate for us to find out what right arises or accrues to a partner from the transaction of contributing his personal asset as its capital in the partnership firm in which he becomes a partner. In this respect, making a gainful reference to the judgment of three Judges of the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT would suffice as, in this decision, the Hon'ble Supreme Court has analyzed and considered number of decisions decided time and again by the various High Courts and also by Supreme Court including its own decision in the case of Hind Construction Ltd. and Malabar Fisheries Co., which have been heavily relied upon by the learned counsel for the assessee to support his contention advanced before us. 16.28 In the said decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai, it has been held that the consideration for the making over of the personal asset by the partner to a firm is the right,....
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....ccount of personal assets brought in into the partnership firm towards capital contribution is made merely for the purpose of the adjusting the rights of the partners inter se when the firm is dissolved or any partner retires. In this case, it has also been held that whatever is brought into the partnership ceases to be exclusive property of the person who brought it in, that is, an exclusive interest is reduced to a shared interest, as so contended by the assessee also vide contentions raised into ground No. 1.4 by the assessee. 16.30 The Hon'ble Supreme Court in the case of Sunil Siddharthbhai has noted the observation made in its own judgment in the case of Addanki Narayanapa vs. Bhaskara Krishanappa AIR 1966 SC 1300 : (1966) 3 SCR 400, where the Hon'ble Supreme Court explained the identical proposition as laid down in the case of Sunil Siddharthbhai vs. CIT, by observing as under: ".....Whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of pro....
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....at when a partner brings in his personal asset into a partnership firm as his contribution to its capital, an asset which originally was subject to the entire ownership of the partner becomes now subject to the rights of other partners in it. It is not an interest which can be evaluated immediately, it is an interest which is subject to the operation of future transactions of the partnership, and it may diminish in value depending on accumulating liabilities and losses with a fall in the prosperity of the partnership firm. The evaluation of a partner's interest takes place only when there is a dissolution of the firm or upon his retirement from it. It has sometimes been said, and we think erroneously, that the right of a partner to a share in the assets of the partnership firm arises upon dissolution of the firm or upon the partner retiring from the firm. We think it necessary to state that what is envisaged here is merely the right to realise the interest and receive its value. What is realized is the interest which the partner enjoys in the assets during the subsistence of the partnership firm by virtue of his status as a partner and in accordance with the terms of the partne....
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....hip firm. On evaluation, that share in a particular case may be realised by the receipt of only one of all the assets. What happens here is that a shared interest in all the assets of the firm is replaced by an exclusive interest in an asset of equal value. That is why it has been held that there is no transfer. It is the realisation of a pre-existing right. The position is different, it seems to us, when a partner brings his personal asset into the partnership firm as his contribution to its capital. An individual asset is the sole subject of consideration. An exclusive interest in it before it enters the partnership is reduced on such entry into a shared interest." 16.34 In this decision, the Hon'ble Supreme Court further observed that there is no difficulty in accepting proposition that when a partner hands over a business asset to a partnership firm as his contribution to its capital, he cannot be said to have effected a sale. But while the transaction may not amount to a sale, can it be described as a transfer of some other kind? 16.35 In the said case the Hon'ble Supreme Court then observed and held as under: "In its general sense, the expression 't....
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....n of the intention and agreement of the parties. The view does not spring from the consideration that there is no transfer, the view is that no document of transfer is required and that, therefore, registration is unnecessary. The Patna High Court reiterated that view in Sudhansu Kanta vs. Manindra Nath AIR 1965 Pat 144." 16.37 Thereafter, with reference to shares brought in by the partner into the firm, the Hon'ble Supreme Court has held as under: "Accordingly, we hold that when the assessee brought the shares of the limited companies into the partnership firm as his contribution to its capital, there was a transfer of a capital asset within the terms of s. 45. In this view of the matter, we agree with the conclusion reached by the Kerala High Court in A. Abdul Rahim, Travancore Confectionery Works vs. CIT (1977) 110 ITR 595 (Ker), the Karnataka High Court in Addl. CIT vs. M.A.J. Vasanaik (1979) 116 ITR 110 (Kar) and by the Gujarat High Court, in the judgment under appeal." Various propositions of law laid down by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT 16.38 From the aforesaid decision of three Judges of the Hon'ble Supre....
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....'s interest takes place only when there is dissolution of the firm or upon his retirement from it, and what is realized is the interest which the partner enjoys in the asset during the subsistence of the partnership firm by virtue of his status as a partner, and in accordance with the terms of the partnership agreement. It is because that interest exists already before dissolution, as was held by Hon'ble Supreme Court in the case of Malabar Fisheries Co. vs. CIT, that the distribution of the assets on dissolution or upon the retirement is the realization of a pre-existing right or an interest, which does not amount to a transfer to the erstwhile partners. What the partner gets upon dissolution or upon retirement is the realization of a pre-existing right or interest. That is why it has been held that there is no transfer. (vi) When a partner hands over its business asset to a partnership firm as his contribution to its capital, he cannot be said to have effected the sale. (vii) In its general sense, the expression "transfer of property" connotes the passing of right in property from one person to another. In one case there may be a passing of the entire bu....
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.... personal asset to partnership firm there can be no reckoning of the liabilities and losses which the firm may suffer in years to come. It is impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm when neither can the date of dissolution or retirement be envisaged nor can there be any ascertainment of liabilities and prior charges which may not have even arisen yet. Therefore, the consideration which a partner acquires on making over his personal asset to the firm as his contribution as its capital cannot fall within the terms of s. 48 of the Act. (xi) The view that when a person brings in even his immovable property as his contribution to the capital of the firm, no document or registration is required under s. 17(1)(b) of the Registration Act does not spring from the consideration that there is no transfer. (xii) On introducing his personal asset into the partnership firm as his contribution to its capital, it cannot be said that any income or gain arises or accrues to the assessee in a true commercial sense which a businessman would understand as real income or gain. (x....
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....the asset involved in that transaction as stock-in-trade does not arise. It is altogether a different matter that before contributing any personal asset by the partner to a firm, it might have a character of stock-in-trade or capital asset or any other asset in the hands of a partner, but at the time when the same is contributed as capital contribution in a firm in which the assessee becomes a partner, it would certainly have a character of capital asset only having regard to the capital nature of the transaction and nature of rights acquired by a partner in the firm on his becoming a partner. In other words, whatever may be the character of the property in the partner's hand before the same is brought in by the partner as capital contribution when a partnership is formed and he becomes a partner, the property brought in partakes the character of a capital asset, and in consideration of it being contributed to a partnership towards its capital, the partner acquires a right to get his share of profit in the firm, and upon dissolution of the partnership firm or his retirement, a partner is entitled to get share in the asset of the firm which remains after satisfying the liabiliti....
