TaxTMI 
TaxTMI 
2012 (1) TMI 216
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.... going concern. 3. The lower authorities failed to appreciate that the share in profit on revaluation of partnership firm's assets amounting to Rs. 5,24,47,943/- received by the assessee on his retirement from a partnership firm which is continuing in business was not taxable either under s. 10(2A), s. 28(iv) or s. 28 (v) or s. 45(4) and in view of the laws laid down by Hon'ble Apex Court in (1987) 165 ITR 166 (SC) and (2001) 247 ITR 801 (SC) and in view of the decision of Hon'ble Mumbai High Court in (2010) 324 ITR 154 (Bom). The order passed by the lower authorities violates Art. 141 of Constitution of India. 4. On the facts and in the circumstances of the case and in law the Ld CIT(A) erred in holding that the profit apparently shown on account of revaluation of land but effectively and actually is on account of transfer of rights in the land by the retiring partners to the new partners of the firm and such profit is liable to be taxed under the head income from other sources. 5. On the facts and in the circumstances of the case and in law the ld CIT(A) erred in holding that development agreement with M/s Gold Dream Builders, allowing entry of four par....
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....ring an income of Rs. 10,90,820/-. While making the assessment vide order dated 27th Dec. 2010, the AO has assessed the income at Rs. 5,24,47,943/-. 2.3 The assessee entered into an agreement of partnership with Shri Jitendra Agarwal on 15-07-06 for carrying out the real estate business. The firm was in the name of M/s.Krishna Villa Apartment in which the assessee was having 75% share while Shri Jitendra Agarwal was having 25% share. The firm purchased the land on 25-07-2006 for a sum of Rs. 1.05 crores in the village Siroli measuring 3.77 hectare. Such land was purchased from M/s. Pawan Creations (P) Ltd. (n short M/s. M/s.PCPL) This land was got converted into residential/ commercial land by M/s.PCPL . The necessary charges for conversion and other expenses were not deposited either by M/s.PCPL or by the owner / farmers of the land and therefore, the firm M/s.Krishna Villa Apartment deposited such charges and applied for group housing pattta from Jaipur Development Authority ( in short JDA). The JDA issued patta in the name of M/s.Krishna Villa Apartment and this firm entered into a development agreement on 30th Sept. 2006 with M/s. Gold Dream Developer, a partnership firm con....
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....m (as claimed as an expense) nor in the hands of the partner, the assessee Sh Pawan Lashkary (claimed exemption u/s 10(2A)). In this connection, the AO referred the observation of the Hon'ble Supreme Court in the Kedarnath Jute Manufacturing Co. Ltd. V/s CIT (1971) 82 ITR 363 is appropriate to quote: "Whether the assessee is entitled to a particular deduction or not will depend on the provisions of low relating thereto and not on the view which the assessee might take of his right, nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter." 2.4 The AO mentioned that the Department came into possession of several incriminating documents as the result of search on 6.8.2008 one of which is the page 33 from Annexure A 26 seized from 73-75, Talkatora and this paper indicates that the said facts and query were typed to be posed to Sh Manoj Chaudhary (written in top with Pencil) who is Chartered Accountant in the case of the firm, M/s Krishna Villa Apartment. The five queries deal with the trajectory of events described in the flow chart at Para 2 and the implications on income tax liability of the firm and the partners. This d....
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....rewith. iv) So far surrender of income made on this account at the time of search this is to submit that the surrender was under wrong belief. The assessee was not expert in taxation law. The search party convinced the assessee that the amount is taxable in the hands of the assessee so he made the surrender. The income tax can be levied as per the provisions of Income Tax Act: not on the basis of admission or agreements. There cannot be estoppels again the law. Since there is no provision in section under which this income can be treated as income of the assessee, therefore the same was not offered as taxation in the hands of the assessee. The provisions of section 10 (2A) of Income Tax Act is very clear in the regard. Further, the amount received by the retiring partner is capital receipt, not liable to tax. 2.6 The AO mentioned that the above reply of the assessee indicates the stand of the AO as to the directions and the alternative pleas that the assessee can take when confronted with uncomfortable questions and show cause notices. The tenor of the assessee through his A/R is clear - there is no provision in section under which this income can be treated as income of the ....
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....red is the true nature of the transaction and whether fact it has resulted in profit or loss to the assessee is". The AO held that the series of events starting from development agreement (September 2006). Take over agreement (18.01.2007), revaluation of land crediting difference in capital account, merging of firm and admission of new partners (19.01.2007), retirement and withdrawal of capital account is nothing but colourable devices employed by the assessee with active collusion and 'expert advice' from tax practitioners so as to bar the applicability of all sections of Income Tax Act. To quote the Apex Court in the case of the CIT vs Durga Prasad More (1971) 082 IRT 540: "It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make selfserving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed ....
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....ot be taxed as it is presumed that the same was not directed by the Parliament to be taxed. Article 265 of the Constitution provides that no tax shall be levied except by authority of law. There is no scope of intendment in a taxing statute. It was so laid down by the Hon'ble Apex Court of this land in celebrated judgment in the case of CIT vs. Elphinstone Spg. & Wvg. Mills Co. Ltd (1940) 40 ITR 142 (SC). In this regard a useful reference can also be made to Supreme Court in the case of Nalinikant Ambalal Mody Vs. S.A.L.Narayan Row, CIT [61 ITR 428 (SC)] as also Calcutta High Court decision in the case of CIT Vs. Justice R.M. Datta [180 ITR 86 (Cal)]. Learned authors Pithisaria & Chaturvedy in their commentary "Incometax Law" (Sixth Edition) Vol. 1 page 1126 have also, on the basis of above Calcutta High Court judgment, opined as under: If any receipt is income it has to be computed under one of the five heads of income provided under section 4 of the Income-tax Act, 1961. If, however it cannot be brought to tax by computation under those sections, they would not be included in the "total income" as defined in section 2(45), for the purpose of chargeability, [CIT Vs Justic....
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....d to a firm cannot be utilized by the Partners of the firm. Since the land in question belonged to the Firm, it could have generated income only in question was stock-in-trade of the firm, it could have generated income in the hands of the firm only at the time of its sale by the firm. Therefore, by no stretch of imagination or logic the income could have been taxed in the hands of the partner/appellant. It will pertinent to quote the pronouncement of the Apex Court in respect of nature of interest of a partner in the assets of the firm as also the firm in general. The most important observation in this regard are found in the judgment in the case of Sunil Sidhharthbhai Vs CIT [156 ITR 509 (SC)]. On page 519 of the report, they observed: During the subsistence of the partnership, the value of the interest of each partner qua that asset cannot be isolated or carved out from the value of the partner's interest in the totality of the partnership assets. And in regard to the later, the value will be represented by his share in the net assets on the dissolution of the firm or upon the partner's retirement. It obviously means that when a person a person did not....
