TaxTMI 
TaxTMI 
2002 (10) TMI 268
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....Satramdas Kiratrai Kripalani 3 % 40 % 5. Master Naresh alias Ramesh Sajan Advani (Minor) 6 % Nil 6. Master Lachman Sajan Advani (Minor) 5 % Nil 7. Master Jai Doulat Advani (Minor) 6 % Nil 8. Master Lalit Doulat Advani (Minor) 5 % Nil 9. Baby Gitanjali Gul Advani (Minor) 5 % Nil 10. Baby Sangita Gul Advani (Minor) 5 % Nil 11. Master Prakash Parpati Advani (Minor) 5 % Nil 100 % 100 % 2. This firm purchased on 29th March, 1973, a property named Petit hall comprising of constructed bungalows and outhouses on land admeasuring 33,339 sq. mtrs., situated at Nos. 66 and 67, Civil Lines, Haveli, Pune, for a sum of Rs. 18,15,260. This property was purchased by the assessee-firm with the view to develop the plot as a builder. However, on account of a variety of reasons there was very little further activity on this plot of land. Inspecting Asstt. Commissioner (Acquisition) initiated proceedings for acquisition of this plot of land under Chapter XX-A of the IT Act by notification under s. 269D of the Act on 11th July, 1974. On 17th Feb, 1976, the Urban Land (Ceiling & Regulation) Act came into force in the State of Maharashtra. The assessee-firm submitted state....
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....e.f., 15th May, 1979. Aggrieved by these orders, the assessee filed writ petition in Bombay High Court, being special civil application No. 1225 of 1979. Thereupon Hon'ble High Court by its judgment dt. 4th Oct., 1988, set aside the competent authority's order dt. 28th March, 1978, the appellate order dt. 28th Jan., 1979, and notification under s. 10 of ULCA, and remanded the proceedings to the competent authority to be kept pending till the hearing and final disposal of the applications under ss. 20 and 21 of ULCA. Subsequently, the Hon'ble High Court passed another order on 2nd Nov., 1988, in continuation of previous order dt. 4th Oct., 1988, whereby it was directed that the competent authority should initially proceed to make the requisite declaration under s. 8 of the ULCA and pass order under s. 8(4) thereof. The applications under ss. 20 and 21 should thereafter be taken up for consideration and determination. Thereafter, on 20th Jan., 1995, Collector, Pune, made an order under s. 126(4) of Maharashtra Regional & Town Planning Act, 1966, notifying that the following lands were needed for the public purpose of Pune Municipal Transport (bus parking, bus stand and bus station): ....
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....d under s. 143(1)(a) of the Act on 29th Dec., 1997, without any adjustment. Demand of Rs. 4,00,834 was raised on account of interest only after adjusting advance tax of Rs. 2,98,00,000. This demand was paid by the assessee on 20th Jan., 1998. However, an attachment order under s. 281B was passed on 16th Jan., 1998. Subsequently, a revised return of income was filed on 11th Feb., 1998. In this revised return capital gain arising out of consideration receded by Mr. N.M. Gidwani was incorporated. It was stated that the long-term capital gain of Rs. 18,41,97,000 arose on the consideration of Rs. 21 crores received by Gidwani group. But the entire capital gain was offset by deduction available on account of investments made under s. 54EB of the Act and, therefore, the total income of the assessee-firm remained unchanged at Rs. 14,89,92,770 as per the original return of income. This revised return of income was processed by the learned AO under s. 143(1B) on 20th Feb., 1998, and the revised intimation was issued. The AO rejected the assessee's claim of exemption under s. 54EB on the ground that the amounts reinvested in the scheme were in the name of Mr. N.M. Gidwani, partner, as individ....
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....d the assessee's claim of deduction under ss. 54EA and 54EB amounting to Rs. 18,41,97,000. The AO also did not accept the contention of the assessee that for the purpose of working out capital gains chargeable to tax the indexed cost of acquisition as per market value on 1st April, 1981, should be determined at a sum of Rs. 12,90,15,000. According to him such indexed cost of acquisition correctly worked out to Rs. 68,62,500 only. Furthermore, the AO did not accept the assessee's contention of expenditure incurred in the form of compensation paid claimed at Rs. 2,77,95,225 and allowed deduction in this respect to the extent of Rs. 48 lakhs only. In this manner the learned AO worked out capital gains chargeable to tax at Rs. 47,82,39,890 from out of total sale consideration of Rs. 49 crore. 7. In view of the provisions of Chapter XX-C of the Act, Form 371 being statement under s. 269UC of the Act was filed by Choitirmal group on 23rd Sept., 1995, declaring apparent consideration of Rs. 14 crore. On the same day separate Form 371 under s. 269UC was filed by Shri S.K. Kripalani declaring apparent consideration of Rs. 14 crore. Both these statements under s. 269UC were made in relation....
