TaxTMI 
TaxTMI 
2017 (11) TMI 674
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....or purchase of the said properties. In response the assessee explained vide letters dated 23.12.2013 and 15.01.2014 that the source of funds for purchase of properties was mainly from the bequeathal of property by her Maternal Grandfather namely late Shri M.S. Kotwal and the assessee also received certain amounts from her mother Mrs Perviz J. Madan and the total amount received between 21.05.2008 to 15.03.2009 was at Rs. 7,91,65,329/- out of which an amount of Rs. 2,05,00,000/- and Rs. 4,95,00,000/- were invested in purchases of two properties. 3. Subsequently, show cause notice dated 07.02.2014 was issued by the Assessing Officer stating that assessee received money in her bank account from different accounts and no explanation was provided regarding the source of such receipts, purpose for which such amounts were transferred to assessee account and whether due tax had been paid on said amounts. Therefore, Assessing Officer required the assessee to show cause as to why the investments made on purchases of immovable properties during the relevant Assessment Year 2011-12 should not be deemed as income of the assessee and since assessee could not offer any explanation about th....
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....ource of such funds are not subjected to tax. Assessee filed detailed explanation submitting that the provisions of section 68 and 69 of the Act, have no application to the transaction in question. The conditions laid down in the provisions of section 68 and 69 are not fulfilled so as to apply the said sections to the transactions. However, the Assessing Officer without appreciating the submissions of the assessee held that the partnership of M/s. Mira Salt Works holding ancestral property did not distribute the property to the beneficial owners including the assessee but effectively sold/transferred the property to new partners without payment of capital gains, stamp duty, registration fee, etc. He observed that the land was sold to D.B Reality Ltd. and no Capital Gain Tax was paid by the firm/beneficiaries and the assessee is one of the beneficial owner to the tune of Rs. 8.75 Crores out of such consideration and the legitimate taxes are not paid and since the amount has been credited in the books of assessee by way of receipts in installments, he rejected the explanation of the assessee as not satisfactory and the conditions for applicability of sections 68 of the Act are satisf....
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....since there is no addition made by the Assessing Officer u/s. 69 of the Act in the final computation of the total income, he held that no adjudication is required on this issue. Against this order the Revenue is in appeal before us. 7. Ld.DR strongly supported the orders of the Assessing Officer in invoking provisions of section 68 and 69 of the Act and bringing to tax the amount of Rs. 8.75 crores as income of the assessee u/s. 68 of the Act. 8. Learned Senior Advocate Shri Firoze B. Andhyarujina appearing on behalf of the assessee, submitted that the assessee is a beneficiary of the Estate of late Shri M.S. Kotwal, through the deceased's Will. The Executors of the Estate of late Shri M.S. Kotwal acted as partner (in capacity of Executors) in the partnership Firm - M/s Mira Salt Works, a firm registered with the Registrar of Firms. M/s. Mira Salt Works initially had three brothers as equal partners of the firm. (1) Mr. M.S. Kotwal (2) Mr. B.S. Kotwal and (3) Mr. D.S. Kotwal. After the death of Mr. D.S.Kotwal, his two sons - Mr Keki Kotwal and Mr Noshir Kotwal were in....
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.... Such amount was deposited in the Capital Gains Tax Account and is utilized for purchase of immovable property in the year under consideration. The investments made by the assessee in two residential properties were vide agreements dated March 30, 2010 of Rs. 6,95,00,000/- and Rs. 2,50,02,054/- and the two residential houses were acquired from the following sources. S.N Address of the property Value of Investment Source 1 B-162, Kalpataru Horizon, CHS Ltd. S.K. Ahire Marg Worli, Mumbai - 400 025 Rs.6,95,00,000 Rs.4,95,00,000 from amount received from M/s Mira Salt Works and Rs. 200,00,000 from Mother Mrs. Perviz Madan, Pan No. ABCPM 1302 N 2. 1501, Samarpan Royale, Borivali(East) Mumbai Rs.2,50,02,054 Rs.2,05,00,000 from amount received from M/s Mira Salt Works and Rs. 45,02,054/- from Mother, Mrs Perviz Madan having Pan ABCPM 1302 N 10. Learned Senior Advocate submitted that the assessee submitted the following documents to prove the source of amount received and also the source of investments made during the year under consideration: - (a) Copy of the Will of late Mr M.S. Kotwal. (b) Partnership deed dated November 1983 where Executors became partner in F....
