TaxTMI 
TaxTMI 
2011 (9) TMI 612
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....86 and when the assessing officer had not even doubted the genuineness of the firm in his assessment order? 2. Whether in law the Income Tax Appellate Tribunal is justified in treating the appellant as an Association of persons applying the provisions of Section 184(5) of the Income Tax Act, 1961 as it stood with effect from 01.04.1993 for the assessment year 1985-86?" T.C.(A).No.167/2004:- "1. Whether in law for the purpose of grant of registration of a firm, it is enough if the partnership is evidenced by an instrument executed and operational in the previous year? 2. Whether in law mere fact that the date of execution of the partnership was wrongly given in a deed would not invalidate the deed? 3. Whether for determining the status of the appellant as a partnership firm the provisions of the Income Tax Act, 1961 as it stood on 01.04.1985 and 01.04.1986 are alone applicable and not the provisions of Income Tax Act as it stood on 01.04.1993 as assumed by the Honourable Income Tax Appellate Tribunal?" T.C.(A).No.168 and 169/2004:- "1. Whether in law the appellant is liable for Capital Gains for the assessment yea....
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....HUF), who were partners in the firm who had contributed their respective equal shares in the property Midland theatre towards their capital contribution in the firm. On the allotment of the lands to Jayapradha, A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) were protectively assessed on long term capital gains for the assessment year 1986-87. 4. Before going into the various issues arising in these appeals, few facts relevant need to be noted. 5. Originally, as early as 1929, A.K.Ramachandran, father of A.R.Srinivasan, purchased an extent of 14.73 grounds situate at General Patters Road. He constructed the theatre building viz., Midland Theatre, in the year 1931 with the funds of HUF. The Theatre was run by the said A.K.Ramachandran along with A.R.Srinivasan (HUF) as a partnership concern. It was later on dissolved. In the year 1972, A.R.Srinivasan (individual) along with his two daughters viz., Mrs.Geetha Shivakumar and Mrs.Uma Shankar, formed a partnership firm in the name of "Midland Picture Circuit" to carry on the business in hiring cine equipments furniture and air-conditioners. It constructed a mini theatre called "Leo" in the vacant portion of the ....
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....d hence, there was no capital gains. 6. The firm Midland Theatre consisting of partners A.R.Srinivasan (individual), A.R.Srinivasan (HUF), Mrs.Geetha Shivakumar and Mrs.Uma Shankar, underwent a change in the constitution on 24.04.1985, by which, Jayapradha and her brother Raj Babu and Ramkumar were taken as partners therein, having the following share:- Share of Profit/Loss A.R.Srinivasan (individual) 5 Mrs.Uma Shankar 1 Mrs.Geetha Shivakumar 1 A.R.Srinivasan (HUF) 4 Jayapradha 4 Ram Babu 1 Ramkumar 1 TOTAL 17 The following are the capital contribution of the partners:- a) In respect of A.R.Srinivasan (individual) and A.R.Srinivasan (HUF), the amount standing to their credit viz., the value of the land and building as described in the schedule annexed to the partnership deed at Rs.60 lakhs. b) In respect of the Uma Shankar and Geetha Shivakumar, the amount standing to their credit in their respective accounts. c) In respect of Jayapradha, Rs.8,00,000/- (Rupees Eight Lakhs only). d) In respect of Ram Babu, Rs.1,00,000/- (Rupees One Lakh only). e) In resp....
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....ating it as a registered firm did not arise. Further, he viewed that A.R.Srinivasan (individual) could not represent in dual capacity for HUF also. He viewed that this was obviously resisted to, so as to bring the land and building called Midland Theatre into the firm and be transferred to Jayapradha Group, who were inducted on 23.4.1985 and from which firm, A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) and the two daughters resigned on 24.10.1985. Thus the Assessing Officer held the status as that of Association of Persons. Thus, the Assessing Officer held that there was no partnership in the eye of law to consider the assessment under Section 184 of the Income Tax Act, 1961. Treating the status as Association of Persons, the assessment was completed, holding the transactions on the distribution of assets on dissolution as a colourable device for avoiding capital gains. 8. As far as assessment year 1986-87 is concerned, the Assessing Officer confirmed the view that there was no firm and that the status was to be held as Association of Persons. As far as the partnership deed executed with Jayapradha Group was concerned, the Assessing Officer viewed that the partner....