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.... Land Ceiling authorities on 5th July, 1976. The order of Urban Land Ceiling authorities states that 'After examining the record of the file, the proposed public purpose for which the land is required and after examining the exemption application of M/s Shanti Builders under s. 20(1)(a) of the Urban Land (Ceiling and Regulation) Act, 1976, for construction of houses for weaker section of the society, I am satisfied that the said land is required for the public purpose of Chapter-III and Chapter-IV of the Urban Land (Ceiling and Regulation) Act, 1976, I, therefore, do not permit M/s Shanti Builders to continue to hold such land for the purpose of construction of houses for weaker sections of the society'. The order itself had compelled the partners to change the objective of the firm. (ii) In addition to above the differences in the partners increased from 1976 had also compelled them to change the basic objective of developing Petit Hall property. The following communication amongst the partners substantiates the points: (i) Letter of Mr. Kriplani dt. 9th Dec., 1976 (ii) Letter of Mr. Gidwani dt. 27th Dec., 1976 (iii) Letter of Mr. Kriplani to Mr. Gidwani dt. 11th Feb., 1977 (....
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....done, the suggestion tends the other way. 5. The circumstances that were responsible for the realization. There may be some explanation, such as sudden emergency of opportunity calling for ready money, the negatives the idea that any plan of dealing prompted the original purchases. Motive--There are cases in which the purpose of the transaction of purchase and sale is clearly discernible. Motive is never irrelevant in any of these cases. What is desirable is that it should be realized clearly that it can be inferred from surrounding circumstances, in the absence of direct evidence of the seller's intentions, and even if necessary, in the face of his own evidence. The Supreme Court in the cases of G. Venkataswami Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC) and Jankiram Bahaduram vs. CIT (1965) 57 ITR 21 (SC) had also laid down similar tests for determining the nature of transaction. The Court further held that the determination of adventure in the nature of trade is a mixed question of law and fact and has to be decided in the light of above tests. (B) In the case of M/s Shanti Builders the objective of the firm is to carry business on the premises of Petit Hall, the firm couldn'....
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....of the purchaser. M.C. Cherian vs. CIT (1964) 51 ITR 631 (Mad). I have considered assessee's argument. I have also gone through the communication amongst the partners as submitted by the assessee. On going through the correspondences, it is very clear that though initial objective was to develop the plot with a business motive, subsequently, and more precisely vide letter from Chhotirmal to Narain M. Gidwani, it is very clear that they have decided that no commercial activity will be carried out and it can be definitely said that it becomes an investment as against stock-in-trade after the property was acquired under ULC and disputes arose amongst the partners. The relevant extract of the communication of the above referred letter dt. 15th April, 1979, is reproduced as under: 'The property has been acquired under the Urban Land Ceiling Act, 1976, cannot be developed now and looking to your fraudulent activities and non-co-operative attitude we have decided, we shall not carry out any commercial activities of our firm Shanti Builders in which you are partner with immediate effect as we cannot continue to work together.' It is also fact that no money has been spent for developing ....
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....roups of partners have filed revised return of income in February, 1998, claiming deductions for the investments of Rs. 18,41,97,000. On denial of deductions for the investments so made they have also filed applications under s. 154. Under these circumstances it cannot be said that there is no authorization for these investments by other partners. (e) On consideration of above facts the investments made under ss. 54EA and 54EB should be allowed as deduction in the hands of the firm. (f) Once the investments are considered in the hands of the firm the question of income out of these investments becomes relevant. This has to be considered in the light of following facts: (i) All the investments are made after 31st March, 1997, and, as such, the question of income on these investments is not relevant for asst. yr. 1997-98 and for the purposes of present application under s. 264. (ii) Mr. Narain Gidwani died in November, 1997, and from the date of his death he ceases to be partner by the provisions of partnership deed. Hence, the income from investments at the most can be considered only till the date of his death. (iii) The other two groups of partners had filed Special Civil Sui....