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....r and in the light of the fact that when partner hands over its personal asset of whatever character to a partnership firm as his contribution to its capital, the transaction cannot be said to be in the nature of trading or commercial one so as to treat the asset involved in such transaction as stock-in-trade. The logical and rational view or conclusion that one could arrive is that at the time when any asset is transferred by a partner to a partnership firm as his contribution to its capital, the asset cannot retain the character of stock-in-trade at that material point of time and in the course of such contribution of capital as the same is not employed in any commercial or trading transaction carried out in the course of any business activity of the partner. There is no quarrel as to the contention of the assessee that as per definition of "capital asset" defined under s. 2(14) of the Act, any stock-in-trade, consumable stores or raw materials held for the purpose of the business or profession of the assessee are excluded from the ambit of "capital asset". In other words, an exception has been provided in the definition of "capital asset" under s. 2(14) of the Act to exclude "st....
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.... value can be attached thereto. The grocer would debit the cost of the stock withdrawn by him for his personal consumption which would negative the cost of purchase debited in the trading account, and the item shall be considered to be out of the purview of stock-in-trade at the time the grocer withdraws his stock for his personal consumption. In the case of Sir Kikabhai Premchand vs. CIT, the Hon'ble Supreme Court has decided that it is only a cost that should be the basis for computing the business income on conversion of stock withdrawn from business. In this case, the Hon'ble Supreme Court has taken up an illustration of a dealer in rice held as stock, drawing a small part of it for his home consumption. If he had debited the purchase to personal account, even initially, there would have been no profit element reckoned on such purchases. It should, therefore, make no difference merely because such stock is merely routed through business books. In the decision in the case of Sir Kikabhai Premchand vs. CIT, the Hon'ble Supreme Court further observed that withdrawing stock-in-trade by a businessman is not a business transaction and by act of withdrawal no profit can be....
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....ares into stock-in-trade of his business dealing in shares, and later on sold the shares, it was held that the profits on sale of shares sold by the assessee must be computed at the difference between sale price and the market price of the shares on the date of their conversion as stock-in-trade of the business of the assessee. As already observed above, whether there is any such conversion of stock-in-trade to capital asset or capital asset into stock-in-trade can only be decided in the light of the facts and circumstances of a given case. The taxability of the amount being the difference between the cost of asset originally acquired as investment and the market price of the asset on the date of its conversion from capital asset to stock-in-trade, now takes care of by the provisions contained in sub-s. (2) of s. 45 of the Act, which has been inserted w.e.f.1st April, 1985with a view to bring the aforesaid difference to tax as capital gain on conversion of investment into stock-in-trade. Since market value was adopted on conversion of investment into stock-in-trade in the aforesaid decision of Hon'ble Supreme Court in the case of CIT vs. Bai Shirinbai K. Kooka, it was considere....
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....ardd2, and Accounting Standard-10 (AS-1, AS-2, and AS-10 respectively) in reply to the query raised by the Bench about the meaning of words "capital asset" and "stock-in-trade". It was pointed out to the Bench by both the parties that AS-2 deals with the valuation of inventories. The meaning of inventories as defined in AS-2 is that the inventories are assets held for sale in ordinary course of business; in the process of production for such sales; or in the form of materials or supplies to be consumed in the production process or in the rendering of services. Above meaning given to the inventories is an accepted proposition. From this definition of stock-in-trade or inventory, it is clear that in order to consider any asset as stock-in-trade or inventory, it is to be established that it was held for sale in the ordinary course of business; in the process of production of such sales; or in the form of materials or supplies to be consumed in the production process or in rendering of services. Under s. 2(14) of the Act, any stock-in-trade, consumable stores, or raw materials held for the purpose of his business or profession are excluded from the ambit of "capital asset". The express....
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....l asset within the meaning of s. 2(14) of the Act. Such an asset being a share of a partner in a partnership firm can be transferred, like any other property, and, on transfer being completed, the charge on capital gain tax would be attracted. As already observed above, when a partner of a firm makes over his personal asset to a firm as its contribution towards capital, the partner acquires a right to receive share in profit of the firm during the subsistence of the partnership and upon its dissolution or on his retirement, a right to share in the net asset of the firm. It thus, makes it clear that the partner has acquired a capital asset in the nature of his share in the partnership firm in consideration of his making over his personal asset to a firm. The transaction of making over personal assets to a firm, or receiving or realization of his share in assets on dissolution of the firm or on retirement of the partner, is undoubtedly to be held on a capital field. 16.45 Therefore, having regard to the nature of the transaction of contributing asset by a partner to a partnership firm towards his capital, the nature of the right that the partner acquires when he contributes his pe....
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....stock-in-trade were used to be valued as per the said method of valuation at the end of the year when accounts of the assessee were made out. However, on 16th March, 1992 in the middle of the current year under consideration, the assessee got only the land in question revalued by the experts determining the market value as on 16th March, 1992 at Rs. 11.50 crores, which is more than the cost to the assessee, and the land was then contributed to the newly constituted partnership firm as capital contribution, and the surplus of Rs. 6.01 crores arising from the said transaction, was credited in the P&L a/c of the assessee firm and the value of the land was credited in the capital account of the assessee partner in the books of the firm. In this respect, and at this stage, we must keep in our mind that all other plots of lands and right in land held by the assessee as stock-in-trade, except the land in question, were neither valued nor any entry of any revaluation in respect thereto was made in the accounts of the assessee company. The conduct of the assessee in valuing only a part of stock-in-trade at market value as on 16th March, 1992 for the purpose of contributing the same as capit....
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....ssessee in its records and books, though the same may not be conclusive but are undoubtedly a relevant factor coupled with some other factors or circumstances appearing in any given case. From all the factors as discussed above, if taken together, along with the position of law as to the nature of the transaction and rights acquired by the assessee on becoming a partner in a firm, it is clearly established and proved that the land held by the assessee as stock-in-trade before the same was contributed to a firm as capital has been converted into a capital asset at the time when the same was contributed as capital contribution to a firm in which the assessee became a partner. In this view of the matter, we, therefore, hold that the land in question contributed by the assessee as capital to a firm in which assessee became a partner was a capital asset in nature at that relevant point of time, and all the incidence of taxation would thus follow accordingly. 16.47 Before proceeding further, at this juncture, we have to deal with one more aspect of the matter flowing from the contentions of the learned counsel for the assessee to the effect that the AO as well as the CIT(A) have not c....
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.... has contended that it is a case where stock-in-trade has been contributed to a partnership firm by the assessee as its capital contribution and no commercial or trading transaction has taken place so as to give rise to a sale or transfer of stock-in-trade by a partner to a firm. In the light of the controversy set out above, we have addressed ourselves to determine the true and correct nature of the transaction and/or the asset employed in the transaction under which the assessee partner contributed towards its capital its personal asset held by it as stock-in-trade before the same was contributed as its capital to a firm, in which the assessee became a partner. This question whether the land in question was a capital asset or stock-in-trade in nature at the time when the same was contributed by the assessee to a partnership firm as its capital contribution when the assessee became a partner in that firm, is not one of fact: though it is dependent on the facts and the circumstances of the present case, the question does involve conclusions of law to be drawn from those facts. We, therefore, do not find any force or merit in the contention of the learned counsel for the assessee th....