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....the sale of Midland Theatre, the Income Tax Appellate Tribunal, once again reaffirmed the view of the Assessing Officer on the protective assessment made therein. However, the Income Tax Appellate Tribunal, in so holding, viewed the inclusion of the property Midland Theatre at the hands of Association of persons as double inclusion and held that the same could not be assessed at the hands of Association of persons. As regards the Revenue's appeal filed on the question of determination of the value of the land and Capital Gains, the Income Tax Appellate Tribunal rejected the same. 11. It is seen from the order of the Income Tax Appellate Tribunal that the contention of the assessee as regards the assessment on the unexplained cash credit, though raised by the assessee, was not considered. 12. The present appeals are by the assessee challenging the order of the Income Tax Appellate Tribunal in rejecting the contention of the assessee as regards the status taken as Association of Persons as well as on the assessment on A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) as long term capital gains on the sale of Midland Theatre to Jayapradha. 13. The cont....
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....he registration provisions would get assessed as Association of Persons. In the circumstances, the Income Tax Appellate Tribunal committed serious error in applying the amended provisions to the facts of the case. Consequently, he submitted that when there were enough evidence before the Income Tax Appellate Tribunal as regards the validly constituted partnership firm and its dissolution, the Tribunal ought not to have treated the assessee as Association of Persons. 16. He submitted that given the fact that the property in question was treated as capital contribution by A.R.Srinivasan (individual) and A.R.Srinivasan (HUF), on the dissolution of the firm, the property thus allotted to the partners, would not attract any of the provisions relating to capital gains; as such, the question of invoking the provisions relating to capital gains does not arise. He further pointed out to the circumstances under which the firm was reconstituted and thereafter sale of a portion of the property covered under a larger extent of 14 and odd acres was made to one of the inducting partners viz., Jayapradha. After the firm was dissolved, the properties which were there in the capital accoun....
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....he other authorities that the said partnership firm claimed that it had sent the original deed of partnership to the Income Tax Officer by ordinary post. The Tribunal pointed out that the assessee could not show that the cover sent from the Auditor's Officer at Kumbakonam contained the application for registration along with the partnership deed in original. The assessee had sent it in an insufficiently stamped cover. There was nothing on record to show that the Department ever received such deed sent by post, or for that matter, the assessee ever produced the original deed before the authorities concerned. In the absence of any material to substantiate this aspect, the Tribunal held that no document was placed on record that the assessee applied under Section 185 of the Income Tax Act, 1961 to treat the firm as a Registered Firm. It however rejected the observation of the Assessing Officer as regards A.R.Srinivasan signing in dual capacity. Accordingly, the Tribunal upheld the view of the Assessing Officer in treating the firm as Association of Persons. 23. As far as the claim of the assessee for inducting three more partners is concerned, the Tribunal pointed out that t....
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....s satisfied that for sufficient reason, the original instrument cannot conveniently be produced, he may accept a copy of it, certified in writing by all the partners. Even where the application is made after the dissolution of the firm, the application shall be accompanied by a duplicate copy of the original instrument signed by all the persons referred to in clause (b) of sub section (3) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased. In such event, on satisfaction as to the genuineness of the firm and the document thus presented, Section 184 of the Income Tax Act, 1961 permits the Officer to process the application for grant of registration. 27. As far as the present case is concerned, admittedly, no steps were taken by the assessee to produce the partnership deed for the purpose of considering it for registration. Further, no materials were available before the Assessing Officer as to the filing of the application with the original of the partnership deed, or for that matter, even after the dissolution, no attempt was made as provided under Sub Section (3) of Section 184, to substanti....
