TaxTMI 
TaxTMI 
2015 (5) TMI 466
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....he revenue authorities were right in holding that the firm M/s. Maganahalli Steel Corporation was liable to be taxed on capital gains on sale of the immovable property at Binny Company road, Davangere? (3) Whether the order passed by the AO is bad in law for the reason that the AO has passed the order after the expiry of period of six months from the date of the Hon'ble High Court's order and contrary to the directions given by the Hon'ble High Court in the said order to dispose of the case within six months? 3. The issue that arises for consideration in the appeal by the revenue is as under:- "2. The learned CIT(A) erred in directing to calculate Capital gains on land and building separately as per the principle laid down in the Hon'ble High court of Karnataka in the case of CIT Vs. C. R. Subramanian (242 ITR 342). 3. The learned CIT(A) erred in appreciating that the asset in this case was held for business purpose and depreciation had been claimed and Capital Gains is to be worked out as per Sec.50(2). " 4. The above issues were already decided by the ITAT in ITA No.2096/Bang/1992 by order dated 20.7.1995. On a reference by the ITAT in ITRC No.479/1998 the Ho....
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.... record of the AO. According to the said dissolution deed, whereas the property was allotted to the three retiring partners viz., Shri M.V. Mahendraswamy, M.V. Narendranath and M.V. Rajendranath. The business in iron and steel items as a going concern, was however, taken over by the other partner Smt. M.R.Jayashree. It is claimed that Smt. Jayashree ran the business of MSC as a proprietress till finally it was closed some time in January- February 1988. 6. It has furthermore been claimed that the three erstwhile partners of MSC viz., Shri M.V. Mahendraswamy, M.V. Narendranath and M.V. Rajendranath formed another partnership firm under the name and style 'Maganahalli Associates' (hereinafter referred as "MA") by a partnership deed executed on 2.10.1983. A copy of the said partnership deed was also placed on the records of the AO. According to the above partnership deed, the above mentioned property belonging jointly to the three partners was made the property of the firm and the capital of the partners was constituted mostly by way of impressing the said property with the partnership character. This partnership firm also carried on business in the same line viz., iron and steel i....
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....on the record of the AO on 03.10.1983 in respect of which also an acknowledgment was stated to have been issued on the body of the copy retained by the assessee. The Department contested the genuineness of filing of this paper also. Form No.11 in respect of the new firm i.e., MA for assessment year 1985-86 is also stated to have been filed on the records of the assessee on 02.10.1983 about which also the Department raised a challenge. It is, however, a fact that an assessment was made on 26.10.1987 under section 143(1) in respect of the above mentioned return of income for the period up to 30.09.1983. The assessment order acknowledged the receipt of the return under consideration. The return filed by the new firm MA belatedly for assessment years 1985-86, 1986-87 and 1987-88 were all assessed to tax under section 143(1) in substantial capacity but by considering the status of the firm to be in unregistered firm, on different dates like 12.10.88, 5.3.1989 and 30.3.1989 respectively. The ITO, however, passed an order u/s. 185 for assessment year 1985-86 on 12.10.1988 in respect of MA in which this partnership was considered as sham and a device to defeat the provisions of the Income ....
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....pted. 11. After accepting the fact that MSC had not been dissolved and MA had not actually come into existence, the Tribunal however, finally found that the property in question had not actually been transferred by MSC, but by the three male partners of the said firm viz., Shri Mahendraswamy, Narendranath and Rajendranath acting as partners of new firm, MA. The Tribunal found that the other partner of MSC viz., Smt. M.R. Jayashree was in no way associated with the sale of the property. The Tribunal also found that not only did the purchaser accept these three male persons to be the owner of the property as vendor thereof, but even the sale consideration also was deposited in the bank account of MA constituted by the three male persons only. The Tribunal thus came to the conclusion that on the face of such facts, it could not be concluded that the firm itself has sold away the property. On the other hand, the Tribunal held that it was the three male persons, as stated above, who had sold away the property and appropriated the entire sale proceeds amongst themselves. Accordingly, the Tribunal deleted the levy of capital gains tax in the hands of the assessee firm viz., MSC. 12.....