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....rtake the character of capital asset at that material point of time. The learned standing counsel for the Revenue advanced an alternative argument based on same set of facts but on different conclusions of law drawn from those facts that in case the contribution of land by assessee partner to a firm is accepted to have been made towards its capital contribution in a firm and the land involved in the said transaction of capital contribution to a firm is held to be of a "capital asset in nature" at the time when the same was contributed as capital contribution, the profit or gain arising from the transfer of a land by the assessee to a firm may be taxed under s. 45(3) of the Act inserted with effect from asst. yr. 1988-89. This alternative argument is, in our view, undoubtedly arising from the same set of facts, and in respect of same item of income arising from the same transaction, which have been considered in the assessment, made by the AO. Further, the provisions of ss. 2(14), 2(47) and 45(3) of the Act were very much relied upon by the AO while assessing the item to tax as is clear from the respective orders of the authorities below and from the submissions of the assessee made....
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....mitted the fact that the land was contributed as capital contribution by the assessee in the capacity of a partner. The subject-matter involved in this issue is also not being changed in as much as in the light of the facts available on record and that were considered by the authorities below and also relied upon by the assessee, the same very transaction of contributing the land by a partner to a firm as its capital contribution is the sole basis to decide the alternative contention raised by the Revenue. By allowing Department to raise this additional plea, we do not think that we traverse beyond the subject-matter of dispute between the parties involved in this case. This alternative plea raised by the Revenue does not altogether change the complexion of the case, and only change sought to be made is to determine the correct head of income on same set of facts. The various decisions relied upon by the learned counsel for the assessee are, therefore, not applicable to the present case in as much as those cases were rendered either in the situation where new facts were considered, benefit already granted to the assessee was sought to be withdrawn, the subject-matter of the appeal ....
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....ding of income should not be regarded as such a new point as to make the other side taken by surprise, especially when all the facts necessary for that purpose are already on record and in the instant case the Department was given full opportunity by the Tribunal to meet the contention that was being permitted to be raised by the respondent for the first time in appeal. In our view, therefore, there was no question of placing the appellant in a worse position, which seems to be the implication of the question as framed. The Tribunal, in our view, was justified in permitting the respondent to agitate before it its contention that its income was assessable under the heading 'Business income' and, accordingly, the first question is answered in the affirmative." 16.48.5 The Special Bench in the case of Sumit Bhattacharya vs. Asstt. CIT has observed and held as under: "It is well-settled that the Tribunal is competent to change the head of income even at the instance of the respondent when all the relevant facts are already on record and as long as both the parties are heard on that issue. In the instant case, it was the alternate contention of the Revenue that in th....
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.... this appeal, a query was also raised by the Bench to both the parties to explain as to whether the income in question can be assessed under the head "Capital gain", and both the parties have advanced their arguments. As held by the Hon'ble Bombay High Court in the case of CIT vs. Gilbert & Barkar Manufacturing Co., the question whether a particular income should be brought to tax under one or other head cannot be considered to be entirely new point. The assessee has been given full opportunities to meet the alternative contention raised by the Department before us. In the case of the Sumit Bhattacharya vs. Asstt. CIT, the Special Bench had taken a view that the income, which was assessed by the AO under the head "Salary", could be taxed under head "Income from other sources", and the issue was decided accordingly by the Special Bench. In this respect, a reliance may also be placed upon the decision of Hon'ble Bombay High Court in the case of B.R. Bamasi vs. CIT (1972) 83 ITR 223 (Bom), where new ground before the Tribunal during arguments by the assessee in answer to appeal was permitted. The decision of Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. vs. CI....
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.... and not as a profit from investment. In this case, the assessee made a fresh claim by contending that the shares held by it as stock-in-trade seized to be its stock-in-trade on the conversion of the company from a public company to a private company of which the assessee was holding shares as stock-in-trade, though, in the present case before us, it is the conduct of the assessee itself that he decided to contribute the land in question as capital in a partnership firm in which assessee became a partner, and it is not the case of realization of any money by the assessee in lieu of land in question held by it as stock-in-trade before the same was contributed as capital to a firm. Conclusion 16.49 Applying the propositions laid down by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT to the facts of the present case and in the light of the view we have expressed above, we hold as under: (i) When the assessee made over the said land in question to the partnership firm as his contribution to its capital, what right the assessee has acquired, during the subsistence of the partnership firm, is to get its shares of profits from time to time, and aft....
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....g right and that is why it has been held that there is no transfer though when a partner brings his personal asset into the partnership firm as his capital contribution to its capital, an exclusive interest of a partner in his personal asset before the partner enters the partnership reduced to a shared interest. Therefore, the proposition laid down by the Hon'ble Supreme Court in the case of Malabar Fisheries Co. vs. CIT, which was a case where on dissolution of partnership firm, a partner realized or received his interest in the partnership, has been distinguished by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT. Therefore, the meaning of "transfer of property" given by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT in the cases where partner brings his personal assets to a firm towards capital contribution is applicable to all kinds of assets brought in by the partners to a firm towards its capital contribution, and not only to a capital asset held by the partner before the same was contributed in the partnership. The analogy of reducing of exclusive interest of a partner, to shared interest in case partner brings in his pe....
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....als of two different assessees. In Civil Appeal No. 1841 of 1981, the assessee made over certain shares of limited company which were held by him as his capital asset to a firm as his contribution to the capital of the partnership firm. In Civil Appeal No. 1777 of 1981, the assessee introduced his share holdings in the partnership firm as his capital contribution. The partnership firm credited the accounts of the partners with the market value of the shares. In Civil Appeal No. 1841 of 1981, it has been specifically observed by the Hon'ble Supreme Court that shares were held by the partner as his capital asset, but in Civil Appeal No. 1777 of 1981 nothing is mentioned about whether share holdings by the partner was held as capital asset or as trading asset. While deciding the issue whether there was transfer of shares, the Hon'ble Supreme Court decided the issue by observing that "we hold that when the assessee brought the shares of the limited companies into the partnership firm as his contribution to its capital, there was a transfer of a capital asset within the terms of s. 45 of the IT Act". From the said observation and decision of Hon'ble Supreme Court, it cannot ....
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....sition about avoiding liability to income-tax on capital gain by way of transfer of asset by a partner to a firm is applicable to all classes of assets transferred by a partner to a firm. It thus makes it clear that whatever may be the nature of the asset initially held by a partner before the same is contributed by him as capital contribution to a partnership firm, it shall assume the character of a capital asset at the time when it is contributed to a firm as capital contribution and any surplus arising therefrom is chargeable to tax as capital gain. Therefore, from this angle also, we hold that the decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT is applicable not only to the cases where any capital asset of a partner is transferred by a partner to a firm as his capital contribution but, it is applicable to all kinds of personal assets of the partner transferred by him to a partnership firm as capital contribution, and in all such cases the liability of income-tax on capital gain would arise. (vi) There is no quarrel as to the proposition that no income chargeable to tax would arise on mere revaluation of the closing stock at a market val....
