TMI Blog2010 (1) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT(A) has erred on the facts and circumstances of the case and in accordance with the provisions of law and past history of the case in confirming the addition of Rs. 6,01,78,261 being the surplus arising on land brought into the common stock of the partnership firm M/s DLF Commercial Developers. 1.2 That the learned CIT(A) has erred on the facts and circumstances of the case and in accordance with the provisions of law in holding that the stock in hand brought into the common stock of the partnership by the company by credit, at an agreed value, to the company's capital account amounted to a transfer of the asset to the partnership giving rise to a taxable profit. 1.3 That the learned CIT(A) has erred on the facts and circumstances of the case and in accordance with the provisions of law in holding that the amount of Rs. 6,01,78,261 determined for credit to the capital account is a consideration and a profit derived from the business and in any case a benefit arising to the appellant from such business. 1.4 That the learned CIT(A) has erred on the facts and circumstances of the case and in accordance with the provisions of law in holding that the bringing of the individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot of land became the property of the partnership firm w.e.f. 16th day of March, 1992. The assessee's contribution of capital in the newly constituted firm represented the market value of the said plot of land. The market value was determined at Rs. 11.50 crores. In the assessee's books of account, the said land contributed towards capital in the partnership firm was shown at a cost of Rs. 4,40,62,419. The said newly constituted partnership firm credited the capital account of the assessee company by Rs. 11.50 crores being the value of the land contributed by the assessee as capital. The assessee also recorded the value of said land contributed as capital in the firm at Rs. 11.50 crores in its books, and the surplus amounting to Rs. 6.01 crores was credited to the P L a/c, but was claimed as not exigible to tax in the return of income filed by the assessee. The assessee claimed the surplus being difference between the value at which the land was credited in assessee's capital account in the firm in which assessee became a partner and the book value, credited in its P L a/c to be exempted from tax relying upon the decision of Hon'ble apex Court in the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land so transferred represented the stock-in-trade of the assessee, the profits were chargeable to tax under s. 28 of the Act, which stands on different footing with the gains arising from the transfer of capital or fixed assets, and lastly, on the reasoning that the present partnership firm newly constituted is not genuine in as much as it has been constituted or formed with the sole object of evading payment of taxes and, therefore, the assessee's reliance on the ratio in the case of Hind Construction Ltd. was totally out of context and irrelevant. 6. Being aggrieved, the assessee has preferred this appeal before the Tribunal, and the Tribunal vide order dt. 30th March, 2007 dismissed this ground raised by the assessee and upheld the order of the learned CIT(A) by deciding the issue against the assessee. The Tribunal vide order dt. 30th March, 2007, decided the issue against the assessee on merits in the light of detailed reasoning given in para Nos. 6 to 29 of that order. The Tribunal declined to accept the contention of the assessee, in the light of insertion of s. 45(3) of the Act w.e.f. 1st April, 1988, and further that some of the decisions cited before the Tribunal in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter were not cited on the earlier occasion; thirdly, that the issue raised was 'sensitive' and was not deliberated upon by the Tribunal on the earlier occasion. On this basis, the Tribunal declined to follow the order passed in respect of the asst. yr. 1985-86. It is now well-settled that when one Bench of the Tribunal takes a view, then another Bench of the Tribunal cannot pass a contrary order but must, if it disagrees with that view, have the conflict resolved by referring the matter to a Larger Bench. This is not only a matter of judicial propriety but also a matter of judicial discipline. In Union of India vs. P.D. Sharma Ors. 2004 III AD (Del) 131, a Division Bench of this Court observed as follows: 'It is now trite law that a Co-ordinate Bench of the Tribunal cannot take a view contrary to a view expressed by earlier Bench rendered earlier. In case it differs from the decision of the earlier Bench, the only course open to it is to refer the matter to a Larger Bench.' In Sundarjas Kanyalal Bhatia Ors. vs. Collector (1989) 3 SCC 396, the Supreme Court held as follows: The judicial decorum and legal propriety demand that where a learned Single Judge or a Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The matter was then heard at length by the Special Bench on various dates i.e., 14th Oct., 2008, 20th Oct., 2008, 11th Nov., 2008, 17th Nov., 2008 and lastly on 18th Nov., 2008. However, in the course of dictating the order, it was felt that the question framed as above was restricting powers of the Bench to consider all aspects of the matter involved in ground Nos. 1.1 to 1.7 in as much as, in the question, a limited issue was framed to decide as to whether surplus from the contribution of land to a firm can be assessed as business profits of the assessee, though, in the course of hearing of the appeal, reliance was placed by the Department upon the applicability of s. 45(3) of the Act, as so referred to and relied upon by the authorities below in their orders, and also referred to by the Tribunal in its order dt. 30th March, 2007passed in first round of this appeal. The matter was again put up before the Hon'ble President, and the President after hearing both the parties passed the order as under: 6th March, 2009: Present Shri Dinodia for the assessee and Shri N.P. Sawhney for the Department. Both the parties agree that the Special Bench should dispose of the appeals withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He further submitted that without prejudice, even if the transaction of contributing land stock as its capital is treated as transfer, no gain arises to the assessee on the transaction in question as the biggest difference lies in the fact of the present case is that the assessee transferred its stock-in-trade and not any capital asset. In this respect, the decision of apex Court in the case of Hind Construction Ltd. was relied upon by the learned counsel for the assessee by saying that the facts of the case of Hind Construction Ltd. were identical to the facts of the instant case of the assessee. In support of his contentions, the learned counsel for the assessee has also relied upon the following decisions: (i) Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC); (ii) Sir Kikabhai Premchand vs. CIT (1953) 24 ITR 506 (SC); (iii) Sanjeev Woollen Mills vs. CIT (2005) 199 CTR (SC) 441 : (2005) 279 ITR 434 (SC). 