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....n behalf of the firm. Ultimately, all partners in three groups offered total sales proceeds for taxation in the hands of firm. Considering submissions of the assessee, the AO is directed to hold the investment made by Shri N.M. Gidwani, partner, as investments of the firm and allow deduction under ss. 54EA and 54EB of the IT Act, 1961, accordingly. As regards taxability of income arising out of the investment, the AO is directed to tax it in the year of receipt in the hands of the firm." 10. As pointed out earlier, the assessee had filed two applications under s. 264 on 17th Jan., 2000 and 7th Feb., 2000, respectively. The assessee's application filed on 7th Feb., 2000, was decided by the learned CIT as per his order dt. 28th March, 2000, as detailed in foregoing paragraph. The assessee's petition dt. 17th Jan., 2000, however remained pending. The successor CIT issued on 10th Jan., 2001, a notice under s. 263 as he held the view that the AO completing the assessment by treating the income arising to the assessee as capital gains was incorrect. According to him he issued notice under s. 263 for intimating the assessee the decision to invoke the provisions of s. 263 for setting as....
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....13 of the partnership deed as well as ss. 7, 39, 40, 43, 44 and 46 of Partnership Act established that the act of the partners in case of the assessee-firm in selling the partnership assets in group of 40 per cent, 40 per cent and 20 per cent was an act prohibited by the Partnership Act itself. Even if sold separately, the fund would belong to the firm. The partners could not have sold it on their own as the property was not their personal property since they had not dissolved the partnership as provided in the law. In the case of the assessee-firm there was no dissolution of partnership nor had the accounts been settled in view of any dissolution of the partnership. Since the original asset purchased by the firm was trading asset for the purpose of business it retained the character of a trading asset unto the date of sale in 1996. The learned CIT placed reliance on the judgments in cases of CIT vs. Bharath Auto Stores (1990) 90 CTR (Mad) 177 : (1991) 188 ITR 477 (Mad) and ALA Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC). 12. The learned CIT also referred to the property cards. He held that the property was incorrectly registered in the name of only 4 partners of....
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..... Gidwani instructing to revoke the instructions about operating the account and that the partners could not be allowed to operate the account unless and until fresh instructions were received signed by all the partners. According to the learned CIT this letter pertained to M/s Shantinagar Builders and not the assessee-firm. The assessee had purposely not produced the details of the bank accounts although specifically asked for during the proceedings under s. 263. Enquiry should have been conducted by the AO as to the operation of the bank account and its relevance to the income earned by the firm. 14. The learned CIT did not accept the arguments of the assessee that while issuing certificates under s. 230A and attachments of the property under s. 281B, and subsequent withdrawal of attachments under s. 281B, the CIT granted approval to the findings of the AO in the assessment order that income was chargeable to lax under the head "Capital gains". While dealing with 230A certificate, the AO could only restrict himself to the extent of existing tax liability payable by the assessee and no further. The correspondence in this respect could not give rise to an inference that the then C....
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.... permitted to withdraw its appeal, the assessment order could not be a subject to s. 263 as the issue had been considered by the CIT(A). The issues before CIT(A) were also limited only to the benefit of s. 54EA/EB. Hence, there was no question of merger as far as the issue in the proceedings under s. 263 was concerned. 16. The learned CIT did not see any force in the contention of the assessee that the AO had applied his mind while finalizing assessment order under s. 143(3) on 5th April, 1999. The basis on which the assessee had contented that income was chargeable to tax under the head "Capital gain" and not under the head "Profits and gains of business or profession" was not justified. In view of the position of the facts mentioned in the partnership deed and the sequence of events that took place, the following observations and conclusions were material in determining the nature of the assessee: (i) The subject-matter of realization is in respect of vast area of land which the assessee had intended to use for the purpose of construction of flats, hospital and even a college. The assessee had not purchased the land for enjoyment or for personal use but with an intention to con....