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....e contributes its personal asset held by it to a firm as its contribution towards capital, the assessee cannot be said to have effected any trading or commercial transaction, but the transaction shall be considered to have been effected on capital field. Therefore, the nature and character of land contributed by the present assessee to a firm towards its capital contribution shall assume the character of "capital asset" at the time when it was contributed to a firm towards capital contribution. (ix) There is no quarrel as to the proposition that there is no transfer on mere conversion of stock-in-trade into capital assets and/or on revaluation thereof in the assessee's books and no income arising on such conversion. In other words, there could not be any actual profit or loss on withdrawal of stock-in-trade from a trading business and its conversion into capital asset. There was no deeming fiction to deem the conversion of stock-in-trade into capital assets as a transfer or to deem the fair market value as on the date of conversion as the cost of acquisition of the capital assets. However, a transfer does take place when any personal asset of a partner is introduced in....
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.... it to a firm as capital contribution shall be assessable to tax as profit or gains under the head "Capital gain" under s. 45 of the IT Act, and for that purpose, the amount of Rs. 11.50 crores recorded in the books of accounts of the partnership firm as the value of the land shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the land as so provided under sub-s. (3) of the s. 45 of the Act, effective from the asst. yr. 1988-89. (xi) Even otherwise, the surplus arising to the assessee from the transaction of contribution of land as capital contribution to a firm in which the assessee became a partner shall be chargeable to tax in view of our finding given above that the transaction of transferring the land in question to the partnership firm is a device or ruse to convert the land in question into money substantially for the benefit of the assessee as the assessee has withdrawn substantial amount as observed and pointed out above in paras 16.19 to 16.24 of this order, for its benefit as a part of its well designed and calculated colourable strategy to convert the land into money for its own benefit. (xii) W....
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.... the AO may take into consideration the ratio of the following decisions after providing an opportunity to the assessee to have its say in that regard: I. CIT vs. Jannhavi Investments (P) Ltd. (2008) 215 CTR (Bom) 72 : (2008) 304 ITR 276 (Bom) (for computing the capital gains tax the "cost of acquisition" and not the cost or value on the date on which the asset was treated as a capital asset is relevant. Cost of acquisition on date asset was actually acquired and not on date of conversion to capital asset is relevant for the purpose of computing capital gain.) II. Keshavji Karsondas vs. CIT (1994) 120 CTR (Bom) 109 : (1994) 207 ITR 737 (Bom) (for the purpose of computing capital gain, the cost of acquisition is the cost on the date when the asset was acquired and not the cost or value on date when asset became capital asset.) III. Ranchhodbhai Bhaijibhai Patel vs. CIT (1971) 81 ITR 446 (Guj) (the only circumstances which must be satisfied in order to attract the charge to tax on capital gains under s. 45 of the Act is that the property transferred must be a capital asset at the date of transfer and it is not necessary it should have been a capital asset o....
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....e High Court. The order of the Tribunal dt. 30th March, 2007shall, therefore, be applied accordingly insofar as the issue involved in the aforesaid ground Nos. 4, 5, 6, 7, 8, 9, and 11 are concerned. 19. Now, we shall come to the ground No. 3, wherein the assessee has challenged the order of the CIT(A) in confirming the disallowance out of sales and business promotion expenses of Rs. 5,30,258. 20. This issue has been discussed by the Tribunal in paras 38 to 42 of its order dt. 30th March, 2007passed in the first round, whereby the Tribunal has sustained the addition of Rs. 3,00,000, and allowed the balance relief to the assessee. On this issue, the assessee had taken a ground before the Hon'ble High Court as could be seen from the memorandum of appeal filed by the assessee before the Hon'ble High Court. However, the Hon'ble High Court has remitted the matter back to the Tribunal for fresh consideration only in respect of the issue with regard to the addition of surplus arising on revaluation of the land, when the same was contributed to a partnership firm, in which the assessee has became a partner, and the only question framed by the Hon'ble High Court was wi....
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.... 1996-97, and 2001-02. Respectfully following the earlier decision of the Tribunal, where the Tribunal has held that the recourse of proviso to s. 145 of the Act is uncalled and book results are to be accepted. Thus, this ground is decided in favour of the assessee. 24. Ground No. 2 is directed against the CIT(A)'s order in disallowing the loss of Rs. 97,51,324 by holding that the sale price in respect of the constructed/built-up property should be accounted for at the time of handing over the possession or making convenience, which is earlier. In the course of hearing of this appeal, it has been pointed out by the representatives of both the parties that this issue is covered by the earlier decision of the Tribunal in the asst. yr. 1994-95 in ITA No. 3232/Del/2001, which has been followed by the Tribunal in the subsequent asst. yrs. 1995-96, 1996-97, and 2001-02. Respectfully following the Tribunal's earlier order in the asst. yr. 2004-05, where the Tribunal has held that the loss was disallowed by the AO after rejecting the method of accounting for booking of revenue at the time of convincing on built-up property, and in the light of the Tribunal's decision that th....
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.... for fresh adjudication in accordance with the directions contained in earlier order of the Tribunal. we restore this issue to the file of the AO, and decide the issue in accordance with the directions given by the Tribunal in earlier years. 27. Now we come to the ground No. 4, which is directed against the CIT(A)'s order in confirming the addition of Rs. 14,36,41,533 being the surplus arising on land/rights in land held as stock-in-trade by the assessee, and brought into the partnership firm M/s Real Estate Builders as capital contribution. 27.1 During the relevant year corresponding to the asst. yr. 1997-98, the assessee became a partner in the newly constituted partnership firm, viz., M/s Real Estate Builders with profit/loss sharing ratio at 20 per cent. The assessee company contributed its ownership in 61 plots of land admeasuring 30,148.340 sq. mtrs. as well as its right to purchase 11 plots owned by its subsidiary company, 6,321.06 sq. mtrs. in Qutab Enclave Complex, as capital contribution in the said partnership firm. These plots of land were converted as capital investment in the firm at an agreed value of Rs. 21.15 crores, The transfer value of Rs. 21.15 crores....
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....h was also brought by the assessee into the common stock on partnership, and in consideration thereof, the sum of Rs. 1,75,00,000 was credited to the account of the assessee in the account books of the partnership firm as on 31st Jan., 1997. Thus, total amount of Rs. 21,15,00,000 (Rs. 17,60,00,000 + Rs. 1,80,00,000 + Rs. 1,75,00,000) was credited to the assessee's account in the account books of the partnership firm as on 31st Jan., 1997. It was further provided that w.e.f. 31st day of January, 1997, the said 61 plots and 11 plots of land had become absolute property of the partnership firm. It was further provided that out of the aforesaid amount of Rs. 21,15,00,000 (Rs. 21.15 crores) being value of the plot of land brought in by the assessee to a firm, the sum of Rs. 20,00,000 (Rs. 0.20 crores) will be treated as assessee's capital and shall carry no interest, and the remaining amount of Rs. 20,95,00,000 (Rs. 20.95 crores) will be treated as loan to the partnership firm, which may be either free of interest or carry interest at such rate as may be mutually agreed upon from time to time. We hold that the surplus arising to the assessee from the transfer of 61 plots of land....
