AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 688
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....ng from transfer of capital gain assets on distribution under section 45(4) of the Income Tax Act, 1961 in the Assessment Year 2009-2010, whereas the firm was dissolved on 31.03.2008 and capital gain arising on such transaction is chargeable to tax as per provisions of section 45(4) of Income Tax Act in the Assessment Year 2008-2009. Thus enhancement of Rs. 48,74,280/- made by the Ld. AO in the assessment Year 2009- 2010 which is further confirmed by CIT (A) is not correct under law and thus the same may please be deleted. 3. The Ld. CIT (A) has erred in law while confirming the action made by Ld. AO without provide the reasons for rejecting the circle rate of land furnished by the assessee before him and also the rate of construction has been taken by him only on the basis of oral inquiry. Thus, the addition of Rs. 48,74,280/- is not justified and the same may please be deleted. 4. That the Ld CIT(A) has erred in law while confirming the action of the Ld. AO of calculating the full value of consideration in respect of land and building transferred on dissolution in arbitrary manner without referring the matter to Valuation officer u/s 55A r.w. section 142A of the Income Tax ....
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....refully perused the relevant material on record of the Tribunal inter alia the assessment order, impugned order, written submissions of the appellant and paper book filed by the assessee spread over 42 pages and the decision of the Hon'ble Kerala High Court in the case of CIT Vs. Southern Tubes reported at 306 ITR 216 [Ker] as relied by the ld. AR. The ld. AR reiterated the written submissions dated 25.7.2016 and submitted that the dissolution deed dated 31.3.2008 clearly reveals that the provisions of section 45(4) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] are attracted on 31.3.2008 only and therefore, the capital gains on the assets transferred to the outgoing partners should be taxed in A.Y 2008-09 only and not in A.Y 2009-10. Drawing our attention towards the decision of the Hon'ble Kerala High Court in the case of Southern Tubes [supra], the ld. AR pointed out that the A.O in his remand report para 2(vi) has placed his reliance on the decision of the Hon'ble Madras High Court in the case of CIT Vs. Vijayalakshmi Metal Industries reported at 256 ITR 540 [Mds] and after considering the ratio of this decision, the Hon'ble....
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....s a result of the transfer. While counsel for the revenue relied on the decisions of the Andhra Pradesh, Bombay and Karnataka High Courts reported in 250 I.T.R. 581, 265 I.T.R. 346 and 287 I.T.R. 404 respectively, counsel appearing for the assessees relied on the unreported decision of this Court in I.T.R. 235 and 236 of 1997 dated 29.2.2002 and that of the Madras High Court in CIT v. VIJAYALAKSHMI METAL INDUSTRIES, 243 I.T.R. 540. The Tribunal decided the issue in favour of the assessee following the decision of other Tribunals. The Tribunal has taken the view that Section 2(47)defining "transfer" does not take in the case of dissolution of a firm and since section 45(4) is not a self-contained code for assessment of capital gains arising from the transfer of capital assets by way of distribution of capital assets on the dissolution of the firm, no assessment is permissible in the case of the assessee. We are unable to agree with the view taken by the Tribunal that Section 2(47) does not cover dissolution and distribution of assets of a firm because sub- clause (vi) ofSection 2(47) covers every agreement or arrangement in whatever manner which has the effect of transferring or ....
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....nal on this issue. However, we find that the Tribunal has not considered other issues raised in the appeals which pertain to valuation. We direct the Tribunal to hear the parties on the remaining issues and dispose of the appeals at the earliest." 8. In view of the above, the ld. AR submitted that chargeability of capital gains u/s 45(4) of the Act which has been wrongly applied in A.Y 2009-10 may kindly be deleted as same may be charged in A.Y 2008-09 only, for which the assessee has no objection if the same is calculated as legally permissible. 9. Reply to the above, the ld. DR supported the assessment order as well as the first appellate order and took us through the submission of the assessee before the CIT(A) dated 4.12.2012 and submitted that the assessee itself has not calculated and offered to tax any capital gains on the assets transferred to the outgoing partners during 2008- 08 and all transactions and transfer of assets including accounting entries have been made during F.Y. 2008-09 i.e. on or after 1.4.2008 pertaining to A.Y 2009-10. The ld. DR drew our attention towards letter of the assessee dated 4.12.2012, available at pages 37 & 38 of the assessee's paper bo....