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.... to avoid incidence of capital gain tax on sale of the said property. Thus, I hold that the whole transaction was Shun transaction. I, therefore, hold that the assessee firm is liable to tax on Capital Gains arriving out of sale of immovable property by rejecting and assessee's claim that the firm was dissolved and did not exist as on the date of sale and also the claim that property and the capital gain would be at a figure of Rs. 24,01,101/- as deducted by Rs. 25,00,000/-. Which was the cost to the new firm. As regards the applicability of the decision reported in 242 ITR 342. The assessee did not support any evidence." 14. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(Appeals). The CIT(Appeals) was of the view that the reasons given by the AO for his conclusions are valid and did not call for any interference. The CIT(A) was, however of the view that capital gains, if any, have to be computed by bifurcating the sale consideration received by attributing a portion of it towards the value of land and another portion towards value of the building. The following were the relevant observations of the CIT(Appeals):- "It is seen that AO has not bi....
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.... The Assessee took a stand that the order of the AO was invalid for the reason it was passed beyond the period prescribed by the Hon'ble High Court. With regard to the contention of the assessee that the order passed by the AO is bad in law as it was passed beyond a period of six months, contrary to the directions of the Hon'ble High Court, the CIT(Appeals) held as follows:- "6. I have gone through materials on file and appeal is decided as under: 6.1 Date of passing order: It is crucial to know that when HONORABLE High Court mentions about specific date of performance of passing an order, if for laid down procedures of IT department of giving effect to such order only after receipt of such order by CIT/CCIT six month time as per IT Act will commence, Is the main Issue of content. (a) As per AO after receiving order from counsel order is given effect to within six months. Thus, in first instance AO has acted as per provisions of IT Act. (b) In second place AO has no option but to follow procedure laid down by department. (c) Further, AO has acted in bonafide belief that order is to be passed after receiving from proper channel. (d) Delay has to be attached to t....
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....assessee and the fact that under Sales Tax Act, returns were filed after the period of dissolution and bank accounts were operated by MSC cannot be the basis to come to the conclusion that MSC was not dissolved on 30.9.1983. 19. The ld. DR, on the other hand, placed firm reliance on the order of Tribunal in the first round of litigation and the order of AO wherein he has listed out the circumstances for justifying the conclusions that the firm, MSC, was not dissolved as on 30.9.1983. 20. The ld. DR also submitted that the order of the Hon'ble High Court fixing time limit for conclusion of the assessment by the AO was only directory and mandatory. According to him, the time limit as computed by the AO and approved by the CIT(Appeals) should be upheld. 21. We have given a very careful consideration to the rival submissions. This Tribunal, in the original order passed in the appeal, after considering the material on record, came to the following conclusions:- "7. It would be evident from the narrations made above that the claim of the assessee about dissolution of MSC and formation of MA, although evidenced by duly executed deeds in those regards, are subject to considerab....
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.... the relevant time. Although according to the assessee, MSC had already been dissolved and the new firm MA had been started, yet some of the erstwhile partners of MSC like S/Shri M.V. Mahendraswamy and M.V. Narendranath continued to sign the declaration forms in respect of turnover submitted before the Sales-tax authorities, as partners of MSC. The argument of the learned counsel for the assessee that the composition of the trading organization is not of much importance before the sales tax authorities may have some force. We are, however, confronted in this matter with the conduct of S/Shri M.V. Mahendraswamy and M.V. Narendranath. Had the dissolution of MSC really taken place, they would have been conscious enough not to sign the sales-tax turn-over declaration forms still as partners of MSC. They could have, at best, signed them for the proprietress Smt. M.A. Jayashree. It is a fact that by acting upon the return of income filed by MSC for assessment year 1985-86 showing the dissolution of the firm, the IT Department has indirectly accepted the said fact of dissolution. The same may be again the case about making assessments on the returns filed by MA for different years. Howeve....