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....ver, the assessee has indulged into a well-designed and colourable strategy to convert its stock-in-trade into money by constituting various partnership firms year after and contributing part of its land out of total land held as stock-in-trade into various firms. The various partnership firms constituted by the assessee from year to year in asst. yr. 1992-93 and then in asst. yrs. 1997-98 to 2000-01, and also the details of total value of land contributed by the partners, the total amount treated as capital contribution, and the amount treated as loan by the assessee to a firm have been placed before us by the learned counsel for the assessee, which are annexed as Annex. A to this order. Therefore, in this view of the matter, the surplus arising from the transaction of transfer of assessee's property to a partnership firm is chargeable to tax in terms of our order for asst. yr. 1992-93. ITA No. 3233/Del/2001: Asst. yr. 1998-99 28. Now we shall come to the appeal filed by the assessee for the asst. yr. 1998-99, directed against the CIT(A)'s order dt. 13th June, 2001, passed in the matter of an assessment made under s. 143(3) of the IT Act, 1961 ("the Act") 29. Grou....
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....refully gone through the orders of the authorities below. 30.4 In this asst. yr. 1998-99 two partnership firms viz., M/s DLF Office Developers and M/s DLF Properly Developers were constituted vide memorandum of partnership executed on 23rd March, 1998 made effective from 24th Feb., 1998, wherein the assessee became a partner along with eight of its subsidiaries as partners in M/s DLF Office Developers and with other sixteen of its subsidiaries as partners in M/s DLF Property Developers. The assessee brought certain plot of land held by it into the common stock of partnership valued at Rs. 3,70,00,000, which amount was credited to the account of the assessee in the account books of the partnership firm. Out of the aforesaid amount of Rs. 3,70,00,000, the sum of Rs. 12,00,000 was treated as assessee's capital contribution without carrying any interest, and the remaining amount of Rs. 3,58,00,000 has been treated as a loan by the assessee to a partnership firm, which may be cither free of interest or carry interest at such rates as may be mutually agreed upon from time to time. The property brought in by the partners were treated as a property of a partnership firm on and from2....
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....t. yr. 1997-98. Therefore, in terms of our order on the identical issue passed in the asst. yr. 1997-98 vide this common order, this issue has been decided accordingly. In other words, the decision on the identical issues rendered in the asst. yr. 1997-98 shall also apply to the identical issues raised in this asst. yr. 1999-2000. 33. Ground No. 2 in asst. yr. 1999-2000 against the CIT(A)'s order in confirming the addition of Rs. 54,82,91,077 being surplus arising on contribution of land held as stock-in-trade by the assessee and contributed to the partnership firm as capital contribution by the assessee in the capacity of a partner. 33.1 In this asst. yr. 1999-2000, the assessee became a partner in five newly constituted partnership firms. The assessee company contributed its land and right to purchase land owned by its subsidiary companies inDLFCity, Gurgaon to the partnership firms as capital contribution. Total value of all piece of lands were determined at an agreed value of Rs. 78.55 crores. These plots of lands were contributed by the assessee as capital contribution in the aforesaid five newly constituted partnership firms. As a result of this transaction, a surpl....
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....out the rejection of the method regularly employed by the assessee by the AO, and then confirming the addition on account of reworking of the cost of land at the average purchase price of land in Qutab Enclave Complex, and thus, making addition of Rs. 34,30,308, and addition of Rs. 1,60,69,880 on account of internal development expenses. This issue is covered by the Tribunal's decision in asst. yr. 1994-95, which has been followed in asst. yrs. 1995-96, 1996-97, and 2001-02. The aforesaid decision of the Tribunal has been followed by us while deciding these issues in the asst. yrs. 1997-98, 1998-99, and 1999-2000. Therefore, this issue is decided in favour of the assessee in terms of our order of the aforesaid years following the decision of Tribunal passed in asst. yr. 1994-95. 36. Ground No. 2 is with regard to the addition of Rs. 6,27,000 on account of accrued interest on FDRs made after withdrawal under authority of Haryana Government from internal development bank account. This issue has also been considered in the asst. yrs. 1997-98, 1998-99, and 2000-01 above after following the earlier decision of the Tribunal. Therefore, this issue has been decided accordingly in te....
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....-98 shall also be applicable to this issue arising in this asst. yr. 2000-01. 38. In the result, all these appeals filed by the assessee are partly allowed in the manner as indicated above. 39. This decision is pronounced in the open Court on 4th Jan., 2010. DEEPAK R. SHAH, A.M.: 40. I have perused the draft order proposed by my esteemed colleague. In so far as the appeal for asst. yr. 1992-93 is concerned, I am unable to concur with the proposition laid down as regards ground No. 1 (divided into sub-ground Nos. 1.1 to 1.7). As regards other grounds I fully agree with the finding given in relation thereto. Therefore, I proceed to hold as under in relation to ground No. 1 for asst. yr. 1992-93. 40.1 In the draft order proposed by my learned Brother the facts and arguments are elaborately discussed and hence I do not propose to comment upon the same. However, in para 16 of the draft order the proposition is laid down to which I am unable to agree and hence I proceed to hold as under. 41. The facts which are never in dispute are that the assessee was holding certain land as its stock-in-trade. The lands were brought in by the assessee as its capital contribution in a....
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....rm. The firm is not distinct and separate from the partners constituting it. Therefore when any transaction takes place in normal course between a partner and a firm, no new rights are created. The Full Bench of Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT made observation as to the right of partner when the partner introduces his assets as its capital contribution in the firm. These observations are elaborately noted in paras 16.30, 16.31, 16.32, 16.33, 16.35, 16.36 and 16.37 of the draft order proposed by my learned Brother. Various propositions laid down by Hon'ble Supreme Court in the said case are also summarized in para 16.38 of the draft order. In para 16.28 of the draft order the effect of introduction of the asset by a partner to a firm in which he become the partner has been summarized as to give following rights accruing in favour of a partner at the time of introduction: "(i) Right to get his share of profit from time to time during the subsistence of the partnership; and (ii) On the dissolution of partnership or with his retirement from the partnership, the right to get the value of his shares in the net partnership asset a....
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.... charging provision of s. 45 and the computation provision contained in s. 48 cannot be applied in relation to stock in-trade. As per s. 2(47) the word "transfer" in relation to a 'capital asset' is defined to include various types of transactions. However, the said definition of transfer is only in relation to a capital asset and since the phrase "capital asset" excludes "stock-in-trade", the definition contained in s. 2(47) cannot be applied to a stock-in-trade. When the profits of business is to be computed under s. 28 of the Act, the income chargeable under the head 'Profits and gains of business or profession' shall be of any business or profession which was carried on by the assessee at any time during the previous year. The business can be carried on by the person either alone or in partnership with other partners. However, when the asset held by the partner individually is introduced by him as its capital contribution, it cannot be said that the assessee has carried on business with the firm in which he became the partner. Therefore, merely because the surplus was credited in the P&L a/c due to introduction of the stock-in-trade in the firm, will not be asse....
