AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1313
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.... he alongwith with Smt. Indu Bai were equal partners. As per clause 11 of the partnership deed, the assessee contributed the aforesaid agriculture land as his capital contribution in the Firm. As per the assessee, though the land remained in the name of the assessee in the revenue records, it became the property of the Firm and shown in the Firm's Balance Sheet. (iii) The Firm has purchased another agriculture land at Khasra no.228 (0.12 hectare) for Rs. 52000/- and Khasra no. 231 (0.27 hectare) for Rs. 116100/- at village Naurangabad, Tehsil Alwar on 24.07.2006 in the name of one of its partners i.e, the assessee Sh. Kundan Lal Badshah. The firm has debited this amount in Land A/c in its books of accounts. (iv) Assessee has not reflected these three pieces of land in his balance sheet. It is only the firm which has shown all the three pieces of land in its Balance Sheet. (v) The said Khasra No. 230 (0.62 hectare) was converted for industrial use vide order dated 24-02-2007 for which conversion charges of Rs. 6200/- was paid on 14.02.2007. The conversion order is in the name of the assessee as in revenue records, the land stood in the name of the assessee but the expenditure on ....
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....t any point of time, assessee may not make any claim over the said property by filing any civil suit. 3. The ld. Counsel for the assessee has submitted before the ld. CIT(A) and reiterated before us that in light of above facts, it can be noted that the various observations made by the AO are incorrect as explained hereunder: (i) On 19.07.2006, the assessee was not owning any agriculture land at village Naurangabad except the land at Kh. No.230. This land was purchased by the assessee on 23.06.2006 for Rs. 1,94,700/- and after considering the expenses on stamp duty and other expenses of Rs. 16100/-, the total cost of the land to the assessee was Rs. 2,10,800/-. It is this land which is contributed by the assessee to the firm as its capital contribution. In clause 11 of partnership deed dated 19.07.2006 it is clearly stated that land and lease acquired by the assessee in June 2006 shall be deemed to be the asset of the firm w.e.f. 19.07.2006 and henceforth assessee shall have no individual right on the said land except as a partner of the firm. This land is recorded in the books of the firm at Rs. 2,10,800/- (194700+16100) by crediting the capital account of the assessee. Therefor....
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.... a) Partnership deed dated 19/07/2006- clause No.11- "The land and lease acquired at Naurangabad in June, 2006 in the name of first partner shall be deemed to be considered the assets of the firm with effect from 19/07/2006. Both the partners will have equal rights on such assets. The first partner shall have no individual right on the said lease and land except as a partner of the firm". b) Partnership deed dated 19/12/2007 clause No.15 "All land and lease acquired at Naurangabad in the name of first partner shall deemed to be considered the assets of the firm with effect from 19/12/2007. The first partner shall have no individual right on the said lease and land except as a partner of the firm. All the partners shall have right on such assets on the basis of profit sharing ratio mentioned in point No.7 of this deed in case of any dispute or dissolution of the firm". c) Partnership deed dated 11/06/2008- clause No. 5- "That the rest of the parties have taken over all the rights over industrial converted Land at Khasra no.230 area 6200 sq. mtr at gram Naurangabad, Alwar and Buildings, Plant & Machinery, Security, Deposits. They will be liable to repay loans and other liabilities....
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....e can be drawn that assessee has sold land at Kh. no.230 to Sh. Ratan Singh particularly when he has no right in it and the land continues to be the property of the firm as per its Balance sheet as on 31.03.2012. 3. It may be noted that as per section 14 of Indian Partnership Act, 1932, the property of the firm includes all property and rights and interest in property originally brought into the stock of firm, or acquired, by purchase or otherwise, by or for the firm or for the purpose and in course of business of firm, and includes also the goodwill of the business. Therefore any individual property owned by a partner and contributed to the firm becomes the firm's property and individual goes not remain the excusive owner of such property. In case of Addl. CIT Vs. Manjee Engineering Industries [154 ITR 509] (Del.) and in case of CIT vs. A.V. Bhanoji Rao [142 ITR 706] (AP) it is held that no particular mode or form is provided for bringing in a separate property into the stock of the firm by a partner and no deed whatsoever, registered or otherwise is required to be executed by the partner for doing so. It may be noted that after the land under consideration became the property of....