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.... very same date without any further steps, such as, entries in the respective capital accounts of the outgoing partners and transfer of capital assets which was immovable in the name of outgoing partners. The ld. DR also pointed out that as per the dissolution deed para 5 running upto page 2, the parties of the second, namely, Shri Gian Sagar and party of the third part Smt Raj Rani had to pay Rs. 10,92,446/- and Rs. 24,90,856/- respectively to first part on account of balance payment payable by them after adjusting their capital account against properties to be given/assigned to them within a period of four months from the date of dissolution and these obligations and accounting entries and transfer of immovable assets took place during F.Y. 2008-09 starting w.e.f 1.4.2008. Therefore, capital gains were rightly treated as income of the firm for A.Y 2009-10. Therefore, the appeal of the assessee being devoid of merits may be dismissed. 10. In rejoinder to the above submissions, the ld. AR also placed reliance on the decision of the Hon'ble Kerala High Court in the case of CIT Vs. Southern Tubes [supra] and submitted that when the firm was dissolves on 31.3.2008 during the F.....
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.... or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property." 12. On a vigi lant perusal of the provisions of section 45(4) of the Act, it is vivid that the profits or gains arising from the transfer of capital assets by way of distribution of capital assets on the dissolution of firm shall be chargeable to tax as the income of the firm 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 ful l value of the consideration received or accruing as a result of the transfer. 13. The main thrust of the assessee appellant, in the present case, is that as per the dissolution deed, the firm was dissolved on 31.3.2008 within F.Y. 2007-08 pertaining to A.Y 2008-09. Therefore, capital gain arose to the assessee firm on transfer of assets to the outgoing partners cannot be taxed in A.Y 2009-10. First of all, we may point out that as per the assessee's reply to the CIT(A) dated 4.12.2012, the assessee, in para 2 submitted as follows: "It is further stated that at the time ....
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....om a vigilant reading of the decision of the Hon'ble Kerala High Court in the case of Southern Tubes [supra], we observe that their Lordships, allowing the appeal of the Revenue, categorically held that since the transaction has resulted in dissolution of firm and partner getting rates of immovable transaction was transferred within the meaning of section 2(47)(vi) of the Act and the assessee firm was liable to be assessed on capital gains in terms of section 45(4) of the Act. In this judgment, in our humble understanding, their Lordships have accepted the stand of the Revenue by observing that the assessee firm, having two partners, were dissolved under the deed of dissolution, one partner took over the land and factory building of the assessee after dissolution of firm while the second partner continued business as proprietorship, therefore, the transaction which resulted on the occasion of dissolution of the partnership firm was transferred within the meaning of section 2(47)(vi) of the Act. We respectfully agree with this proposition and in the present case, from the facts emerging from the documentary evidence and material available on record, it is amply clear that the tr....
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....sment order, we observe that the AO showed his intention to bring income on capital gain to tax in A.Y 2009-10 by issuing show cause notice dated 20.12.2011 which was replied to by the assessee on 23.12.2011 wherein the assessee contended that bringing market rates as certified by the Collector Karnal @ Rs. 26,500/- per sq. Yd. For the period ending 31s t March 2008 is to be adopted for capital gains tax calculations after considering indexation cost and no dispute was raised by the assessee regarding application of prevailing market rates as certified by the Collector Karnal. We may point out that in this letter also, the assessee did not raise any objection taxing capital gains in A.Y 2009-10. However, he objected to the applicability of Col lector' market rate prevailing upto 31.3.2009 and requesting to apply t market rate prevailing on or before 31..32008. There was no request from the assessee to refer the matter to the valuation officer u/s 55A of the Act. Therefore, the contention and allegation contained in Ground No. 4 of the assessee cannot be held as sustainable and accepted. 19. At this juncture, we may point out that the AO, by way of issuing show cause notice to th....