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....s taken place between the assessee-company and the partnership firm. The transfer or sale is a bilateral transaction and there must be at least two persons, the transferor or the vendor on the one hand and the transferee or the purchaser on the other. In the facts of this case, the assessee-company's share of the machinery was valued originally at Rs. 2,06,745. Before the assets were transferred to the partnership firm, the assessee's share of the machinery was revalued at Rs. 6,06,372 and the said amount was entered in the assessee's books of account before the transfer. Whether this appreciated value is the market value or not, we do not know. The assessee might have increased the value for future advantage. The assessee-company formed a partnership in which the assessee-company had a half share. Whatever interest the assessee had in its own share of the machinery was transferred at the said appreciated value of Rs. 6,06,372 of the assessee's share of the capital in the partnership firm. Thus, the assessee is really investing or depositing its own assets in a partnership firm which was constituted by it and in which it has substantial control. In doing the same, i....
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....#39; It appears from this definition that a firm cannot be called a separate entity. The same persons who are individually called partners are collectively known as the firm for the purpose of their business. The firm always consists of partners and the partners always are parts of the firm. Procedurally and for limited purpose a firm has been separately described, but in no sense, can a firm be called a juristic entity like a limited company. The name of a firm is the business name of the partners and, thus, when a person in individual capacity transfers his assets to his own firm, it cannot be said that the partner is transferring his assets to a distinct person. We agree with Mr. Pal that a firm may have a character distinct from a partner but such distinction is not because the firm and the partners are different entities. The distinction is for a limited purpose because a firm is only a descriptive name of the business of the partners. To illustrate, ordinarily, a firm comes to an end with the death of a partner, but there may be cases where a firm can continue although the old partners have died and the new partners have joined the firm. That contingency occurs where....
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....o certain things in its name which some or one of the partners have not. In short, the firm is treated very much as if it were a corporation; it is an artificial or 'moral' person for business purposes......' Thus, a partnership firm in India, although for limited purposes, is an individual or person or an entity, a legal personality cannot be attributed Lo it. In this connection reference may be made to a judgment of the Supreme Court in Dulichand Laxminarayan vs. CIT (1956) 29 ITR 535 (SC) : (1956) SCR 154 (SC), where S.R. Das C.J., after discussing the juristic character of a partnership firm, held that a firm is not an entity or a person ill law but merely a person or individual and a firm name is the collective name of these individuals who constitute the firm. The Judicial Committee also has held in Bhagwanji Morarji Goculdas vs. Alembic Commercial Works (1948) LR 75 IA 147 : AIR 1948 PC 100, that Indian law has not given legal personality to a firm apart from its partners. This view is also supported by another decision of the Supreme Court in CIT vs. A.W. Figgies & Co. & Ors. (1953) 24 ITR 405 (SC) : (1954) SCR 171 James Mackintosh in his book on Roman ....
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....mount standing to the credit to his account in the books of the firm. Thus the amount due by the firm to the partner standing to the credit of partner's account whether by way of capital or by way of loan will not be a legally enforceable right in favour of partner against the firm or the other partners constituting such firm. For this purpose the entries made in the books of account of the assessee are not the criteria. This view has been reiterated by various Courts time and again including Supreme Court. In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) the Full Bench of Hon'ble Supreme Court observed: "It is true that the Supreme Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from the receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override s. 56 or any other provision of the A....
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....rgeable to tax as business income. Therefore the ratio laid down by Hon'ble Supreme Court in the case of McDowell & Co. cannot be applied. Hon'ble Supreme Court itself in its later decision in the case of CWT vs. Arvind Narottam (Indl.) (1988) 72 CTR (SC) 94 : (1988) 1 73 ITR 479 (SC) held: "9. It is vehemently urged by Dr. Gauri Shanker that the approach to be adopted in this case is not that which finds favour under the income-tax law, and different considerations prevail under the Act. As I am proceeding on the basis of the true construction of the deeds of settlement I fail to see any substance in that contention. Reliance was also placed by the learned counsel for the Revenue on McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC). That decision cannot advance the case of the Revenue because the language of the deeds of settlement is plain and admits of no ambiguity." Justice Mukherjee agreeing with the judgment of Hon'ble Chief Justice further observed: "2. Dr. V. Gauri Shanker appearing on behalf of the Revenue made an appeal before us stating that we should really construe the three trust deeds together and see 't....
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....C. Shah, J. in CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC) based on Duke of Westminster's case and IRC vs. Fisher's Executors (1926) AC 95, it does not appear that the rest of the Judges of the Constitutional Bench contributed to this radical thinking. The basic assumption made in the judgment of Chinnappa Reddy, J. in McDowell & Co. Ltd.'s case that the principle in Duke of Westminster's case has been departed from subsequently by the House of Lords in England, is not correct. One cannot agree with the view that Duke of Westminster's case is dead, or that its ghost has been exorcised in England. The House of Lords does not seem to think so, the principle in Duke of Westminster's case is very much alive and kicking in the country of its birth. And as far as India is concerned, the observations of Shah, J., in A. Raman & Co. are very much relevant even today. One may usefully refer to the judgment of the Madras High Court in M.V. Valliappan & Ors. vs. CIT (1988) 67 CTR (Mad) 289 : (1988) 170 ITR 238 (Mad) : (1988) 37 Taxman 46 (Mad) which has rightly been read as laying down that every attempt at tax planning is illegitimate and must be ign....
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....om or overruled the decision of the Privy Council in Bank of Chettinad's case. If any, the principle appears to have been reiterated with approval by the Constitutional Bench of the Court in Mathuram Agrawal vs. State ofMadhya Pradesh(1999) 8 SCC 667. Thus, one cannot accept the contention of the respondents that there has been a very drastic change in the fiscal jurisprudence, inIndia, as would entail a departure. From Duke of Westminster's case to Bank of Chettinad's case to Mathuram Agrawal's case, despite the hiccups of McDowell, the law has remained the same.One could not accept the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents." Therefore, the surplus cannot be brought to tax as business income applying the ratio laid down in the case of McDowell & Co. 42.5.3 Another reason ascribed is that the assessee has withdrawn huge sum from the firm in subsequent years and the figures are noted in para 16.21 of the draft order. From the figures as noted itself, it is....
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....lf or the land can be developed by the firm in which the assessee is a partner. In both the cases the intended purpose of developing the land by the assessee is carried on and cannot be viewed with suspicion or to hold it as a colourable device. 42.6 After the decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai the law as regards charging of capital gain has been amended by introduction of s. 45(3) of the Act. Even the definition of word "transfer" in s. 2(47) of the Act is substituted w.e.f.1st April, 1985but the definition is only in relation to a 'capital asset' and not for 'stock-in-trade'. The definition of 'capital asset' itself excludes the 'stock-in-trade'. In absence of any specific provision in the IT Act to tax such nature of transaction within the ambit of taxation, the tax cannot be imposed merely on the ground of morality. If the charge fails, no words of morality or equity can bring to tax a transaction, as held in the following cases: (i) CIT vs. Keshavlal Lallubhai Patel; (ii) Smt. Mohini Thapar vs. CIT; (iii) CIT vs. C.P. Sarathy Mudaliar. I therefore hold that the above nature o....