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....operty as his own, nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clause (i), (ii) and (iii) of clause (b) of section 48." Again on Page 1304 "The whole concept of partnership is to enter 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. ........... As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the, of his share in the net partnership assets....
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....n of dissolution of the firm and consequent distribution of assets etc it has, in its wisdom, not enacted any law so far to bring to tax the receipts in the hands of retiring partner on account of monetary realization of his interest in net assets of the firm.] Even if it is presumed that the profit arose from revaluation of stock is a taxable income than also it cannot be assessed in the hands of the partners. The profit on account of revaluation of the stock arose in the hands of the partnership firm and if the same is treated as taxable income the computation of total income in the hands of M/s Krishna Kripa Apartment would be as under:- Net Loss as per P & L A/c (As per Computation filed with return of firm ) -39288 Add Expenses disallowed:- Project Revaluation 69930590 Total Income 69891302 Allocation of Total Income in between partners:- Shri Pawan Lashkary 75% 52418476 Shri Jitendra Agrawal 25% 7472826 Total 100% 69891302 By virtue of section 10(2A), the above profit cannot be taxed in the hands of the partner. The section 10(2A) of Income Tax Act is ....
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....in under this head, the first and foremost condition is that the assessee should own the "asset". In the present case, the land/project was not owned by the appellant. It was owned by the firm. In fact the Appellant never ever owned the land/Project. If the appellant did not own the asset, he could not have earned the capital gains which could be taxed. It will not be impertinent to mention that "capital gains" are not considered as normal 'income'. In fact, the history of taxation of capital gains in India would show that there were times when capital gains were not taxablesame being not normally understood 'income'. It was for this reason that "Capital Gains" have been specifically included in the definition of "Income" in section 2(24) of the Income-tax Act, unlike "Salaries" or "Profit & Gains of Business & Profession" etc. this fact has a significant legal bearing because it means that income under the head "Capital Gains" is a deemed income and the law of land provides that any provisions prescribing tax on deemed income should be strictly construed. Under this head "Capital Gains" - which provides for tax on deemed income- there are further deeming provisions, viz section 45....
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....binding on his client and such concession cannot constitute a just ground. 3.11 Section 45(1) of the Act which is the primary/main charging section for capital gains requires that the assessee should have a 'capital asset' which has been 'transferred' during the previous year. The humble appellant begs to submit that the land/project in question were never ever the property of the appellant. It was either the property of the farmers or of a private limited company or of a partnership firm. It has already been held by the Supreme Court that settlement of accounts for the purpose of dissolution of the firm or retirement of one or more partners does not amount to transfer of any asset(s) by the retiring partner. (Pl. Refer to SC Decision in the case of Bankey Lal Vaidya (supra). Section 45(1A) patently does not apply to the case of the appellant as the sub-section applies to receipts from insurance companies etc. Section 45(2) also does not apply in the present case because that sub-section deals with conversion of a capital asset into stock-in-trade which was enacted to overcome the decision of the Supreme Court in the case of Bai Sirin Kooka. Sect....
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....ution" of the firm. In the present case, apart from the fact that this section does not apply to partners, other conditions are also not satisfied. There is neither 'distribution' to partners, nor any 'capital asset' was involved (the project/land was stock-in-trade). Further, there was not 'dissolution' of firm. Section 45(5) deals with the cases of gains arising on account of compulsory acquisition of assets, which is not the case here. Section 45(6) deals with the gains arising on account of repurchase etc of units of mutual funds etc. hence not applicable. As we have seen, no charging provision related to capital gains tax is applicable to the case of the appellant. 3.12 Realizing irrationality of taxing the difference in value at the time of settlement of accounts of the retiring partner under any of the heads of income provided in section 14 of the Act, the AO chose to remain silent about it and refrained from addressing the fundamental issue of taxability in the hands of the Partner/Appellant. It will be fitness of things to bring to your kind notice a recent judgment of the Bombay High Court in the case of Prashant S Joshi vs ITO [324 ITR....
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....t in the partnership assets involved when a partner retires from the partnership." The Gujarat High Court held that there is, in such a situation, no transfer of interest in the assets of the partnership within the meaning of section 2(47). When a partner retires from a partnership, what the partner receives is his share in the partnership which is worked out by taking accounts and this does not amount to a consideration for the transfer of his interest to the continuing partners." In view of above decisions and submissions, it is submitted that there was no justification whatsoever to tax the amount received by the appellant on his retirement from the firm and therefore addition deserves to be deleted. 3.13 Allegation of intention of tax evasion is devoid of any merit as such. In paragraph 6 of the assessment order the AO has alleged that the transaction of induction of new partners and retirement of old partners was with an intention of tax avoidance is incorrect both legally and factually. The learned AO stated that in the accounts of the firm, the difference in valuation of the land/Project has been shown as an expense. While the continuing/ new partn....
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....he Appellant had retired. In view of the above fact of non-deduction of any part of revaluation amount, the theory of the AO that the transactions were entered into with an objective of avoiding tax payment falls to the ground. 3.14 Much emphasis has been laid by the Assessing officer on the fact that the assessee/appellant had surrendered the aforesaid difference of Rs. 5.25 crores as his income and had undertaken to pay tax thereon. However, while filing the return, the assessee claimed the said difference to be exempt from tax. The AO seems to have taken it to her heart that the assessee did not honour his statement made during the search and seizure proceedings and retracted thereon. It is trite law to say that: There is no estoppels against law; and Taxation is not a matter of contract- and the same can be levied only under the authority of law (Article 265 of the Constitution). Since there is no estoppels against law, even if the assessee has admitted to pay tax on any receipt which is not taxable in accordance with law, such admission cannot be held against him. It is more so because the assessing officer is duty bound to tax the correct a....
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....as held that admission is an extremely important piece of evidence but it can't be said that it is conclusive. It is upon to the assessee to show that it is incorrect. 7. Gargidin Jwala Prasad vs CIT (1974) 96 ITR 97 (All) Held that the addition merely based on statement cannot be made. 3.14 A very important fact which need to be highlighted, is that the Assessing has not proved, in fact not even alleged, that the Firm- M/s Krishna Villa Apartments was a bogus firm or not genuine firm. The AO has also not challenged the genuineness of the Partnership Deed dated 15.07.2006 by which the said firm was constituted. In fact, even when the assessment of the Firm has been made in the status of Firm and not as AOP or any other status. The AO has also not challenged the genuineness of the transaction of sale of land by the company to the firm. If, such sale was genuine and the firm was genuine, there is no justification to hold that the land in question was owned by any of the partners. The Partnership Law in India provides that the assets of the firm are owned by the firm and not by the partners. The land was purchased by the firm in its own name, by paying consideration ....