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....a trading asset. (ii) The character of the land being that of a trading asset right upto the end. (iii) The intention of the firm in holding the asset is to earn profits. (iv) The risk taken by the assessee-firm throughout this period shows the inherent nature of a business activity. (v) The eagerness with which the partners faced the litigations and the constraints brought about by the ULC Act and the PMT shows their intention to maximise their returns by holding on to the property inspite of ULC restrictions. They could dispose off land except the surplus land under the ULC Act and this Act did not prevent them from conducting business. They could have utilised the full FSI. (vi) The lack of intention to dissolve the firm as per statutory provisions inspite of so-called internal disputes. The aggrieved partner could have retired from the firm and the whole asset could have been distributed amongst the partners. (vii) The illegality exhibited by the transactions especially by groups of partners claiming a percentage of the asset as their property although such proposition is prohibited by law as laid down by the Supreme Court in the case of Addanki Narayanappa vs. Bhaskura K....
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....993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom). (iv) That the above analysis now making the facts clear and evident, there is no question of any direction to the AO being vague as pointed out to be essential in the case of Garden Silk Mill vs. CIT (1996) 135 CTR (Guj) 399 : (1996) 221 ITR 861 (Guj). (v) That the power under s. 263 being of a very wide amplitude and if a prima facie opinion is formed that the order is erroneous and prejudicial to the interest of Revenue, then a valid action under s. 263 can be ordered as held in the case of CIT vs. Seshasayee Paper & Boards (2000) 242 ITR 490 (Mad). (vi) That the error in taxing the sale proceeds of the land held as business asset as income from capital gains instead of taxing it as income from business or profession, has been brought out and specific directions are given to the AO for correcting the error as required in the case of CIT vs. Shakti Charities (2000) 160 CTR (Mad) 107 : (2000) 244 ITR 226 (Mad). (vii) That the powers under s. 263 have been considered with reference to the broad guidelines contained in the decision of Supreme Court in CIT vs. Shri Manjunatheshware, Packing Products & Camphor Products (1998) 231 IT....
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....elongs to the firm and held by it as a business asset only. In addition, reference may be made to paras 13 to 21 of this order. The AO has overlooked the above facts and as well as the law of theland and passed the assistant order which is prejudicial and erroneous in the interest of Revenue inasmuch as the AO failed to consider the facts, circumstances and the legal position, and as such the assistant order passed by the AO under s. 143(3) dt. 5th April, 1999, is hereby set aside with directions to the AO to consider all the facts mentioned in the above order and other material which may come to his notice during the course of investigation and to pass a fresh assessment order bringing to tax, the total sale proceeds subject to any legally allowable expenditure under the IT Act, 1961, as income from profits and gains of business or profession in respect of the land belonging to the firm." 19. During the course of hearing before us, Shri L.S. Dewani, the learned counsel of the assessee, challenged the impugned order under s. 263 of the learned CIT both on the ground of jurisdiction as well as on merits. In regard to the jurisdiction of the learned CIT to invoke the provisions of ....
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....on 31st March, 1998. Simultaneously, the provisional attachment made by the AO of land earlier vide order dt. 11th Feb., 1998, was lifted and that too had been approved by the CIT by his letter dt. 31st March, 1998. Thereafter, the AO also made a proposal for continuation of attachment under s. 281B on 29th Sept., 1998, as the provisional attachment earlier made was valid only for 6 months. After completion of assessment under s. 143(3) on 5th April, 1999, the AO addressed a letter to the then CIT, Pune, on 13th April, 1999. The learned counsel, referred to the complete copy of this letter at pp. 16 to 18 of the paper book, Vol. 111. In this letter, the AO recounted the history of the earlier attachment orders under s. 281B as well as 226(3) and proposed for lifting of attachment in view of the payments of, demand made by the assessee as well as the cheques received from Unit Trust of India on 12th April, 1999, aggregating Rs. 5,65,73,437. The learned counsel for the assessee argued that CIT was all along in the know of the matter on account of the AO apprising him of the developments from time to time. Even the question of assessment of profits under the head "Capital gains" was d....
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....2001) 171 CTR (Cal) 626 : (2002) 253 ITR 124 (Cal). 21. The learned counsel then argued that once the CIT had made an order under s. 264 in respect of an assessment order under s. 143(3), it was no longer open to the CIT to invoke his jurisdiction under s. 263 of the Act. He argued that such position is inbuilt in the language of s. 264 itself. The provisions of s. 264(1) clearly mandate that they do not apply to an order to which s. 263 applies. In other words the CIT excludes the application of provisions of s. 263 when he decides to make an order under s. 264. In the instant case the learned CIT passed an order under s. 264 on 28th March, 2000. By virtue of that order the learned CIT-I, Pune, ruled out the possibility of application of s. 263. In this view of the matter it was simply not open to the subsequent CIT to act under s. 263 in respect of the assessment order in question. As a consequence of revision under s. 264, the assessment order no more survived for action under s. 263. The learned counsel for the assessee argued that as a matter of fact the subsequent CIT had by the impugned order under s. 263 interfered with the order of his predecessor under s. 264 and superim....
