2017 (1) TMI 1471 - ALLAHABAD HIGH COURT

Capital gain computation - consideration paid for free-hold -lawful right or interest in the property - Assessee transfers his land by way of "capital contribution" and becomes a partner in the firm, does it result in transfer in terms of Section 2 (47) of Act, 1961 or the term ''transfer' has to be construed in the light of Act, 1882 - Whether Tribunal has erred in law in holding that full value of consideration shall be determined as per Section 45 (3) and not under Section 50C of Act, 1961?

Held that:- Entire consideration for free-hold was paid by M/s SICCL but in what capacity, is not known. A part of land was transferred by sale to M/s SICCL at a consideration which has a vast difference than that was acquired by Assessee after execution of free-hold deed. For the purpose of contributing to partnership firm and applying book value, Tribunal failed to appreciate that the entire land came to be acquired by Assessee only on 31st March, 2002. Prior thereto, it had no lawful right or interest in the property in dispute which belonged to State of U.P. Even as per book value, cost of land determined and share profits determined between the parties and their capital contribution is so negligible, as it did not conform to even any normal business transaction entered into by a person of ordinary prudence, and, therefore, there existed all the facts and circumstances to show prima facie that entire transaction of contribution to partnership is a sham and fictitious transaction and an attempt to device a method to avoid tax. Even the terms and conditions of partnership fortify the above inference.

In the present case, in the garb of entering into a partnership and taking recourse to some earlier laws, an attempt was made to avoid execution of a registered document which would have needed stamp duty to the State and, as a result thereof, there could have been an occasion for payment of tax under the Act, 1961. The requirement of registration needs consideration in the light of the fact that contribution of immovable property as partnership asset by a person is ''transfer' and has the effect of extinguishing or limiting rights and interest of the owner partner and, therefore, such a non-testamentary document is within the ambit of Section 17 (1)(b) of Indian Registration Act, 1908

However, we find that the Tribunal has not looked into the matter with regard to colorable device and sham transaction of partnership, which was an issue directly raised by Revenue right from the stage of ACIT and onwards, and for that purpose matter requires to be remanded to Tribunal.

At this stage we propose to answer question no.1 in favour of Revenue and against Assessee