TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 554
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....rade of the dissolved firm, hence assessable business income ? 3. Dr. Shivram, learned Senior Counsel appearing on behalf of the assessee stated that the only question that really requires to be answered is the question No.2. Before dealing with the said question, it would be necessary to advert to few facts. 4. Under a Partnership Deed dated 1st March, 1982, the assessee and one Smt. Amrutben K. Chedda agreed to do business in partnership as builders and contractors in the firm name and style of "Laxmi Construction Co." The profits and losses were to be shared equally. The partnership came into existence on 1st March, 1982 and was at will. The partnership deed is silent as to its assets or the stockin- trade existing. It transpires that the said partners purchased two plots of land bearing Survey No.14, Hissa No.2 admeasuring 4406 sq. mtrs. and Survey No.15, Hissa No.2 part admeasuring 8016 sq. mtrs. at village Diwanman, Taluka Vasai, Dist. Thane under a conveyance deed in their favor dated 2nd April, 1982. The partnership firm had agreed to develop the land, however, later decided to dissolve the partnership and a dissolution deed dated 1st April, 1985 came to be executed where....
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....On appeal before the Income Tax Appellate Tribunal, the assessee pursued his case that the plot in question constituted a capital asset in the hands of the partners by virtue of the partnership and its dissolution but held there is no conveyance of the land unto individual members of the partners, although they had been treating the land as personal capital assets and reflected them in their wealth tax returns. The lands were sold after two and a half years of dissolution of the partnership. 10. Mr.Suresh Kumar, learned counsel appearing for the revenue submitted that the land having been sold before three years, therefore, no deduction could be shown even assuming that it was a long term capital gains. It was contended before the Income Tax Appellate Tribunal that whatever the nature of the assets in the hands of the firm after dissolution of the firm, the assets in the hands of the partners was always capital asset and also contended that the other co-owner had already been assessed and her share in the land was treated as long term capital gains as a result, the same treatment was claimed by the assesses in the present case. The Tribunal found that there was nothing to show tha....
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....he Indian Partnership Act, 1932. In the said judgment, the Apex Court had occasion to deal with sections 14, 15, 29, 32, 37 & 48 of the Partnership Act and consider the nature of interest of partner in partnership property during subsistence of partnership and after its dissolution. The Apex Court has held that the concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. Even the person who brought it in the said property would not be able to claim or exercise any exclusive right over the property which he has brought it. In that case, it was also held that the deed of dissolution under which the partnership is dissolved was not compulsorily registrable 14. Dr.Shivram, then, relied upon the judgment of this Court in Khatau Vallabhdas (supra). The question before the Court was "Whether, on the facts ....
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....e immovable property as in the present case could certainly be traded as a capital asset apart from stock-in-trade to the aforesaid case. The question which arises, therefore, for consideration is two-fold, firstly, whether the property acquired by the two co-owners and or the two partners were stock-in-trade and secondly, if the same were stock-in-trade is their character changed and become capital assets. In this behalf, it is useful to refer to the provisions of the deed of dissolution particularly clause (3) which read as follows:- "3. The parties hereby declare that they have agreed to take over two plots of land as co-owners and will have absolute possession of the said plots as their capital assets, and shall have co-ownership interest in the said plots in equal proportion. Both the parties hereby agreed that they will repay the loans which they have borrowed for the purchase of plots out of their own resources or borrowing on their personal accounts. They also agreed to pay of the creditors and discharge other liabilities." 19. As can be seen from the above clause, the erstwhile partners agreed to take over the two plots of land as co-owners and claim possession of the pl....
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....of business. The Court, then, held that sums earned out of the transaction were revenue profits chargeable to tax. 21. In the present case, however, there is nothing to show that the assessee as also the erstwhile Smt. Amrutben Chheda had dissolved the firm with the intention to carry on the said business of the firm in their individual capacities. The assessee and the former partner sold the land to a third party. They did not carry on the business of M/s. Laxmi Construction Co., the partnership firm i.e. of builders and/or contractors. It is not the case of the revenue that the business of the firm was that of buying and selling land and that being the case, it would have been possible to contend that the sale of the land by erstwhile partners constituted business of the partnership in their individual capacity and for that reason could brought within the fold of stock-in-trade. However, in the case at hand, the land was simplicitor sold to a third party who incidently might have been in the business of construction. However, that is not a factor that is relevant for the purpose of the present reference. 22. Dr.Shivram then relied upon the decision of this Court in the matter o....