TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 321
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....etiring partner as capital gain amounting to Rs. 6,16,67,531/-. (3) The Commissioner of Income Tax (Appeals) had erred in sustaining the addition on levy of interest u/s.234B & 234C of the Act. 3. The brief facts of the case are that the assessee is a partnership firm, engaged in the business of running educational institutions, and real estate, filed its return of income on 31.03.2010 admitting its income as Nil. Initially, the return was processed u/s.143(1) on 25.01.2011, subsequently the assessment was reopened by issuance of notice U/s.148 of the Act on 04.04.2011 and finally assessment was completed U/s. 143(3) of the Act on 28.3.2013 wherein the Ld. Assessing Officer determined the long term capital gain of the assessee at Rs. 6,16,67,531/- for transferring the immovable property of assessee to the outgoing partner Mrs. Aruna Rs. 9,04,10,000/- invoking the provisions of section 45(4) of the Act. 4. On the issue of reopening, the Ld. A. R. did not advance any argument to substantiate the claim of the assessee that reopening was bad in the case of the assessee. Hence, the same is dismissed as not pressed. Similarly, on the issue of levy of interest U/s. 234 B & 234C of the ....
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.... other partners continuing the business as a going concern with accounts indicating settlement of account by credit to partners for goodwill, there can be no interference of any transfer by the firm or the exiting partners to the continuing partners there can be no liability. o Dy. Ld. CIT vs. G. K. Enterprises (2001) 79 TTJ (Mad.) 82, wherein it was held by the Tribunal that the transactions as evidenced by the documents filed did not show any dissolution of firm as much has to apply the provisions of section 45(4) of the Act. It cited the decision of Gujarat H. C in CIT Vs. Mohanbhai Pamabhai (1973) 91 ITR 393 affirmed by the apex court reported in 165 ITR 166(SC). o It is held in the above case by the ITAT that 'Allocation of assets of the firm to the retiring partners is the basis for invocation of provisions of section 45(4). In the case under consideration, neither there was any dissolution nor did other event take place that had an effect of allocation of exclusive interest in any capital asset to the retiring partners. In these circumstances, FAA was justified in holding that conditions of Section 45(4) were not fulfilled. In our opinion the firm or the continuing par....
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....he case of ITO Vs. Fine Developers in ITA No.4630(Mum) of 2011 that obviously assessee firm had not transferred any right in capital asset to the retiring partners rather it is the retiring partners who have transferred the rights in capital assets in favour of the continuing partners. So even if capital gain has to be taxed it has to be in the hands of the retiring partners not in the case of the assessee -firm. * In the instant case, there is a clear transfer of Schedule 'A' property as per the partition deed by the continuing two partners of the firm and relinquishment of Schedule 'B' property by the outgoing partner. Therefore, as far as the transfer of the Schedule 'A' property, the firm has to be taxed U/s.45(4) of the IT Act. * During the course of the above discussed written submission on 20.02.2013 it was explained to the assessee's representative about the basis for the arrival of the deemed value of the consideration of Rs. 9,04,10,000/- being the one quoted in the partition deed entered into between the outgoing partner and the other partners of the firm. There was absolutely no dispute raised. * A letter has been issued tot eh Joint sub-registrar-4, Madurai to....
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....sessing Officer intends to tax the partition done between Mr. Biju Sundarshan and Mr. Beboy John on the one side and Mrs. Aruna Visveswar on the other side. * The loan has been agreed to be settled by the continuing partners and hence the sacrifice by the continuing partners need to be factored to the extent of loan outstanding, since the loan has been taken for the purchase of asset from Madura Coats Ltd as per the deed enclosed." The Ld. Assessing Officer rejected the argument of the Ld. A. R. by observing as under:- "10. It is to be pointed out here that had there been no liability, the share of the outgoing partner on the property would be more by the proportionate value of liability which should have been brought to tax. Further, there is no provision in the Act to provide for such liability in the capital gain tax. It is only the cost of acquisition and cost of improvement which should be taken into account after the indexation, if any. Any such liability would become deductible in cases of inheritance/will, with a specific condition in it, only. But in the case of assessee firm, it is only partition of firm's assets. As discussed supra, the share of the outgoing partner ....
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....r market value as on the date of transfer. He however proceeded with the value as partition deed. In case the value adopted by the appellant was on the lower side the Assessing Officer would have raised the value of the computation based on the fair market value. Hence the Ld. Assessing Officer failed to compute the capital gain as envisaged in section 48 of the Income tax and since the computation fails the assessment order needs be quashed. The prop consists of land and building and the same was depreciated in the books of account and hence the computation of land and building needs to be separate and cannot be taken as a consolidated figure. Hence in the instant case the computation of the capital gain is incorrect and is liable to be recomputed on actual basis. 6.2 As per the provisions of section 45(4), the fair market value of the prop should be adopted as the deemed consideration. It is pertinent here to note that the figure of Rs. 9,04,10,000/- was adopted by the Assessing Officer as the Fair Market Value since this is mentioned in the partition deed dated 02.06.2008 entered into between the outgoing partner and the other partners of the firm as the value of property ....
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....ity being an "individual". Therefore, it is crystal clear that capital gain will arise in the hands of the transferor viz. the assessee firm and not the transferee viz. the retiring partner Mrs. Aruna Visvewar. Provisions of section 45(4) of the Act are reproduced herein below for reference:- Section-45(4):- The profits or gains 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 purpose 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. The words "OR OTHERWISE" have been elaborately explained in the following decisions:- i) ACIT V. D. D. International (Global) [2009]125 TTJ (Asr.) 112 The word 'otherwise', used in section 45(4) is not to be read ejusdem generis with dissolution of firm or AOP. The expression 'otherwise' ....