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....TR 538 (Bom) (f) Gopal Chandra Sen vs. ITO (1963) 50 ITR 87 (Cal) (g) Kunhayammed & Ors. vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97 : (2000) 245 ITR 360 (SC) (h) Ambabai & Ors. vs. Gopal AIR 2001 SC 2003 (i) Festo Elgi (P) Ltd. vs. CIT (2000) 158 CTR (Mad) 134 : (2000) 246 ITR 705 (Mad) Elaborating still further on the doctrine of merger, the learned counsel for the assessee argued that the order merges as a whole and wherever intended otherwise legislature had provided for it. He placed reliance on the Supreme Court judgment in the case of Hindustan Aeronautical Ltd. vs. CIT (2000) 160 CTR (SC) 524 : (2000) 243 ITR 808 (SC) in this respect. The theory of merger applied even where subject-matter was decided by necessary implication. On the doctrine of merger there was no difference between an order in revision or appeal. For this, reliance was placed on the judgment CIT vs. Eurasia Publishing House (P) Ltd. (1998) 232 ITR 381 (Del); AIR 1970 SC 1 and Kunhayammed & Ors. vs. State of Kerala & Anr.. The learned counsel further argued that once an order was passed by the AO implementing the order passed by the CIT in revision, the same could not be revised under s. 263 unle....
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....ce to this contention the learned counsel further argued that the impugned order was liable to be quashed also for the reason that the assessment order under s. 143(3) made by the AO on 5th April, 1999, was, on merits fully justified. From the facts of the case it was patent that the only intention of the assessee-firm in relation to the immovable property purchased by it was to develop the same by way of construction of multi-storey buildings on the plot of land and to resale the flats thus constructed in the multi-storey buildings. However, immediately after the purchase of the property there were number of developments which thwarted the assessee from carrying out the purpose for which the property was purchased in the first instance. The said developments were as under: (i) The assessee came to know about the reservation of the plot for Pune Municipal Transport under the provisions of Maharashtra Regional Town Planning Act, 1966. The said reservation was continued in the revised development plan of Pune Municipal Corpn. that came into force w.e.f., 1987. Pune Municipal Transport made an application to the Government under s. 126(1) of the said Maharashtra Act for acquiring the....
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....ent other partners in the case. This stand was reiterated in another letter dt. 11th Feb., 1977, addressed to Shri N.M. Gidwani. There was also considerable exchange of correspondence between the advocates on the two sides. Shri N.M. Gidwani filed during April, 1979, a suit against the other partners in the Court of the Civil Judge, Senior Division, Pune being regular Civil Suit No. 653 of 1979. Thereafter, a letter was addressed to Shri N.M. Gidwani by other partners on 15th April, 1979, which, inter alia contained the following paragraph: "The property has been acquired under the Urban Land Ceiling and Act 1976, cannot be developed now and looking to your fraudulent activities and non-co-operative attitude we have decided, we shall not carry out any commercial activities of our firm Shanti Builders, in which you are partner with immediate effect as we cannot continue to work together". 25. According to the learned counsel of assessee this letter did for all particular purposes bring the business of the assessee-firm to an end. There was a clear statement and declaration of intention of not carrying out any commercial activities of the assessee-firm. The matter was also carried ....
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....of which the inferences drawn and ultimate finding arrived at by the learned CIT were completely vitiated and erroneous. The learned counsel for the assessee argued that the learned CIT arrived at an incorrect understanding of the partnership deed itself. In the impugned order he had at several places relied upon the fact that the assessee was a dealer in land which was completely devoid of any ground reality. While in the preamble of the partnership deed dt. 1st Feb., 1973, "dealers in land" was also mentioned among several things, relevant cl. 6 of the partnership deed, in this respect was quite clear. This cl. 6 is as under: "The business of the partnership shall be, inter alia, of acquiring vacant land or other immovable properties including plot at Petit Hall, Poona, and of developing such plot as builders, contractors, owners, financiers and dealers in buildings, flats, blocks, garages, offices, shops, sheds, etc., and such other business, or businesses as the parties may from time to time agree upon." The learned counsel for the assessee argued that cl. 6 nowhere mentioned the business of the partnership to be dealership in land. The word "etc" in cl. 6 was used in the con....
