TaxTMI 
TaxTMI 
2013 (9) TMI 476
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....eby recognizing the individual rights of the partner continued as 'defunet firm' owning a particular a particular asset which was sold by the firm only in A.Y. 2003-04. Thus capital gain is taxable in the hands of the firm only. The assessment of capital gain made in the hands of the appellant is illegal and be quashed. 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) failed to appreciate the provisions of law that even after dissolution and recognizing the rights of the individual partner can continue as 'defunct firm' with ownership of some of the assets with it. Legally it means the unanimous decision of the partners was to continue the ownerships of the asset with some of the assets and was entitled to dispose of the same at appropriate time. The same thing has been done by the firm in the instant case. The long term Capital gain is legally assessable in the hands of the firm in A.Y. 2003-04. The instant assessment being illegal and without jurisdiction be quashed. 3. On the facts and in the circumstances of the case and in law the appellant denies his liability to pay interest u/s. 234-A, 234-B and 234-C of the Act ....
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....ain for A.Y. 2004-05 on sale of her share in the property. (v) Smt. Bhagvatidevi S. Biyani submitted the return of income on behalf of the firm for A.Y. 2001-02 in response to notice u/s. 148. (vi) During the course of assessment proceedings, Mr. Balmukund R. Biyani requested for taxing the capital gains for A.Y. 2003-04 as the property was sold on 29.03.2003 and the other partners also gave consent for the same. As far as merits are concerned, the appellant relied on various decisions to suggest that capital gains arose only on the execution of sale-deed on 29.03.2003. 6. Without prejudice to the above submissions, it was also submitted that even if it is presumed that dissolution was made on 01.04.2000, no capital gain arose as there was no distribution of capital assets and there was no transfer of immovable property and therefore it was submitted that the provisions of Section 45(4) have no application for A.Y. 2001-02 and requested that capital gains may be directed to be taxed in the hands of the firm for A.Y. 2003- 04. The assessee firm did not find any favour as Ld. CIT(A) confirmed the assessment made by the Assessing Offi....
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.... dissolution then there is deemed distribution of the assets. He argues that no presumption can be drawn based on the allocations of the assets shown in the deed of dissolution as the said allocation was merely the book entries to clarify the capital accounts of partners. He pleaded for cancelling the capital gains assessed in the A.Y. 2001-02. The Learned Counsel relied on the following decisions: 1. CIT Vs. Vijayalaxmi Metal Industries 256 ITR 540 (MAD) 2. Chalasani Venkateshwar Rao Vs. ITO 349 ITR 423 (AP) 3. CIT Vs. A.N. Naik Associates 265 ITR 346 (Bom) 6. Per contra, the Ld. DR supported the orders of the authorities below. The issue in controversy is in narrow compass. We find that there is no dispute on the basic fact that the assessee firm was dissolved by the deed of dissolution dated 10-04-2000. The Learned Counsel has filed the English translation of the dissolution deed which is very much relevant to decide the present issue hence, we reproduce the relevant parts on which the assessment is based. 1). The whole business of the firm m/s. S. Balmukund Jaysinghpur is decided to be discontinued from 01-04-20....
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....Biyani Capital & Liabilities Asset & Properties Sundry Creditor CS No. 355, B ward, Kolhapur, ½ share 157540 M/s. Om Agencies 124381 Shares 14000 Salora Paper Mills 19076 Kolhapur Mahila Bank 1000 Master Coat Mumbai 5000 Mahila Sah. Pat Sanstha 8000 Rajaram B. Biyani 197931 Fixed Deposit with Mahila Merchant 5000 Bank Savings A/c 416 Capital Account 168767 Cash in hand 4659 B/s Difference 1006 346388 346388 4). As mentioned above the different debtors and creditors of the partnership firm have been clearly noted against the names of the two partners and the recovery from the debtors and the payments for discharge of liabilities will remain their personal responsibility. It will not have any relation/responsibility with other....
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....agreed that the said property would be owned by the firm even after dissolution. As per clause 6 of the deed of dissolution it is provided that the said property is owned by the partnership firm and the sale or use of the same as per the mutual understanding of both the parties. It is relevant to consider here Sec. 45(4) of the Income Tax Act which reads as under: The profits or gains arising from the transfer or 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. 9. The Hon'ble High Court of Panaji Bench has explained Sub-sec. (4) of Sec. 45, after considering the legislative history in the case of A.N. Naik Associates and Another (supra) the operative part of the decision is a....
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....ded and consequently even if section 45(4) has been brought in by the amendment yet there is no transfer. In our opinion, that would not be the correct position. Firstly, the definition of transfer itself is inclusive. Before the introduction of sub-section (4), there was clause (ii) of section 47 which read as under: "any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons." Considering this clause as earlier contained in section 47, it meant that the distribution of capital assets on the dissolution of a firm, etc., were rot regarded as "transfer". The Finance Act, 1987, with effect from April 1, 1988, omitted this clause, the effect of which is that distribution of capital assets the dissolution of a firm would henceforth be regarded as "transfer". Therefore, instead of amending section 2(47), the amendment was carried out by the Finance Act, 1987, by omitting section 47(ii), the result of which is that distribution of capital assets on the dissolution of a firm would be regarded as "transfer". Therefore, the contention that it would not amount to a transfer has to be rejected. It is now....
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....ctual aspect taxed capital gain in A.Y. 2001-02. We therefore hold that the Assessing Officer was not justified to bring to tax the capital gain in hands of the assessee firm in the A.Y. 2001-02. We further hold that the property was sold by the assessee firm in the A.Y. 2003-04 and so far as the present property is concerned the said was not transferred to the partners at any time. As transfer contemplates the transferring the title and interest in the said property. We therefore allow the appeal filed by the assessee firm and Ground Nos. 1 and 2 are accordingly allowed. So far as Ground No. 3 is concerned it s consequential. 12. Now we take the appeals filed by the assessee partners being ITA Nos. 594 & 595/PN/2011, the following grounds are taken by both the assessee which are common in both the parties: 1) On the facts and in the circumstances of the case and in law the Ld. C.I.T. (A) was not justified in resorting to provisions of S. 147 to reopen the assessment for taxation of escaped income. There was no such escapement of any income in the hands of the appellant as any capital gain that was assessable in the hands of the firm in which the appellant was a ....