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....nership alleged to have been entered into with Jayapradha Group had to be treated as an Association of Persons in continuation from the Assessment Year 1984-85. 28. In the light of the above said facts, we have no hesitation in rejecting the first substantial question of law raised in T.C.Nos.166 and 167 of 2004. As already pointed out, on the ground of rejection of the existence of a genuine partnership firm, the Tribunal upheld the order of the Assessing Officer, holding the status of the assessee as Association of Persons. Accordingly, we reject the assessee's contention in T.C.(A)Nos.166 and 167 of 2004. 29. As regards the protective assessment on A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) on the issue of capital gains, when the Tribunal considered the status of the assessee as Association of Persons and its dissolution, we find that the Tribunal committed a serious error in ignoring the effects of the same and going further in treating the sale of Midland Theatre as attracting capital gains at the hands of A.R.Srinivasan (individual) and A.R.Srinivasan (HUF). 30. Given the fact that the Income Tax Appellate Tribunal had confirmed the vie....
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.... arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market 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." Going by the provisions of Section 47(ii) of the Income Tax Act, 1961 relevant to the assessment years under consideration, distribution of assets on the dissolution of the Association of Persons does not attract capital gains. 32. Even otherwise, if one has to accept the case of the Revenue for taxing capital gains at the hands of A.R.Srinivasan (HUF) and A.R.Srinivasan (individual) therein as by way of protective assessment, there must be material enough to show a transfer of property by A.R.Srinivasan (HUF) and A.R.Srinivasan (individual) in favour of Jayapradha. The Revenue does not deny the fact that....
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....vable property was effected by A.R.Srinivasan (HUF) and A.R.Srinivasan (individual) in favour of Jayapradha. In the absence of any such documents, we fail to understand how the transaction would come within the meaning of the term "transfer" to attract Capital Gains under Section 45 of the Income Tax Act, 1961. The Tribunal pointed out to the order of the Assessing Officer in the case of A.R.Srinivasan (HUF) that he had treated the sale of Midland Theatre at the hands of Association of Persons as resulting in short term capital gains and had assessed so. The status given to the firm as Association of Persons in 1985-86 continued so for the assessment year 1986-87. The Tribunal further pointed out that the Assessment order indicates the recognition of bringing the land and building of Midland Theatre as capital contribution and based on this, in the assessment year 1986-87, the Assessing Officer treated this as short term capital gains in the hands of Association of Persons. Having held so, the Assessing Officer, however, found that there was lack of bona fide in floating the firm and treating the property as by way of capital contribution on the formation of the partnership firm an....
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....nbsp; 39. Thus, going by the findings of the Tribunal on the constitution of Association of Persons, whatever may be the correctness or otherwise of the contention of the assessee as regards the existence of the firm, the fact remains that the Revenue could not dispute that there was Association of Persons and there was, in fact, dissolution on 23.10.1985 and that after 23.10.1985, there was no Association of Persons. In that event, the terms of the dissolution deed of the Association of Persons, as of today, stand. On dissolution, as per Clause 3, excluding the portion belonging to Leo Theatre and M/s.Savith Snacks, the land and building of Midland Theatre was allotted to Jayapradha and as per Clause 8, A.R.Srinvasan (individual), A.R.Srinivasan (HUF), his two daughters viz., Mrs.Geetha Shivakumar and Mrs.Uma Shankar were to receive a sum of Rs.50 lakhs credited to their accounts. 40. In the light of the terms of dissolution thus not questioned by the Revenue, we hold that the assessee in T.C.166 and 167 of 2004 as Association of Persons is entitled to have the benefit of Section 47(ii) of the Income Tax Act, 1961, which means, the question of assessing the property v....