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....e FSI and, therefore, the assessee could have done the construction activity even during the earlier period and sold the flats or even the land. The fact was that in view of the orders passed by various authorities, the entire land was surplus till the fresh order was made on 18th April, 1996. The entire land had been declared surplus by the order of the competent authority in writing as early as on 28th March, 1978. The assessee's appeal to Collector and appellate authority was also dismissed or 20th Jan., 1979. The application made by the assessee under s. 20 of ULCA and declaration under s. 21(1) of ULCA had also been rejected on 2nd April, 1979, 5th April, 1979 and 30th March, 1979, respectively. Notification under s. 10(3) of ULCA had also been made on 8th April, 1979, notifying the land as having been acquired by Government of Maharashtra from 15th May, 1979. It took assessee 18 years to have this order modified. The assessee-firm was constituted in February, 1973, and the final order was passed in April, 1996. Fifthly, the learned CIT erred in law in holding the view that every receipt of a partnership-firm could be nothing but business income. Definition of business under ....
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....a Cement Ltd. vs. CIT. 31. The learned counsel further argued that it was not true state of affairs that an asset acquired as a business asset shall always be construed to be a business asset only. In the event of sterilization of stock-in-trade subsequent receipts would amount to capital receipts. In support of this contention the learned counsel for the assessee placed reliance on Supreme Court judgment in the case of Universal Radiators vs. CIT (1993) 112 CTR (SC) 61 : (1993) 201 ITR 800 (SC) and CIT vs. Canara Bank Ltd. (1967) 63 ITR 328 (SC). Further, the learned counsel argued that it is the nature of the asset as on the date of transfer that would be crucial and not as on the date of its acquisition. In support of this contention he placed reliance on the judgment of Hon'ble Madras High Court in the case of M. Nachiappan vs. CIT (1998) 144 CTR (Mad) 359 : (1998) 230 ITR 98 (Mad). 32. The learned counsel placed considerable reliance on the judgment of the Hon'ble Mumbai High Court in the case of CIT vs. Anandlal Becharlal & Co. (1977) 107 ITR 677 (Bom) and argued that the assessee's case was covered by the ratio of this judgment. He also placed reliance in this context on j....
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....ical rise in value could have taken place on account of passage of time. Such astronomical price appreciation could happen only if there was a major improvement of title in the intervening period. The assessee purchased the property for a song only because there were considerable hurdles in the development of the property. It was purchased with the intention of removal of the hurdles and that was precisely what happened over the course of years. In these circumstances it could not be said that the assessee was prevented by unforeseen developments. It was an admitted fact that the plot was encumbered by tenants and sub-tenants and it also was under reservation. Inspite of this fact the assessee-firm was started to take a risk. The assessee could not, therefore, say that it was prevented from carrying out its business purpose. Relying upon the judgment of Hon'ble Supreme Court Lakshminarayan Ram Gopal & Son Ltd. vs. The Government of Hyderabad (1954) 25 ITR 449 (SC), the learned Departmental Representative argued that as long as the firm was continued it carried on and existed for the purpose of business. 35. The learned Departmental Representative argued that the assessee filed ret....
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....se in the provisions of s. 263 there was absolutely no restriction. According to the contentions of the assessee the CIT was required to satisfy himself before passing an order under s. 264 that the provisions of s. 263 did not apply. Thus, the CIT should become an investigator every time an application under s. 264 was made. That was not the function of CIT while deciding upon the petitions under s. 264 made by the assessee. While deciding the assessee's application, CIT was concerned with the issue as to whether investments made by one of the partners in-his own name could be considered to be made by the firm for deductions under s. 54EA/54EB. CIT decided this question on the footing that there was income chargeable to tax, as determined by the AO, under the head "Capital gains". He, therefore, arrived at the conclusion that if there was capital gains tax there should be exemption also in respect of investments. Thus, he decided only a limited issue. CIT while passing the order under s. 264 did not apply his mind at all to the question as to whether the income should have been assessed as business income or capital gains. It was, therefore, not an issue decided by CIT. Hence, the....