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.... activity was the assessee. 2. The firm M/s.Krishna Villa Apartment entered into development agreement with M/s.Gold Dream Builders and Developer on 13-09-2006 and since the copy of the development agreement was not filed therefore, the terms and conditions of the development agreement could not perused by the ld. CIT(A) 3. the firm M/s.Krishna Villa Apartment took over the firm M/s.Gold Dream Builders and Developer on 19-01-2007 and before such take over, the value of the land was enhanced and the capital account of the assessee and Shri Jitendra Agarwal were credited on account of revaluation of the land. Shri Jitendra Agarwal and the assessee retired from the firm M/s.Krishna Villa Apartment on 19-03-2007 and 10-02-2007 respectively and after retirement of the assessee, the firm M/s.Krishna Villa Apartment consisted of four partner which were earlier partners of M/s.Gold Dream Builders and Developer. The apparent reason of retirement as mentioned in the deed is not true as the reason was to relinquish the right in the land as partner of the firm. The firm M/s.Krishna Villa Apartment consisting of two partners upto 19-01-2007, was having only one asset i.e. land....
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....ecified head can be taxed under the head Income from other sources. 8. The contention of the assessee that profit cannot be taxed because the land still remains in the hands of the firm. The ld. CIT(A) stated that two erstwhile partners of the M/s.Krishna Villa Apartment received their shares of profit on account of relinquishing their controlling interest in the land and therefore, the retirement of these two partners from the firm is to be taxed in the hands of the assessee and Shri Jitendra Agarwal 9. The ld. CIT(A) has reproduced the statement of the assessee recorded at the time of search. In the statement, the assessee surrendered profit arising from M/s.Krishna Villa Apartment in his hands as well in the hands of Shri Jitendra Agarwal. The statement recorded during search in respect of the facts can be relied upon for taxation and the assessee should not have any grievance. Reference is made to the decision of The Hon'ble Bombay High Court in the case of Ramchandra & Co. Vs. CIT, 168 ITR 375 10. The ld. CIT(A) has also referred to the decision of The Hon'ble Kerala High Court in the case of V Kunhambu & Sons Vs. CIT, 219 ITR 235 in which Ho....
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....of personal asset into asset of partnership firm in which the assessee is a partner and conversion of partnership asset into individual asset on retirement. (v) Whether the receipt in the hands of the assessee is revenue receipt and chargeable to tax as income from other source. (vi) Whether the firm was not a genuine firm. (vii) Whether there was colourful device to avoid tax and the ratio laid down by Hon'ble Supreme Court in the case of McDowell & Co Ltd Vs CTO 154 ITR 148 are applicable to the case of the assessee. (viii) Whether the income can assessed merely on surrender basis. Now submissions in respect to each point are as under:- 3.2 Whether there was any transfer of controlling interest in land by the assessee:- The CIT(A) has wrongly held that the assessee has transferred his controlling interest in land to the other partners. The retirement deed is placed at PB page 49- 53. There is no clause in the retirement deed to say the transfer of controlling interest in land in favour of other partners. Further the assessee has received no any consideration against the retirement or so called transfer of controlling ....
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....ship firm continues, no partner can claim any shares in any of the assets of the partnership firm and as such, when the accounts of the retiring partner are settled even on the basis of revaluation of assets, there is no transfer of any interest of the retiring partner in any of the assets of the partnership firm. It is nothing but settling the account of a retiring partner and as such no transfer is involved, there is no question of any liability on account of capital gains. The assessee received the balance lying to his credit on the capital as reflected in the books of account as on 19/03/2007 in full and final settlement of his dues on account of retirement. The balance in the capital account of the assessee on 18/03/2007 with the firm was Rs. 16,52,943/- which were received by the assessee on retirement. The copy of the capital account of the assessee with the firm is placed at (PB page 126-128) The amount received by the assessee is Capital Receipt not chargeable to tax in view of the law laid down by the Supreme Court in successive decisions to the effect that an amount paid to a retiring partner in a partnership firm does not amount to a transfer within th....
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.... such a situation, no transfer of interest in the assets of the partnership within the meaning of s. 2(47). When a partner retires from a partnership, what the partner receives is his share in the partnership which is worked out by taking accounts and this does not amount to a consideration for the transfer of his interest to the continuing partners. The appeal against the judgment of the Gujarat High Court was dismissed by a Bench of three learned Judges of the Supreme Court in Addl. CIT vs. Mohanbhai Pamabhai (1987) 165 ITR 166 (SC) (Copy at PB page 187). The Supreme Court relied upon its judgment in Sunil Siddharthbhai vs. CIT (1985) 49 CTR 172 : (1985) 156 ITR 509 (SC). Hon'ble Supreme Court in a further case CIT vs. R. Lingmallu Raghukumar (2001) 166 CTR (SC) 398 : (2001) 247 ITR 801 (SC), (Copy at PB page 179-180) held, while affirming the principle laid down in Mohanbhai Pamabhai (supra) that when a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts, there is no element of transfer of interest in the partnership assets by the retired p....
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....s. Tribhuvandas G. Patel (1978) 115 ITR 95 (Bom), which was decided by a Division Bench of this Court, under a deed of partnership, the assessee retired from the partnership firm and was inter alia paid an amount of Rs. 4,77,941 as his share in the remaining assets of the firm. The Division Bench of this Court had held that the transaction would have to be regarded as amounting to a transfer within the meaning of s. 2(47) in as much as the assessee had assigned, released and relinquished his share in the partnership and its assets in favour of the continuing partners. This part of the judgment was reversed in appeal by the Supreme Court in Tribuvandas G. Patel vs. CIT (1999) 157 CTR (SC) 519 : (1999) 236 ITR 515 (SC). Following the judgment of the Supreme Court in Sunil Siddharthbhai (supra), the Supreme Court held that even when a partner retires and some amount is paid to him towards his share in the assets, it should be treated as falling under cl. (ii) of s. 47. Therefore, the question was answered in favour of the assessee and against the Revenue. Sec. 47(u) which held the field at the material time provided that nothing contained in s. 45 was applicable to certain tr....
