TaxTMI 
TaxTMI 
2010 (3) TMI 761
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.... deceased partners desired dissolution of the firm on 11.11.1999 which it seems was effected. Assessee firm had filed its return for the impugned Assessment Year on 31.7.2002 which return was processed u/s 143(1). Later, it was noticed by the Assessing Officer that rent receipts returned by assessee was at variance with the amounts as per TDS certificates and, on this reasoning, assessment was reopened. In the course of reassessment, Assessing Officer came to note the death of partner on 23.8.1999 and subsequent dissolution which came into effect on 11.11.1999. As per this dissolution, the immovable property standing in the name of the firm was taken over by one of the partners Shri V. Arumainathan for a consideration of Rs. 38,50,000/- and other assets/liabilities taken over by R.D. Rani after settling the dues of the other partners. Assessing Officer was of the opinion that on the dissolution effected on 11.11.1999, there would arise capital gains in the hands of the firm in respect of immovable property taken over by Shri V. Arumainathan. When this was put to the assessee, it was argued by them that there would not be any such capital gain if indexed cost on the relevant land an....
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....t mutual adjustment of rights and there was no question of extinguishment of rights of the firm in the partnership assets, amounting to a transfer within the meaning of section 2(47) of the Act. Therefore, according to him section 45(4) of the Act was not applicable. He thus held that on account of dissolution of firm as on 11.11.1999, there arose no capital gains to the firm and consequently this addition made by the Assessing Officer was deleted. 6. Now before us, the Revenue is in appeal, for, according to it, the Id. CIT(A) misdirected himself by considering the decision of Hon'ble Apex Court as well as High Courts which were relevant to an era prior to enactment of sub-section (4) of section 45 of the Act and also amendments made in section 2(47) of the Act. 7. As against this, in the memo of cross objection as already noted by us, assessee is aggrieved that Assessing Officer had traveled beyond the reason for which he had reopened the assessment. 8. Cross objections has been filed by assessee with a delay of 265 days. For condoning this delay assessee has also filed affidavit along with petition. In this petition, it is submitted that assessee was a lady who....
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........ 11. Supporting the cross objection, the Id. A.R. submitted that the Assessing Officer had admittedly reopened assessment on account of difference in the rental return shown by assessee and that reflected in the TDS certificate. According to him, in the final reassessment proceedings, addition on account of rental receipts was only Rs. 29,478/- whereas addition for short term capital gain came to Rs. 10,29,651/-. It was argued by the Id. A.R. that the Assessing Officer traveled beyond the reasons recorded. Further, according to him, by venturing into new areas not related to reasons recorded Assessing Officer had done fishing enquiries. Again it was urged that Assessing Officer was not justified in launching into such issues which were not connected with the cited reasons. In support of this, he relied on the decision of the Hon'ble Punjab and Haryana High Court in the case of Vipan Khanna Vs. CIT 255 ITR 220. Again, relying on the decision of the same High Court in the case of CIT Vs. M.P. Iron Traders 189 CTR 154, the Id. A.R. argued that reassessment on a ground different from the one on which proceedings were initiated were invalid. Further reliance was also placed on the ....
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.....f 1.4.1988. 15. Vis-a-vis the consideration of gains arising out of transfer of lands also as short term, the Id. D.R. submitted that such computation was rightly done by the Assessing Officer. 16. We have heard the rival submissions and perused the orders. First coming to jurisdictional aspect, there is no dispute that the reason for reopening was variance in the rental income as shown by assessee in its return and as reflected in the TDS certification filed by it. No doubt, this was one of the items that was considered in the reassessment but along with that, Assessing Officer also worked out short term capital gains which according to him arose on account of dissolution on death of a partner. Obviously, Assessing Officer applied subsection (4) of section 45 for taxing the capital gain. According to the assessee, Assessing Officer traveled much beyond the reason for which the assessment was reopened and this is against law. As against this, Revenue's contention is that with the addition of Explanation 3 to section 147, the decisions relied on by the Id. CIT(A) was no more relevant. It is now necessary to reproduce Explanation 3 to section 147 here: "For the purpose of a....
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....ssing Officer. Therefore, we are in agreement with the submission of the Id. D.R. that the decision cited by the Id. A.R. of Hon'ble Punjab and Haryana High Court Vipan Khanna Vs. CIT 255 ITR 220, that of Hon'ble Madhya Pradesh High Court in the case of DCIT Vs. Turquoise Investment and Finance Ltd 299 ITR 143 and that of Hon'ble Kerala High Court in Travancore Cements Ltd Vs. ACIT 305 ITR 170 which were given in relation to section 147, as it stood before the introduction of Explanation (3) would not help the assessee. If we apply the mischief rule, it can be seen that it is only for plugging the loophole in the body of section 147 that such Explanation 3 was brought into the Statute by the Finance [No. 2] Act, 2009. Explanatory Memorandum when this Explanation 3 was added would clearly fortify this view taken by us. Therefore, in our opinion, the law as it stands today could not be interpreted in such a way to hold that in the circumstances of this case, the Assessing Officer had traveled beyond the reason for which reopening was made. Thus in our opinion, the Assessing Officer had power to consider such capital gains in the reassessment proceedings if it was exigible to tax. 19....
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.... value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer." 21. The expression 'otherwise' appearing in sub-section (4) has not to be read 'ejusdem generis' with the expression 'dissolution of a firm or body of AOPs. The expression 'otherwise' has to be read with the words 'transfer of capital assets by way of distribution of capital assets'. If so read, it becomes clear that even when a firm is in existence and there is a transfer of capital assets it comes with the expression 'otherwise', as the object of amending Act was to remove the loophole which existed whereby capital gain tax was not chargeable. We are fortified in taking this view by the decision of Hon'ble Mumbai High Court in the case of CIT Vs. A.N. Naik 265 ITR 346 wherein it has been held that definition of transfer was inclusive and since clause (ii) of Section 47 was omitted by Finance Act, 1987 the result was that the distribution of capital assets on the dissolution for firm would be regarded as transfer. Thus we are of the opinion that the Id. CIT(A) fell in error when he held that there was no exigibility to capit....