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....ch a situation the assessee continues to deal with such land as its stock-in-trade only. A partner may contribute his part of capital in any form and bring different nature of assets whether stock-in-trade or capital asset. But in absence of any specific action on the part of assessee to convert such land from stock-in-trade to capital asset, the Tribunal is not competent to change such nature when it was never an issue before it. 43.2 The draft order while holding that it has widest power under s. 254(1) so as to "pass such orders thereon as it thinks fit" fail to notice that the powers are limited by the word 'thereon' contained in s. 254(1) of the Act itself. Appeal on the issues involved has been filed by the assessee only. There is no cross-appeal or cross-objections by the Department. So Department's role is only to defend the orders of AO or for that matter CIT(A). The issue to be decided by the Tribunal should arise from the orders of the authorities below. The assessee cannot be put into any adverse situation at this stage of the appeal as is a settled law on this matter. Various authorities while dealing with the powers of Tribunal, in an appeal be....
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.... The expression 'thereon' occurring in sub-s. (4) of s. 33 means the 'subject-matter of the appeal'. So s. 33(4) gives power to the Tribunal to consider only the subject-matter of the appeal. The subject-matter of the appeal before the Tribunal is the grounds of appeal raised by the appellant in his memorandum of appeal, the grounds which the Tribunal allows him to raise and the contentions raised by the respondent before the Tribunal in support of the order made by the AAC by challenging the adverse finding against him." Hon'ble Supreme Court in the case of State ofKeralavs. Vijaya Stores (1979) 116 ITR 15 (SC), has held as under: "Apart from statute, it is elementary that if a party appeals, he is the party who comes before the Tribunal to redress a grievance alleged by him. If the other side has any grievance, he has a right to file a cross-appeal or cross-objections. But, if no such thing is done, the other party, in law, is deemed to be satisfied with the decision. He is, of course, entitled to support the judgment of the first officer on any ground open to him, but he is not entitled to raise a ground so as to work adversely to the appe....
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....d from the relevant statutory provision. The fundamental idea is that an appellant seeks a relief from an appellate Court, and not detriment to himself. Even under the general provisions of the law of procedure, the worst detriment which an appellate Court may visit on an appellant is to dismiss the appeal with a direction in an appropriate case to pay costs to the opposite side. An order adverse to the interests of the appellant-adverse in the sense that it takes away from him a benefit which he has already acquired under the order appealed from-is possible only by means of an order made either upon a cross-appeal filed by the other side or on the basis of a memorandum of cross-objections presented by him wherever the law permits him to do so." In light of the above, I am of the opinion that the Tribunal cannot go into the question whether the asset introduced in the firm as capital contribution was a capital asset or not. 43.3 In the draft order it has been held that the land held as stock-in-trade before the same was contributed to a firm as capital has been converted into a capital asset at the time when the same was contributed as a capital contribution to a firm in whic....
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....ation rights' which was per se income but whether chargeable under the head "Salaries". There was no dispute as to the nature of receipt which was in the form of income. In such a situation having found that when the amount received was income per se, the Tribunal within its power under s. 254(1) may bring it to tax under any head of income. However in the present case it is not an issue regarding change of head of income but issue is regarding whether there was transfer of stock-in-trade or capital asset i.e., nature of asset. 44.1 With regard to the rights of the defendant in appeal before the Tribunal and the scope of powers of the Tribunal, I may refer to the recent decision of the Hon'ble Special Bench, Mumbai in the case of Mahindra & Mahindra Ltd. vs. Dy. CIT (2009) 122 TTJ (Mumbai)(SB) 577 : (2009) 22 DTR (Mumbai)(SB)(Trib) 361. In that case also, the Departmental Representative wanted to set up a totally new case on facts, which required a different finding of fact from what the AO and the CIT(A) have found. The Tribunal in para 19.6 at 635 of the said judgment has held as under: "After considering the rival submissions and perusing the relevant materia....
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....al income of Rs. 36,41,544 which included a sum of Rs. 32,25,550 representing the surplus which he assessee received during the previous year from the liquidator of Chrestian Mica Co. Ltd. which went into voluntary liquidation in the year 1955. The assessee preferred an appeal to the AAC objecting to the inclusion of the said surplus amount. The appeal was dismissed. But on further appeal, the Tribunal agreed with its contention. 3. The assessee was a regular dealer in shares. In the year 1945, it purchased all the equity shares of Chrestian Mica Co. Ltd. which was then a public limited company. The assessee took over its management. In 1947, the company was converted into a public limited company. For the asst. yr. 1949-50, the assessee claimed a trading loss of Rs. 20,88,735 stated to be the loss suffered on account of depreciation of the value of the shares of the said company. This claim was made on the basis that all the shares of the company were held by it as stock-in-trade. Its claim was allowed by the Tribunal on appeal. In all the subsequent assessments, the said shares were created as its stock-in-trade and value of those shares as claimed by the assessee was ad....
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....very same stand though at the stage of Tribunal and High Court, it sought to wriggle out of the said admission unsuccessfully. The High Court has held rightly that it cannot do so and that it is bound by its admission and its course of conduct over the past several years. The High Court, it may be recalled, has also rejected its further submission that the said shares ceased to be its stock-in-trade on the conversion of the company from a public private limited company to a public limited company. If so, it follows that if the assessee receives any surplus amount in lieu of the said shares, it must be held to be a revenue receipt in his hands. It cannot be denied that the amount received by the assessee from the liquidator in this case was in lieu of its shareholding. In effect and in truth, the amount received by it represented he recompense for its shares, even though it is true there was no transfer of shares from the assessee to the liquidator or to anyone else. It was a case of return for the money paid by the assessee for acquiring the said shares. In one case, the return may be more than what the holder paid for them while in another it may be less; the character of the rece....
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.... received is an accretion to the shares. It is true that a liquidator does not sell the shares. It is equally true that there is no transfer of shares by the shareholder to the liquidator or to any other person. That is not really necessary. So long as money is received in lieu of shares, there is a receipt and where an assessee is a dealer in shares, any surplus amount received by him constitutes his income. As stated above, where a company goes into liquidation and the liquidator distributes the assets of the company among the shareholders, what each shareholder gets is in lieu of his shareholding. That is the worth, the value and the price of his shareholding. A shareholder participates in the distribution of the assets of a company on its liquidation by virtue of and because of his shareholding. We, therefore, find it difficult to agree with the High Court that a shareholder participates in the distribution of assets on the liquidation of the company de hors his shareholding. Once this is so, it follows that the money received by the assessee in lieu of its shareholding partakes the same character in which he held the shares. If he held the shares as stock-in-trade, the money r....