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....ecision in the case of CIT Vs L Raghu Kumar 141 ITR 674 (AP) and held that when the amount standing to the capital account of the retiring partner is drawn by him at the time of his retirement, it cannot be said that there was any transfer of a capital asset in favour of the existing partners by him for the purpose of 5. 45. (iii) In Commissioner of Income Tax Vs. Anant Narhar Nimkar (HUF) (1997) 224 ITR 221 (Guj) (Copy at PB page 240-243), it was held that what a partner gets at the time of his retirement is not through transfer of an asset for the consideration. What really he gets at the end of the relationship with the firm is the value of the interest he already had in the firm which he was enjoying jointly and which grows or diminishes with the growth or fall in the prosperity of the partnership firm. He does not get any new right at the time of dissolution or his retirement.. What the partner gets at the time of dissolution or upon retirement is realisation of his own preexistence of right or interest in the firm and no transfer of property in his favour which is not already (sic) his takes place. If that is so, it cannot amount to transfer of partner's interest on ....
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....nd afterwards adding the said amount the assessment was completed. In this behalf, the Department took the stand that there was a transfer of capital asset within the meaning of s. 45(4) of the IT Act as amended. In Para 6 of the order Hon'ble Court held as under:- " 6. The firm is the assessee while it had five partners or seven partners or even when it had only two partners. There is no change in the status of the assessee. What further has to be noticed is that the firm has its own rights and liabilities and it can incur liabilities or own and possess properties. In a case of this nature what happens is that with the admission of new partners, the rights of the existing partner are reduced and that a right is created in favour of the newly inducted partners. But the ownership of the property does not change even with the change in the constitution of the firm. As long as there is no change in ownership of the firm and its properties merely for the simple reason that the partnership of the firm stood reconstituted, there is no transfer of capital asset. Likewise, if a partner retires he does not transfer any right in the immovable property in favour of the surviving part....
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....rement of partner or the dissolution of partnership there was no element of transfer or relinquishment or extinguishment of interest of the retiring partner and the legal incidence is the same. (viii) In Commissioner of Income Tax Vs. N. Palaniappa Gounder (1983) 143 ITR 343 (Mad) (Copy at PB page 268-273), Hon'ble Madras High Court held that the receipt by a partner his share in the assets of the firm on retirement does not give rise to capital gains resulting from any sale, exchange, transfer or relinquishment by him as capital asset. Further held that one cannot see why the retirement of a partner from a firm should be treated as having different kinds of attributes according to the mode of settlement of the retiring partner's accounts in the partnership. Whether the retiring partner receives a lump sum consideration or whether the amount is paid to him after a general taking of accounts and after ascertainment of his share in the net assets of the partnership as on the date of his retirement, the result, in terms of the legal character of the payment as well as the consequences thereof, is precisely the same. For, as observed by the Gujarat High Court, in CIT vs. Mohan....
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....3- 308), Hon'ble Tribunal held that what a partner on retirement from partnership firm receives is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners Further there was no dissolution of the assessee-firm when the two partners retired; remaining partners along with two new partners continued the business of the assessee. Further, retirement of a partner does not result in a transfer. The transaction in question did not fall within the mischief of s. 45(4). (xi) Income Tax Officer Vs. Ramesh M. Shah ITAT, MUMBAI 'D' BENCH (2004) 2 SOT 558 (Mumbai) Hon'ble Tribunal Relied on the decision of the apex Court in Tribuvandas G. Patel vs. CIT (1999) 236 ITR 515 (SC) and CIT vs. R. Lingmallu Raghukumar (2001) (2001) 247 ITR 801 (SC), wherein their Lordships held that when a partner retires from a firm and the amount of his share in the partnership assets after deduction of liabilities and prior charges is determined on taking accounts in the manner prescribed by the partnership law, there is no element of transfer of interest in the partnership assets by the retired partner to the continuing partners and ....
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....disallowed :- Project Revaluation 69930590 Total Income 69891302 Allocation of Total Income in between Partners:- Shri Pawan Lashkari 75% 52418476 Shri Jitendra Agarwal 25% 17472826 Total 100% 69891302 By virtue of section 10(2A), the above profit cannot be taxed in the hands of the partner. The section 10(2A) of Income Tax Act is reproduced as under:- "in the case of a person being a partner of a firm, which is separately assessed as such, his share in the total income of the firm." Here admitted the assessee was partner of M/s Krishna Villa Apartment. M/s Krishna Villa Apartment is firm and separately assessed under income Tax by the same AO. The above firm has filed return u/s 139(1) of Income Tax Act 1-5-2008 . In response to notice u/s 153A, this firm has filed return u/s 153A on 12/11/2010 . The assessment of this firm under Income Tax Act was made by the same AO on 27/12/2010. The copy of assessment order for AY 2007-2008 is at PB page 161- 168. Therefore, all the ingredients of section 10(2A) is fulfilled and therefore, if the profit on account of revaluation of stock of the firm is ....
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....Krishna Villa Apartment under the same PAN further more without allowing the benefit of increase in the cost of the land (on account of revaluation) on account of so called transfer. The Copy of Assessment Order of M/s Krishna Villa Apartment for AY 2008-2009 is at PB page 169-171. 3.6 Whether the receipt in the hands of the assessee is revenue receipt and chargeable to tax as income from other source:- AO has not indicated as to under which head of income the alleged profit has been taxed. However, the CIT(A) held at page 32 in Para 4.10 that where certain income is not taxable under any of the specified head, same is taxable under the head "Income from other Sources" In this regard we submit that only revenue receipts can be taxed under the heads income from salaries, income from house properties, income from business or profession and income from other sources. The capital receipts cannot be taxed under these heads. There is specific provision in section 2(24) of Income Tax Act as regard chargeability of tax in respect of capital receipts and as per this section, only those capital receipts can be taxed under the head capital gain which are chargeable ....
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....86, 92 (Cal)] 3.7 Whether the firm was not genuine firm and whether there was colourful device to avoid tax and the ratio laid down by Hon'ble Supreme Court in the case of McDowell & Co Ltd Vs CTO 154 ITR 148 are applicable to the case of the assessee. A very important fact which need to be highlighted, is that the lower authorities have not proved, that the Firm- M/s Krishna Villa Apartments was not a genuine firm and transactions/agreements were colourful device to avoid tax. In this regard, we submit that the entire findings of the lower authorities are based on surmises, conjectures and guess and without having any positive material and basis. Further, more no inquiry in this regard was made by the lower authorities and even the opportunity of confrontation was not given to the assessee before making such findings. In this regard we submit that:- (i) Justification of formation of partnership firm on 15.07.2006:- The partnership dated 15.07.2006 by which the said firm was constituted was a genuine partnership formed by the assessee with the outsider person who is expertise work relating to residential complexes, commercial complexes and group ....