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....ceedings and these were not disputed by the Assessing Officer. He submitted that in the present case since the assessee has received the amounts from known sources which are fully explained by way of confirmation and all other relevant documents and the same has not been disputed by the Assessing Officer there cannot be any addition u/s. 68 of the Act. Referring to the Ld.CIT(A) order he submits that the fact that these transactions held during the financial years 2007-08 and 2008-09 also suggest that the addition cannot be made in the Assessment Year under consideration. Therefore, the learned senior counsel submits that as the source of investments stands fully explained the addition made u/s. 69 of the Act cannot stand. 14. We have heard the rival submissions, perused the orders of the authorities below. The fact that the assessee is one of the beneficiaries in the Estate of late Shri M.S. Kotwal who is partner in the partnership firm of M/s. Mira Salt Works is not in dispute. The reason for bringing to tax the amount received by the assessee is, according to the Assessing Officer there was a revaluation of the assets in the partnership firm, the new partners introduced capital....
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....account balance lying to her credit in the books of the firm where she is a beneficial partner. It is also a fact that the said amount was credited to her credit in financial year 2007-08 and 2008-09 as goodwill created in the firm. The appellant has filed balance sheet of the firm as on 31.12.2008 in support of her claim. There is no denial of the fact that she is one of the legal heir of (late) Shri M. L. Kotwal whose Estate was one of the partners and his account was credited to the tune of his share in the goodwill of the firm in 2007-08 and she has received money there from as her share in the estate of (late) Shri M. S. Kotwal. In other words, the amount is question cannot said as unexplained. 6.4. It appears to me that the Assessing Officer decided the issue on the basis of shock to his conscientious and perceived principles of fairness etc. But, in the process, provisions of Section 68 of the I.T. Act were given go by. The firm M/s Mira Salt Works, Executor and Appellant are three different assessee and their cases have to be examined on the basis of applicable provisions and not to juxtapose facts and law. The scheme devised by M/s Mira Salt Works to avoid paying capital....
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....taxing statute, while considering device to avoid tax, as observed by the Supreme Court in McDowell and Co.'s case [1985] 154 ITR 148, at page 160, is not to ask whether the provision should be construed literally or liberally, nor ether the transaction is not unreal and not prohibited by the statute but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to consider whether the taxation created by the devices could be related to the existing legislation with the aid of emerging techniques of interpretation to expose the devices for what they really are and to refuse to give judicial benediction. The courts in such a case should not lay undue emphasis on the language of each individual document as that is not determinative of the controversy. What is really necessary to be considered in such cases is the true nature and effect of the transaction. If on such a consideration, the court arrives at a finding that the true nature is "transfer of land" and the various steps or....
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....nt. If someone buys car in cash out of his undisclosed income, tax cannot be charged from car dealer on the ground of receipt being out of untaxed money. If at all any action regarding capital gains is warranted, appropriate case is of M/s Mira Salt Works. 6.8. The Supreme Court in the case of R. Lingmallu Raghukumar reported in 247 ITR 0801 (SC) has observed that "The Nigh Court has held that there was no transfer of any assets as contemplated by the expression "transfer' as defined in s. 2(47) of the IT Act. The High Court had placed reliance on the judgment of the Gujarat High Court in CIT vs. Mohanbhai Pamabhai (1973) 91 ITR 393 (GuJ); TC 20R 866 wherein it has been held that where 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 in the manner prescribed by the relevant provisions of the partnership law there is no element of transfer of interest in the partnership assets by the retired partner to the continuing partners. The said judgment of the Gujarat High Court has been affirmed by this Court in Addl. CIT vs. Mohanbhai Pamabhai (1987) 165 ITR....
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....ver name called, due to, or received by, a partner of a firm from such firm. A payment made to a partner in realisation of his share in the net value of the assets upon his retirement from a firm, does not fall under clause (v) of section 28." In other words, it is clear that any amount received by a partner by way of goodwill or otherwise is not taxable in the hands of the partner. 6.11 It is also interesting to note that Bombay High Court in the case of Riyaz A Shaikh (ITA No. 1969 of 2011) delivered on 26.02.2013 stated that ".........Moreover, the decision of this court in the case of Prashant S. Joshi (supra) placed reliance upon the decision of the Supreme Court in the case of CIT V/s R. Lingamallu Rajkumar reported in (2001) 247 ITR 801 wherein it has been held that amounts received on retirement by a partner is not subject to capital gains tax. In the above circumstances, we see no reason to entertain the propose question of law." 6.12. The above decisions seals the matter of taxability of amount received from the partnership firm in the hands of the partner entirely in favour of the partner and I am of the view that the said amount received from the opening balance of ....