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....ad collected deposits from purchasers. The property as purchased was full of difficulties. It took long time to remove the encumbrances. How could the time taken make the trading asset a capital investment? It was the case of a firm doing business. The AO, therefore, embarked upon an enquiry which was not called for. The learned Departmental Representative placed reliance on the judgment reported in CIT vs. McMillan & Co. (1958) 33 ITR 182 (SC) in support of this argument. 40. The learned Departmental Representative further argued that there was no force in the case of the assessee that over the course of time the trading asset became sterile. It was sterile from the very beginning. The assessee with his efforts made the asset fruitful. These efforts were conduct of business by the assessee. If that were not the case the value of the land purchased in 1973 could not have been as low as it was. The learned Departmental Representative argued that on the facts of the case the assessment order made by the AO was erroneous and within the meaning of the parameters laid down by Hon'ble Supreme Court in the case of Malabar Industrial Co. vs. CIT. 41. The learned Departmental Representati....
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.... to consider that land in question was a trading asset of the firm. It was only intended to be used for the purpose of business but the business could not even be started. All along the holding of the property by the firm was nothing but a passive holding as a capital asset on account of various acquisition proceedings and acquisition orders. The learned counsel for the assessee referred to development agreement dt. 8th April, 1996, at pp. 111 to 143 and pointed out that memorandum of understanding was signed with M/s Amar Avinash Associates on 1st June, 1995. Even no objection certificates under s. 269 UL(3) by appropriate authority was granted on 11th Nov., 1995. The final order of ULCA was made on 18th April, 1996. Thus, even ULCA exemptions had not been received by the assessee-firm as on the dates of the agreements with the purchaser. Thus, the entire case made out by the CIT as well as the Departmental Representative was based on incorrect assumption of facts. The learned counsel also pointed out that the judgment reported in 24 ITR 449 (sic) relied upon by the Departmental Representative had been rendered in relation to EPT. Similarly, the judgment of Hon'ble Madras High Cou....
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....ontentions of the learned Departmental Representative in this respect were merely guess work not supported by any objective data or analysis of surrounding facts. 50. We have carefully perused the impugned order under s. 263 and other material on record and considered the rival submissions. In our considered opinion the impugned order is not sustainable and liable to be quashed on several counts as elaborately discussed in the subsequent paragraphs. 51. In our view the learned CIT did not have jurisdiction to revise the assessment order in this case for each of the three reasons stated by the learned counsel for the assessee, viz., (a) the assessment order having been made under close supervision of the then CIT; (b) the order having been subject to the earlier order under s. 264 as made by the then CIT on 28th March, 2000, and (c) the assessment order having been made by the AO in a judicial manner after taking into consideration all aspects of the matter. From the detailed facts presented before us by the learned counsel of the assessee as enumerated in para 20 of this order it has emerged with a fair degree of certainty that the AO had been consulting the CIT in this case at v....
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....ace of this evidence we are unable to accept the contentions of the learned CIT in the impugned order and his findings in this regard in para 43 of the impugned order. Respectfully following the judgment of Hon'ble Calcutta High Court in the case of CIT vs. Hastings Properties (2001) 171 CTR (Cal) 626 : (2002) 253 ITR 124 (Cal) and the decisions of the Tribunal relied upon by the assessee, mentioned at para 20 of this order, we hold that the assessment order was not open to revision under s. 263 for the reason that the assessment order had been made by the AO after having discussed the case with CIT from time to time and in accordance with the opinion then expressed by the CIT. 53. We are also of the view that in this case the subsequent CIT did not have jurisdiction to exercise powers under s. 263 for altering the head of income after the order of the earlier CIT under s. 264. The learned counsel for the assessee has addressed us at length on the issue of merger of the assessment order of the AO with order under s. 264 of the CIT. The learned Departmental Representative, on the other hand, argued that there was merger only to the limited extent of the issues considered by the CIT....