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.... as well as the original owners/farmers of the land could not got approved since 2004. (ii) Development agreement with Gold Dream Builders:- The main business of the assessee is to manufacture and export of ready made garments. He has two firms in his partnership namely, M/s Pawan Enterprises and M/s Goverdhan Creations. He has no experience of construction activities. Further, the work of construction is always carried out through some outside agencies, builders. Therefore, the partners felt that it will be better if the work of construction and further physical development of the land is entrusted to some established and technically/financially capable party. Accordingly, on the recommendation of Shri Jitendra Agarwal, the development work of the group housing project was given to M/s Gold Dreams Builders & Developers, a partnership firm consisting of four partners namely- (i) Shri Shankar M. Jethani, (ii) Shri Arun Bansal, (iii) Shri Meraj Un Nabi Khan, and (iv) Shri Naved Saidi. These persons are also outsiders and not related to the assessee. The development agreement was entered into on 30th Sept. 2006. Therefore, this assignment of the development work was purely a ....
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....mentioned under clause 5 of partnership deed dated 19.01.2007. The accounting entries were made as per the principles of the Accounting. For this purpose we are enclosing herewith relevant pages of Book "Advanced Accounts" written by famous author Shukla & Grewal (prescribed book for CA Course) in respect of accounting treatment in case of revaluation of Assets and Liabilities in Partnership Firm. (v) Retirement of Shri Jitendra Agarwal on 10.02.2007. Very soon after the merger, Shri Jitendra Agarwal found himself uncomfortable in new setting. The working style of the incoming partners was not suitable to Shri Jitendra Agarwal and therefore he desired to retire from the firm and therefore a new partnership deed was executed with effect from 10.02.2007 under which Shri Jitendra Agarwal retired and remaining five partners continued. (vi) Retirement of Shri Pawan Lashkary:- The ld CIT(A) mentioned at page 27 of his order that it cannot be said that Shri Pawan Lashkary was so busy in other business activity, so as to retire from this firm. The findings of the ld CIT(A) is based on surmises and conjectures without examining the affairs of the assessee. The Appellant's ....
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....ducting any inquiry. Neither the assessee nor his partners were examined by the lower authorities in this regard. In fact, the same Assessing Officer while framing the assessment order of the firm for subsequent year (AY 2008-2009 during which the Firm sold a part of the land of Rs. 73,99,640/- to an outsiders) did not allow any deduction on account of revaluation cost. This shows that when the land would be sold to the outsiders, no deduction on account of revaluation cost would be allowed and there will no loss of the revenue to the department. On the other hand, if the profit on account of revaluation is charged to the tax in the hands of the partner and cost of the revaluation is also not allowed as deduction from the receipt of consideration from the outsiders, it would be amount to DOUBLE TAXATION. Therefore, the allegation that there has been any tax evasion is devoid of any truth. Similar situation was arose in the case of Smt Aruna A. Bhat Vs. Assistant Commissioner Of Income Tax ITAT, PUNE THIRD MEMBER BENCH : (2002) 81 lTD 218 (Pune)(TM) wherein similar findings were made by CIT(A). In this case the husband of the assessee Shri A.V. Bhat and Sh....
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....t has held that "the tax planning may be legitimate provided it is within the framework of the law. Hon'ble Gujarat High Court in the case of Banyan & Berry Vs CIT-222 ITR 831 (Guj) held that every legitimate and genuine act on the part of the taxpayer resulting in reduction of tax liability cannot be treated as device for avoidance of tax- McDowell & Co. Ltd. vs. CTO has not affected the freedom of citizen to plan his business affairs within the framework of law unless they may properly be called a subterfuge- McDowell does not lay down that a taxpayer must arrange his affairs so as to attract maximum tax liability and every act resulting in tax reduction or exemption or not attracting tax should be treated as device of tax avoidance. 3.9 Whether the income can assessed merely on surrender basis. Much emphasis has been laid by the lower authorities on the fact that the assessee/ appellant had surrendered the aforesaid difference of Rs. 5.25 crores as his income and had undertaken to pay tax thereon. However, while filing the return, the assessee claimed the said difference to be exempt from tax. The AO seems to have taken it to her heart that the assessee did not honour h....
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..... (6) Pullangode Rubber Produce Co Ltd vs State of Kerala & Anothers (1973) 91 ITR 18 (SC) Hon'ble Apex Court has held that admission is an extremely important piece of evidence but it can't be said that it is conclusive. It is upon to the assessee to show that it is incorrect. (7) Gargidin Jwala Prasad vs CIT (1974) 96 ITR 97 (All) Held that the addition merely based on statement cannot be made. (8) Hon'ble Rajasthan High Court in the case of CIT Vs Ashok Kumar Soni 291 ITR 172 (Raj.) has held that admission in statement during search is not conclusive proof of fact and can always be explained. In view of the above submission, the humble assessee prays your honour kindly to delete the addition of Rs. 5,24,47,943/- made by the Ld AO by setting aside the findings of CIT(A) who confirmed this addition." 2.12 During the course of proceeding before us, the ld. DR has also filed the written submission. We are not reproducing the basic facts from the submissions of the ld. DR as these have been already mentioned and the balance submissions are reproduced as under:- "3.2. In respect of the above transactions about transfer of the above land ....
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....#39;ble Supreme Court in the cases of CIT vs. Durga Prasad More(1971) 82 ITR 540 and Mc. Dowell & Co. Ltd. Vs. CTO(1965) 154 ITR 148 and held that the profit of Rs. 5,24,47,943/- cannot be exempted in the hands of the assessee and added this amount as his income. 3.6 Ld. CIT(A) confirmed the findings of the A.O that the assessee had adopted a colorable device to avoid payment of tax on the profit of Rs. 5,24,47,943/- earned by him on the sale of Siroii land. He held that the conduct of the persons involved in the various transactions clearly proved that what was apparent was not real. He was of the view that in reality the controlling interest in the land had been relinquished by both the earlier partners Sh. Pawan Lashkary and Sh. Jitendra Agarwal by adopting the dubious and circuitous route of entering the four new partners in the firm M/s Krishna Villa Apartment having the impugned land as the only important asset and by resorting to revaluation of the land at the time of entry of these new partners and thereafter both the old partners retiring one by one in a short span of time and thereby getting the proportionate share of profit on relinquishment of their right, titl....
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....hort term capital gain. 4.3. On appeal by the assessee, the CIT(A) held that the sum in question was liable to be assessed as short-term capital gain. He held that there was a transfer of a capital asset resulting in a capital gain and that all the conditions contemplated under section 45 and section 48 were satisfied. The CIT(A) in coming to the above conclusion, referred to the various clauses in the retirement deed and held that there was an assignment of the interest of the assessee in the partnership in favour of the continuing partners. According to him the decision in the case of Mohanbhai Pamabhai 165 ITR 166(SC) did not apply because in that case, there was only minutes under which a partner retired and it contained no assignment of interest in favour of continuing partners The CIT(A) then concluded that relinquishment of interest would be "transfer" within the meaning of section 2(47) of the Act. Thereafter , the CIT(A) referred to three judgments of the Hon'ble Bombay Hight Court viz., (a) CIT V. Tribhuvandas G Patel(1978) 115 ITR 95 (b) CIT V. H.R. Aslot(1978) 115 ITR 255 (c) N A Modv V.CIT(1986) 162 ITR 420 and concluded that as laid down in the aforesaid ....