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....ransfer by the assessee in his individual capacity or as a partner of the firm M/s Swami Grit." "5.18 However, the Income Tax Act recognizes the firm as a distinct assessable legal entity apart from its partners. Sub-sections (3) and (4) of section 45 were introduced by Finance Act, 1987, which came into effect from 01.04.1988. In sub-section (3) what is sought to be taxed is the profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals. After such transfer, he is or becomes a partner or member, by way of capital contribution or otherwise. Then the said capital contribution shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. When a partner brings in his personal asset into a partnership firm as his contribution to its capital, an asset which was originally exclusively belonging to him....
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....ed of retirement deed dated 11.06.2008. Further, there was a reconstitution of the firm on 01.04.2009, when Sh. Kundan Lal Badshah retired from the firm and Sh. Ratan Singh and Sh. Ramesh Chand continued as partners of the firm with equal shares in the profits/losses. As per this deed the continuing partners have taken over all the rights over the industrial land at Khasra No.230 and the retiring partner has released and relinquished all his rights/claims in the assets of the firm. After, the retirement of the assessee from the firm, Sh. Ratan Singh on the basis of GPA dated 11.06.2008 executed a sale deed on 12.05.2009 in his own name, though the property continued to be the property of the firm. This was done to secure and safe guard the rights of the firm so that at any point of time the assessee may not make any claim over the said property by filing any suit in the court of law." "5.21. AO has confirmed in the remand report that said property has been declared by the firm in its ITR filed (for the last more than five years) as its fixed asset and depreciation thereon has also been claimed consistently over all these years. Further, it is not denied that land and building con....
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....rm. Hon'ble Supreme Court has held in the case of A.L.A. Firm reported in 189 ITR 285 that market value of assets has to be adopted for the purposes of computing capital gains arising in the hands of the Firm. However, this issue has to be examined by the AO concerned (having jurisdiction over the case of the firm). 5.23. In view of the above discussion, I do not find any justification in the action of the AO in invoking the provisions of section 50C of the IT Act and therefore, delete the addition of Rs. 1,18,75,507 on account of Short Term Capital Gains made by the AO in the hands of the appellant. 5. The Ld. AR has further relied upon the decision of Coordinate Bench in case of Shri Ratan Singh in ITA No.388 & 352/JP/2014 dated 11.08.2016 wherein Shri Ratan Singh who has acquired the subject land from the assessee Sh Kundan lal Badshah has subsequently sold a part of the said land to the incoming partners under similar circumstances though the land continued in the books of the Firm. In that case, this Bench has confirmed the finding of the Ld. CIT(A) with the following observations: "On the above finding, it is evident that ld. CIT(A) has verified the fact that the capital....
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....tents of the general power of attorney dated 11.06.2008 have to be read alongwith the contents of the reconstituted partnership deed dated 11.06.2008 even though in the power of attorney, there is no specific mention that land at Khasra No.230 is the property of the firm. As per Clause V of the reconstituted partnership deed dated 11.06.2008, it is mentioned that "rest of the partners (existing as well as new partners) have taken over all the rights over industrial converted land at Khasra No.230, area 6200 sqm at Gram Naurangabad, Alwar and building plant & machinery, security deposits. They will be liable to repay loans and other liabilities from 12.06.2008. Thus the 4th & 5th party (retiring partners) have released and relinquished all the rights and claims in the assets of the firm and also free of liability". It therefore transpires that the power of attorney has been granted by the assessee in favour of Shri Ratan Singh not in his individual capacity but as one of the working partners of the firm and to deal with the said land not in an individual capacity but as representative of the firm. Both the documents, reconstituted partnership deed dated 11.06.2008 and power of attor....
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.... of power of attorney dated 11.06.2008, executed a sale deed dated 12.05.2009 in his own name. It is here that the main issue for consideration arises as to whether the sale deed has been executed by the assessee (through its power of attorney holder, Shri Ratan Singh) in whose name the property stand in the land records or the sale deed has been executed by the firm M/s Swami Grit Udyog, in whose name the property stands and all the rights remained vested as per the partnership deed and its books of accounts. As we have stated above, once the land has been contributed by the assessee as his share of capital contribution and acknowledged by the firm which is duly evident by the partnership deed dated 19.07.2006, the said property becomes the property of the firm and the transfer thereof is chargeable to tax in the hands of the assessee by virtue of provisions of Section 45(3) of the Act. In case of Add. CIT Vs. Manjeet Engineering Industries [154 ITR 509] (Del.) and in case of CIT vs. A.V. Bhanoji Rao [142 ITR 706] (AP), it is held that no particular mode or form is provided for bringing in a separate property into the stock of the firm by a partner and no deed whatsoever registere....