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....s. 28 crores were received by other two groups. Gidwani group did not agree for sale earlier. Later on, the purchaser gave higher price and occupied the entire land and as a result the sale of entire property was concluded". Obviously, the learned CIT satisfied himself first that the income arising to the assessee was not the business income. In the impugned order the learned CIT has interpreted the findings of his predecessor, "this position has now become final. Naturally, the consequences of this action of AO should follow". According to the impugned order the learned CIT was referring to the position having become final in view of the stand taken by the AO. We are unable to accept this argument. How could the CIT, a superior authority, consider himself bound by a position as having become final by way of assessment order of his subordinate? Surely, the learned CIT who made the order under s. 264 too was aware of his powers under s. 263. If he held that the assessment under the head "Capital gains" had become final, it could only be if he found that position to be in accordance with law. We are unable to subscribe the view that in the order under s. 264 the learned CIT merely s....
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....ia Ltd. at p. 115 in the following manner: "It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the CIT with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent." 57. Hon'ble Supreme Court has also upheld this position of law in its judgment in the case of Malabar Industrial Co. Ltd. vs. CIT at p. 88 in the following words: "The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the ITO has taken one view with which ....
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....made by the AO under close supervision of the then CIT. (ii) The assessment order made by the AO had already merged in respect of the very same issues, in the order of earlier CIT under s. 264. (iii) The assessment order as made by the AO cannot, in the eyes of law, be held erroneous. 59. Thus, we hold that in the instant case the learned CIT did not have jurisdiction to invoke the provisions of s. 263 of the Act. However, during the course of hearing before us considerable arguments were made from both the sides in respect of the merits of the case. According to the learned counsel for the assessee the AO had taken a correct view of the matter and the reasons given by the learned CIT for taking a different view were not tenable. We, therefore, proceed to record our views on the merits of the case as well. At the outset, we are not impressed by the arguments of the learned CIT in the impugned order as well as of the learned Departmental Representative during the course of hearing before us that the assessee being a firm the income was required to be brought to tax under the head "Profits and gains of business or profession" and not under the head "Capital gains". The thrust of t....
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.... a partnership firm comes into existence, unlike a company, it an be predicated of it that it carries on a business. That judgment does not deal with the nature of the business assets. 60. In the impugned order under s. 263 the learned CIT has objected to what he considered to be the illegality exhibited by the partners of the assessee-firm in disposing of what they called their respective shares in the property by way of separate agreements to sale with M/s Ajar Avinash Associates. He has also found fault with the AO not having considered this aspect of the case. We are unable to understand as to how this aspect affects the consideration of the issue at hand. It is a matter of record that there were acute differences amongst various groups of the partners of the firm and that they separately negotiated and entered into separate agreements to sale what they called their respective shares in the property. This, according to the learned CIT, partners were not entitled to, as during the subsistence of the firm or until the firm was dissolved no partner could claim any part of the firm's property as his individual property. Be that as it may, the fact remains that the return of income....
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....CIT also accept, as would be seen from his observations in para 85 of the impugned order. In this paragraph the learned CIT has, inter alia, observed as under: "The subject-matter of realization is in respect of vast area of land which the assessee had intended to use for the purpose of construction of flats, hospital and even a college. The assessee had not purchased the land for enjoyment or for personal use but with an intention to conduct business thereon as per the partnership deed and its contents. The extent of the land and the intention in acquiring it are sufficient to label the land as a trading asset and not as a capital asset". 62. In our view as far as the extent of land is concerned the same would not be decisive of the question as to whether it was a trading asset or a capital asset. As to the intention, in our considered opinion, distinction has to be drawn between an intention to conduct business of land and an intention to conduct business of construction on land. As long as the land itself was not contemplated to be traded in, the land could not be treated as a trading asset atleast until such time and only to the extent of saleable units were constructed on th....
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.... enormous price was attributable to removal of these difficulties. For example, it could be owing to growth in the importance of location as well. Fourthly, the learned counsel's argument that even at the time of the assessee's agreements to sale both the constraints of ULCA acquisition and PMT reservation had not been solved is factually correct. Finally, it is a matter of record that serious differences and disputes among the partners arose as early as 1976, and such disputes continued till the end. In our opinion the learned AO has rightly held that the letter dt. 15th April, 1979, addressed to Mr. Gidwani brought the business relationship amongst the partners to a virtual halt. The partners of the assessee-firm cannot be seen to have acted in concert to implement a premeditated business strategy of waiting for the disposal of land for about two decades with a view to harvest a bumper crop. As to the so-called 'eagerness' with which the partners contested ULCA acquisition or PMT reservation that does not distinguish the character of the land from capital asset to business asset. An owner is expected to defend both its trading assets as well as capital assets with equal zeal. In ....