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....e any interest over the assets of the firm. Thus, it was a case of lump sum payment in consideration of the retiring partner assigning or relinquishing of his share or right in the partnership and itsassets in favour of the continuing partners. Therefore, the assessee satisfied the parameters laid down by the Bombay High Court in the case referred to above and, therefore there was liability to tax on account of capital gain. 4.5 In the case of the assessee, Sh. Pawan Lashkary the facts are exactly the same. Here also the assessee entered into a partnership with other partners and the firm thus formed purchased a land on which they made some expenses. Later the original partners admitted outside partners in the partnership and at the time of admitting the new partners the land was got revalued at the market rate. After revaluation the surplus was credited to the capital accounts of the existing partners. Later the existing partners retired from the firm taking away the balance standing in their capital accounts, including the surplus amount credited to their capital account on revaluation of the land. Here also it is a case where there is assigning or relinquishing of a sha....
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....Apartment on 24.07.2006 and on 27.07.2006, the J DA issued letters in the name of this firm for payment of conversion charges, development charges and charges for approval of group housing scheme. Ld. CIT(A) was of the opinion that in the institutions like the J DA applications for conversion of land and approval of group housing scheme takes time and the letters in the name of the firm could not have been issued in a short period of three days. Therefore, he inferred that these applications were filed before the firm M/s Krishna Villa Apartment came into existence and certainly before the said land was purchased by this firm on 24.07.2006. In respect of this observation of Ld. CIT(A) some inquiries were recently made from the JDA and it was learnt that one Sh. Arun Lashkary son of Sh. Pawan Lashkary had applied to the JDA on 27.02.2006 on behalf of the original owners and requested the JDA to issue Single Unit Patta in the name of M/s Krishna Villa Apartments. The copy of this letter dated 27.02.2006 is enclosed. This document proves the inference drawn by Ld. CIT(A) that request for issue of Patta in the name of the firm M/s Krishna Villa Apartment was made even before this firm ....
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....in his hand as short term capital gain. Similarly, CIT(A) has held this amount as a device used by the retiring partner to avoid tax and has held it as income for transfer of controlling interest in the land transferred by the retiring partner to the continuing partners. Ground no. 3: In this ground, the assessee has claimed that the amount of Rs. 5,24,47,943/- is not taxable either u/s 10(2A) or 28(iv) or 28(v), or 45(4) as per decisions of Hon'ble Supreme Court in the cases of 165 ITR 166(SC), 247 ITR 801 (SC), and Mumbai HC decision in the case of 324 ITR 154(Bom). In this respect, it is submitted that all these sections and court decisions referred by the assessee have been considered in detail by Hon'ble ITAT, Mumbai in the case of Sudhakar M.Shetty and only after that have they held the amount as taxable in the hands of the assessee. Further, these court cases do not help the assessee against the findings of Ld. CIT(A) also because Ld. CIT(A) has held the profit earned by the assesseeas taxable by holding the various transactions as colourable device whereas in these court cases the issue did not pertain to use of any colourable device. ....
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.... and Sh. Jitendra Agarwal on relinquishment of rights, title, interest in the land. It is claimed that the assessee has not evaded any tax on this amount because in the assessment of the firm M/s Krishna Villa Apartment, the A.O did not allow the revalued value of the land as deduction in A.Yr 2008-09. It is claimed that this has resulted in double taxation of the same amount in the hands of the firm and the retiring partners. As described in this submission above there is no doubt that the transactions done by Sh. Pawan Lashkary and Sh. Jitendra Agarwal and the four new partners'from 19.07.2007 to 31.03.2008 were well orchestrated and planned moves to evade tax on the profit earned by Sh. Lashkary and Sh. Agarwal to relinquish their rights in the Siroii land to the four new partners. This allegation is proved by the simple fact that the whole of the revalued value of the land was claimed by the firm M/s Krishna Villa Apartments as an expenditure in P & L A/c and the surplus received on revaluation of the land was not offered by Sh. Lashkary and Sh. Agarwal for tax. Thus, one group of persons is making payment to other group of persons for purchase of land and....
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....he appeal of the assessee is required to be dismissed. It will be useful to reproduce the held portion from that order which are relevant for the issue before us. "The issue that arose for consideration in the instant appeal was as to whether any part of the sum received by the assessee on retirement from the firm would give rise to capital gain chargeable to tax under the Act. [Para 17] Section 45(1) brings to tax any capital gain that accrues or arises on transfer of a capital asset. The capital gain is charged to tax in the previous year in which the transfer takes place. Section 2(47) defines as to what is transfer. Capital asset has been defined in section 2(14), as meaning property of any kind held by the assessee, whether or not connected with his business or profession. The above exhaustive definition is subject to the following exclusions like stock-in-trade, consumable stores or raw material held for the purpose of business or profession, personal effects, agricultural land in India, certain gold bonds, special bearer bonds and gold deposit bonds. [Para 19] The share or interest of a partner in the partnership and its assets would be pr....
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.... At that time when the partner transfers his personal asset to the partnership firm, there can be no reckoning of the liabilities and losses, which the firm may suffer in the years to come. All that lies within the womb of the future. It is impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm; neither can the date of dissolution or retirement be envisaged nor can there be any ascertainment of liabilities and prior charges which may not have been arisen at the relevant time. Therefore, the consideration which a partner acquires on making over his personal asset to the firm as his contribution to its capital cannot fall within the terms of section 48. As that provision is fundamental to the computation machinery incorporated in the scheme relating to the determination of the charge provided in section 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether. [Para 23] The Parliament with the avowed object of blocking this escape route for avoiding capital gains tax, introduced sub-section (3) to section 45 by the Finance Act, 1987, with effect from ....
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....he firm and the firm may continue its existence and the retiring partner may be given assets in lieu of amounts payable to one on retirement. This can be done either on the basis of settling amounts standing to the credit of his capital account or on a lump sum basis. There can be a second situation where the retiring partner is paid consideration in cash and he gives up his rights as a partner, including his rights over the assets of the partnership. This again can be done either on the basis of settling amount standing to the credit of his capital account on a lump sum basis. In the first situation, i.e. retirement of a partner from the firm and the firm continuing its existence and the retiring partner given assets in lieu of amounts payable to him on retirement, it has been held by the Bombay High Court in the case of CIT v. A.N.Naik Associates [2004] 265 ITR 346 Taxman 107 to be covered by the provisions of section 45(4) of the Act, viz., a transfer giving rise to a capital gain. Prior to the aforesaid decision, cases, where on retirement property was allotted to a partner by the firm in lieu of amounts payable to him, were subjected to capital gains....