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....the subject-matter of the controversy before the Tribunal [Ref: Hukumchand Mills Ltd. vs. CIT at pp. 236-237]. The Tribunal can deal with only that part of the order of the first appellate authority which has been made the subject-matter of attack in the appeal before it. It is not open to the Tribunal to adjudicate or give a finding on a question which is not in dispute and which does not form the subject-matter of the appeal before it as held in Indira Balakrishna vs. CIT, affirmed, CIT vs. Indira Balakrishna (1960) 39 ITR 546 (SC), M.R.M. Periannan Chettiar vs. CIT (1960) 39 ITR 159 (Mad), V. Ramaswamy Iyengar & Anr. vs. CIT (1960) 40 ITR 377 (Mad), Pokhraj Hirachand vs. CIT, J.B. Greaves vs. CIT (1963) 49 ITR 107 (Bom), Pathikonda Balasubba Setty (Decd.) vs. CIT, P.R. Mukherjee vs. CIT (1979) 116 ITR 554 (Cal). On the same reasoning, where the controversy is precisely limited to a narrower compass, the Tribunal is not competent to so widen it as to traverse beyond the subject-matter which was to dispute before the IT authorities [R.L. Rajgharia vs. ITO (1977) 107 ITR 347 (Cal), affirmed in ITO vs. R.L. Rajgharia 1978 CTR (Cal) 123 : (1979) 119 ITR 872 (Cal)]. The Tribunal....
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....that primarily the surplus is chargeable to tax under the head 'Capital gains' and also held that in the situation that it is not chargeable as capital gain, it is taxable as business income also. This is so opined in sub-para (xii) of para 16.49 wherein the conclusion is arrived at. The Tribunal is a final authority on the finding of facts. The Tribunal is not an assessing authority but an appellate authority. Therefore, the Tribunal is required to give a finding of facts finally and not to give an alternative finding. This will be against the basic law giving power to the Tribunal to decide as final fact-finding authority. In the draft order before deciding regarding head of income, in the concluding portion of para 16.47 of the draft order it has been held: "This question whether the land in question was a capital asset or stock-in-trade in nature at the time when the same was contributed by the assessee to a partnership firm as its capital contribution when the assessee became a partner in that firm, is not one of fact though it is dependent on the facts and the circumstances of the present case, the question does involve conclusions of law to be drawn from tho....
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....red above. 47. For all these years it has been held that in view of the finding given in para 16 of the draft order pertaining to asst. yr. 1992-93 is being followed and since I am unable to concur with finding given in para 16 of the draft order and in respect of which I have proposed a separate order, my finding for all these years in relation to the above-referred issue will be the same. Therefore, in view of my finding given for asst. yr. 1992-93, the surplus is not chargeable to tax. 47.1 For asst. yrs. 1997-98 to 2000-01, there is one more aspect. In relation to asst. yr. 1997-98 in para 27.4 of the draft order, reference is made to ss. 13(c) and 13(d) as also to ss. 48(b)(ii) and 48 (b)(iii) of the Indian Partnership Act, 1932 to hold that the advance by partner is distinct from capital and is placed on better footing than the capital contributed by the partner for the purpose of partner's right to receive interest thereupon and to realize or recover the advance distinguished from capital. Sec. 13 of the Partnership Act is extracted herein: "13. Subject to contract between the partners- (a) and(b) ** ** (c) where a partner is entitled to ....
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....anner in which the accounts of the partners are to be settled after dissolution. Sec. 48 sets out priority in order of which the partnership assets are to be distributed. Firstly, it goes to pay the losses. Next it goes to pay the debts to the third parties. Only after the debts are paid to third parties, the priority will be first accorded to the advances given by the partner over and above his share of capital. Therefore, if there are no assets left after paying of the losses and debts to the third party, a partner will not receive any amount either towards his capital or towards advance given over and above his capital. In either case it is not debt due by the firm to the partner which is like debt due to third parties. Therefore, merely because part of the value of land brought in as capital contribution is treated as loan over and above the capital agreed upon, it will not have an effect of creating a right in favour of assessee at the time of entering into partnership to receive such sum so as to treat the surplus as income accruing in favour of the partner. 47.4 It is also to be noted that in these years there is no finding that any amount was withdrawn by the assessee fr....
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....3.38 560.00 140.00 804565 627047 111752 200,000 200,000 200,000 22097 200,000 (Sq. Mers.) 900,000 Diwakar Estates (P.) Ltd. Pushpavali Builders & Developers (P.) Ltd. Ugagar Estates (P.) Ltd. Vanutsar Properties (P.) Ltd. Parvati Estates (P.) Ltd. Panchvati Estates (P.) Ltd. Kirtimaan Builders (P.) Ltd. 900,000 900,000 900, 000 900,000 9 900,000 9 900,000 9 900,000 9 213,066,061 10,000,000 100 ЗРDLF Office Developers 24-2-1998 1998-99 DLF Universal Ltd. 26,469.40 1.15 (Acres) 37,000,000 1,200,000 12 604, 565" 427,047 210,531, 612 35,800,000 Aeshya Estates Pvt. Ltd. Diwakar Estates Pvt. Ltd. 1,100,000 1,100,000 Ujagar Estates Pvt. Ltd. 1,100,000 11 11 11 Pushpavali Builders Developers Dvs. Ltd. 1,100,000 11 Vanutsar Properties Pvt. Ltd. 1,100,000 11 Parvali Estates Pvt. Ltd. Panchvati Estates Pvt. Ltd. Kirtimaan Builders Pvt. Ltd. 1,100,000 1,100,000 1,100,000 11 11 11 1.15 27,000,000 10,000,000 100 25,800,000 4,613.17 177,500,000 1,200....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 201, 932 511,252 490,997 1,500,000 Diwakar Estates Pvt. Ltd. Ujagar Estates Put. Led. Pushpavali Builders Developers Pvt. Ltd. Vanutsar Properties Pvt. Ltd. Parvati Estates Pvt. Ltd.. Panchvati Estates Pvt. Ltd. Kirtimaan Builders Pvt. Ltd. 1,500,000 1,500,000 1,500,000 1 1,500,000 1 1,500,000 1 Moonlight Builders & Developers Ltd. 1,500,000 1.500.000 110,000,000 1 72 Total 25,543.17 153,652, 821 146,971,707 100 128,682,114 4C DLF Home Builder 2-9-1998 1999-2000 DLF Universal Ltd. 24,950.58 134,500,000 20,000,000 13 114,500,000 3 (Sq. Mers.) 2 DLF Engineering Projects Ltd. DLF Industrial Finances Leasing Co. Ltd. DLF Housing Finance Ltd. Kavicon Agro Farming Co. Pvt. Ltd. Realest Builders Services Ltd. 6,272,364 2,729,919 4,500,000 2,729,919 1,772,364 1 a 3,221,008 3,148,602 3,221,008 a 3,148, 602 a 115,000,000 75 Total 24,950.58 149,871,893 148,599,529 100 116,272,364 4D DLF Residential 30-6-1998 1999-2000 DLF Universal Ltd. Developers 2688534 150, 500,0....