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....ner was paid consideration standing to the credit of his capital account. Thus, it was a case where instead of quantifying the assessee's share by taking account on the footing of notional sale, parties had agreed to pay a lump sum in consideration of the retiring partner assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners. Thus, the retiring partner was paid something over and above the sum standing to the credit of his capital account and, therefore, there was a capital gain. Further, it was to be seen as to whether there was any assigning or relinquishing of any share or right in the partnership and its assets in favour of the continuing partners by the retiring partner. In the case of the assessee the clauses in the retirement deed did convey interest in immovable property and further referred to the fact that the assessee would not have any interest over the assets of the firm. Thus, it was a case of lump sum payment in consideration of the retiring partner assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners. The manner of retireme....
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....use (ii) in section 47 which provides exemption from provision of s. 45. Section 47(ii) was as follows:- "47(ii) Any distribution of capital assets on dissolution of a firm, body of individual or other association of person." Therefore, what are not "Transfer in relation to capital assets" a) Transactions which are not within the preview of section 2(47) or b) Transaction which comes into preview of section 47. Hon'ble Supreme Court in successive decisions held that an amount paid to a retiring partner in a Partnership Firm does not amount to a transfer within meaning of section 2(47). Therefore, even after the deletion of section 47(ii) w.e.f 1.4.88 amount paid to a retiring partner in Partnership Firm will not be taxable as capital gain as the same does not amount to transfer as defined in section 2(47) of Income Tax Act in view of successive decisions of Hon'ble Apex Court. There are several decisions which pertains to Assessment Years after the amendment. (i) ITAT Jaipur 30 Tax World 14 AY 91-92 (ii) Bombay High Court 324 ITR 154 AY 05-06 and 06-07 (iii) Kerala High Court 257 ITR 544 (Kar) AY 89-90....
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....linquishing his share or right in the partnership and its assets in favour of the continuing partners. (Para 49). 5. Hon'ble Bench relied on the decision of Bombay High Court in the case of Tribuvandas G Patel 115 ITR 95; CIT Vs HR Aslot 115 ITR 255 and NA Mody Vs CIT 162 ITR 420. The case of Tribuvandas G Patel is no longer good law because the same was reversed by SC reported in 236 ITR 515. The facts of HR Aslot and NA Mody 's case are similar to Tribuvandas G Patel's case, therefore, the same also impliedly overruled by Hon'ble SC. Further, 6. Hon'ble Bench has not considered the principles and ratio laid down by Bombay High Court in its later decision in the case of Prashant S Joshi Vs ITO 324 ITR 154 (Bom) while quashing the notice issued u/s 148 of Income Tax Act. 2 Bishan Lal Kanodiya Vs CIT 257 ITR 499 (Delhi) In this case it has been held that without taking accounts on the footing of notional sale, by mutual agreement, a retiring partner may receive an agreed lump sum for going out as and by way of consideration for transferring or releasing or assigning or relinquishing his interest in the partne....
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....n tax, following its earlier decision in the case of CIT Vs Tribhuvandas G Patel 115 ITR 95. Further more, the decision of Hon'ble Gujarat High Court in the case of CIT Vs Mohanbhai Pamabhai 91 ITR 393 was not followed because of its decision in the case of Tribhuvandas G Patel. Hon'ble SC confirmed the decision of Gujarat High Court in the case of Mohanbhai Pamabhai reported in 165 ITR 166 (SC) and reversed the decision of Bombay High Court given in the case of CIT Vs Tribhuvandas G Patel reported in 236 ITR 515 (SC). Further, the Bombay High Court has also changed its earlier view in its recent decision Prasant S Joshi Vs ITO reported in 324 ITR 154 (Bom). However, in the case of the assessee, the retirement deed does not specify any consideration against relinquishment of his share on retirement from partnership. 7 CIT Vs Tribhuvandas G Patel (Bom)/ 115 ITR 95/ (Bombay) Reversed by SC in 236 ITR 515 (SC) In this case it has been held that without taking accounts on the footing of notional sale, by mutual agreement, a retiring partner may receive an agreed lump sum for going out as and by way of consideration for transferring or releasing or assigning or relinqui....
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....rofit or loss after deduction of all expenses and outgoing shall be divided between the partners in proportion to their sharing ratio i.e. 75% and 25% in favour of the assessee and Shri Jitendra Agarwal respectively. The copy of partnership deed as on 19-01-2007 is available at pages 34 to 40 of the paper book. In this deeds, it is mentioned the firm is having a land measuring 33986.97 Sq. Yard in stock in trade and entered into an agreement for constructing the building of multistoried residential / commercial units with M/s.Gold Dream Builders and Developer as on 30-09- 2006. It is mentioned that continuing partners i.e. assessee and the Shri Jitendra Agarwal were mainly engaged in their own business obligation, offered the merging the firms i.e. M/s.Gold Dream Builders and Developer in the business of the firm of M/s.Krishna Villa Apartment as a going concern and offered the partners of the merging firm to become the partners of the firm in view of the consideration of the expertise of the merging firm in developing a multistoried building for marketing of turnkey / huge project and its financial position. The partners of the merging firm gave their consent for the same and inco....
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....rm. It was further provided that no partner can substitute himself with any other person in the business of the firm except his legal heirs. 2.20 When Shri Jitendra Agarwal retired from the firm then another partnership deed was executed on 10-02-2007 and it is available at pages 41 to 48 of the paper book. In this deed, it is clearly mentioned that Shri Jitendra Agarwal due to his other business obligations gave notice to other partners of his firm to retire from the firm w.e.f. 10-02- 2007. The clauses in this partnership deed are similar to the clauses in partnership deed dated 19-01-2007. In the partnership deed dated 10-01-2007, Shri Jitendra Agarwal was having a profit sharing ratio of 12.5%. The shares of other partners were as under:- 1. Assessee 37.5% 2. Shri Shankar M Jethani 25% 3. Shri Arun Bansal 8.03% 4. Shri Meraj Un Nabi Khan 8.94% 5. Shri Naved Saidi 8.03% 2.21 In the partnership deed executed n 10-02-2007, the profit sharing ratio was as under:- 1. Assessee 40% 2. Shri Shankar M Jethani 30% 3. Shri Arun Bansal 10% 4. Shri Meraj Un Nabi Khan 10% 5. Shri Naved Said....
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....in building the project and marketing it. 2.24 The firm M/s.Krishna Villa Apartment entered into an agreement for developing the land and this shows that M/s.Krishna Villa Apartment was not having requisite funds. Both the firms were having their own rights in the development agreement and by merger of two firms such rights belong to reconstituted firm M/s.Krishna Villa Apartment firm. 2.25 The ld. CIT(A) has relied upon the decision of Hon'ble Apex Court in the case of Mc Dowel (supra). The Hon'ble Apex Court in the case of Union of India Vs. Azad Bachao Andolan 263 ITR 706 had an occasion to consider the law laid down in the case of Mc Dowell Company Ltd. (supra). The Hon'ble Apex Court in the case of Union of India Vs. Azad Bachao Andolan (supra) observed as under:- "We may also refer to the judgment of the Gujarat High Court in Banyan and Berry v. Commissioner of Income-tax [1996] 222 ITR 831 at 850 where referring to McDowell's case [1985] 154 ITR 148 (SC), the court observed :- "The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in fut....
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....conomic detriment or prejudice to the national interests, as perceived by the respondents' Hence tax planning within four corners of law is permissible. 2.26 In the instant case, we have noticed that the land is stock in trade of the firm. The Hon'ble Apex Court in the case of Shakting Trading Co. Vs. CIT, 250 ITR 871 held that when there is no cessation of business then the closing stock had to be valued at cost or market price whichever was lower. It is an established rule of commercial practice and accountancy that where there is no discontinuation of business the closing stock is to be valued at cost or market price whichever is lower. The Hon'ble Apex Court in the case of in the Chainlsukh Sampat Ram , 34 ITR 481 had an occasion to consider the importance of adopting the closing stock in the trading account. The closing stock shown on the credit side of the trading account is to balance the cost of purchases as remained at the end of the year and debited in the purchases account. In case the market price is less than the cost price then anticipated loss can be taken into account but anticipated profit in shape of appreciated value of the closing stock is not brou....
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....se before the Mumbai Tribunal, there was a lumpsum payment. 2.30 On similar facts, ITAT Jodhpur bench in the case of ITO Vs. Shri Hanuman Das Sipani (HUF) (ITA No. 247/JU/2008 dated 22-03-2011 decided the issue in favour of the assessee. It will be useful to reproduce the para 6 from that order. "6. We have herd both the sides, perused the records and gone thorough the orders of the authorities below. The assessee is a retired partner. The revaluation took placed in the books of account of the firm, as a result of which he fixed assets i.e. land and building value being inflated and the partners capital accounts were credited in their respective profit share ratio. Accordingly, the assessee being the partners I the firm, his capital account was credited worth Rs. 8,03,400/-. According to the ld. CIT(A) , Section 45(4) has no application to the assessee's case and same view as expressed by the Tribunal in the case of ACIT Vs. Smt. Shanty Devi Sipani (ITA No.399/JU/07 dated 19-02-2008), (supra), that anything done by the firm and any entry made in the books cannot be taxed in the hands of the partner. Since partners are consistent entities and separate from the firm, ....
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....ner as profit as per Section 29 of the Partnership Act, then it will constitute the transfer. In the partnership deed, it was clearly mentioned that continuing partner can buy or sale the share of the retired partner. Here , it is not the case where the share has been purchased by any one partner or all the partners . The partner has retired as per relevant provisions of Parntershp Act. Moreover, in the case before Bombay Tribunal, the issue was that retiring partner was paid a lumsum. The retiring partnr can have a right to assign his share. Here it cannot be a case of transfer. The Hon'ble Apex Court in the case of Sunil Sidhartha Vs. CIT, 156 ITR 509 held that introduction of capital asset by the partrner is a transfer but the consideration as reflected in the books cannot be considered as a consideration for the purpose of capital account. The Hon'ble Apex Court in the case of Sunil Siddharthbhai, 156 ITR 509 held that introduction of capital asset by the partner is transfer but the consideration as reflected in the books cannot be considered as a consideration for the purpose of capital gain. The Hon'ble Apex Court at page 522 has observed as under:- "What....
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.... these rights fructify in future. The credit to his capital account is only a notional value and not the value of consideration as the same is incapable of determination." Hence, when partnership was reconstituted by the admitting the partners of M/s.Gold Dream Builders and Developer then the consideration was not considered for giving difference between the market value of the land and the cost price as consideration to the existing partners. 2.32 The AO in his order has not taxed Rs. 5,24,47,943/- as income under the head capital gain. Section 45(3) and Section 45(4) were introduced to plug the loopholes of avoiding tax by throwing the capital assets in the firm and thereafter transferring the same to other partner through dissolution of the firm. The Hon'ble Karnataka High Court in the case of CIT Vs. Gurunath Talkies 328 ITR 59 had an occasion to consider the case in which the facts were similar to the facts in the instant case. The only difference was in that case that the asset was not stock in trade. As a result of series of transactions of reconstitution of the firm twice, the Hon'ble Karnataka High Court held that the Section 45(4) will be applicable and the ....
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....illa Apartment and such right still remained with the firm even after retirement of the firm.The firm in which the assessee was partners entered into a development agreement. Normally in the case of development agreement, the land owner as well as the developer share the constructed area and the investment in the constructed area is to be made by the developer. The land owner pools his land while the developers pools the fund and expertise. In the instant case, the developer firm stood merged into the firm in which the assessee was partner. Thus the rights which were held by the developer firm were also available to the firm in which the assessee was a partner. It is not a simple case where partners of the developer firm were entered into the firm in which the assessee was a partner. As we had already noticed that the stock in hand was there, therefore, there was no case of businss profit in the hands of the firm. The AO himself has not taxed such business profit in the hands of the firm. It is true that in the case of retirement of one of the partner from the firm due to reconstitution of the firm, it is being held by the Hon'ble High Court that capital gain is liable in the h....
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....istracted and generally brought to a stand still. Since the surrender is not backed by adequate evidence, the tax evader invariably retracts from the statement of surrender by which time it is too late for the Department to resume investigations. Similarly, where adequate evidence is indeed found, a surrender is not necessary to establish tax evasion. Therefore, the Task Force recommends that the CBDT must issue immediate instructions to the effect that no raiding party should obtain any surrender whatsoever. Where a tax payable desires to voluntarily make a disclosure, he should be advised to make so after the search. As a result, the taxpayer will not be able to allege coercion and successfully distract investigations. All cases where surrender is obtained during the course of the search in violation of the instructions of the CBDT, the leader of the raiding party should be subjected to 'vigilance enquiry. Further the task force also recommends that statements recorded during the search should be video recorded. This will indeed add to the confidence of the taxpayer in the impartiality of the system." 2.38 The Finance Minister in the budget speech for the year 2003 stated that....
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