13.1 The learned counsel for the assessee then submitted that the present case is a case where stock-in-trade and not any capital asset was contributed by the assessee to a partnership firm towards its capital. He, therefore, submitted that the definitions of capital asset and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter involved. 13.2 Having contended as above, the learned counsel for the assessee proceeded to argue that there is no charging provision in IT Act to tax this nature of transaction of making over a stock-in-trade as capital contribution to a firm in which the assessee is or becomes a partner. He further contended that if any transaction does not fall within the ambit of taxation, the tax cannot be imposed on the grounds of morality or equity. Similarly, in the converse situation, tax imposed by the statute must be levied in spite of its causing hardship to a taxpayer. In this connection, reliance was placed upon the following decisions: (i) CIT vs. Keshavlal Lallubhai Patel (1965) 55 ITR 637 (SC); (ii) Smt. Mohini Thapar vs. CIT 1972 CTR (SC) 214 : (1972) 83 ITR 208 (SC); (iii) CIT vs. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC); (iv) Manish Maheshwari vs. Asstt. CIT (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC) : (2007) 159 Taxman 258 (SC). 13.3 It was further submitted by the learned counsel for the assessee that the law has been amended many times pursuant to judicial pronouncements in order to bring within the tax net certain transactions which the Courts otherwise foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute w.e.f. 1st April, 1988. He urged that even the application of the provisions of s. 45(3) of the Act inserted w.e.f. 1st April, 1988 has not brought any change for bringing to tax the surplus arising from contribution of stock-in-trade by a partner to a firm at an amount more than the cost to the assessee because in the newly inserted s. 45(3) of the Act, the words transfer of capital asset are used though in the instant case of the assessee, it was a contribution of land which was held as stock-in-trade by the assessee. Thus, according to the learned counsel for the assessee, the decision of apex Court in the case of Sunil Siddharthbhai is of no help to the Revenue as their Lordships in that case were concerned with the situation where transfer of capital asset and not stock-in-trade was involved. 13.5 With regard to the CIT(A)'s observations that since the assessee company has shown the surplus as its income in its audited account by making appropriate credit to the P L a/c, the surplus represents the business profit on commercial principles, the learned counsel for the assessee submitted that it is well-settled that entries in the books of accounts representing P L a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a partnership firm for business, it is a case of trading or commercial transaction and is to be considered as sale at a given value at which assessee's capital account is credited in the books of a partnership firm, and thus the surplus arising therefrom is to be charged to tax as a business profit. 14.1 He further submitted that the intention of the assessee with regard to the transaction in question is to be gathered or judged from over all conduct of the assessee and the entries made by it in its books of accounts. From perusal of entries made in the books of accounts by the assessee, it is clear that the assessee has treated the transaction as sale of stock-in-trade by it to a firm in as much as, the assessee has itself credited the amount of sales and resultant profit in its P L a/c, and the profit resultant therefrom was also utilized for the purpose of distribution of dividend to the shareholders. He further contended that if the contentions of the assessee, which are contrary to the entries made in the accounts and narration made in partnership deed, are looked dispassionately and in all fairness, it would be termed as nothing but a collusive arrangement between the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount as sales, and by crediting the resultant profit in its P L a/c. 14.5 It was further submitted by the standing counsel for the Department that in the case of CIT vs. Hind Construction the apex Court examined the question only from the point of view of sale, and not from the point of view whether there was any transfer of asset from a partner to a firm, which question has been considered and answered by the Hon'ble apex Court in the case of Sunil Siddharthbhai holding that when any asset is contributed by a partner to a firm as its capital, it amounts to a transfer even under the general law. Senior standing counsel for Revenue has also placed reliance upon the following decisions: (i) Addl. CIT vs. M.A.J. Vasanaik (1979) 116 ITR 110 (Kar); (ii) A. Abdul Rahim, Travancore Confectionery Works vs. CIT (1977) 110 ITR 595 (Ker); (iii) Baldevji vs. CIT (1984) 40 CTR (Mad) 120 : (1985) 156 ITR 776 (Mad). 14.6 He then submitted that the dictum one cannot make profit out of himself , is not attracted in the present case, in as much as, in the present case, the assessee being a separate taxable entity has transferred its stock-in-trade to a partnership firm, another taxable entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing therefrom would be taxable as business profit. (ii) If it is case of assessee that it is a case of capital contribution in the form of capital asset, the amount credited in the assessee's capital account shall be deemed to be consideration received by the assessee on transfer of capital asset to a firm, and capital gain arising therefrom would be chargeable under the head Capital gain under the newly inserted provisions of s. 45(3) of the Act, inserted from 1st April, 1988. 14.9 As against the contention of the learned counsel for the assessee that there is no provision in the Act to bring to tax the surplus arising from revaluation of stock-in-trade at the time when same is contributed as capital to a firm by a partner and the partner's account is credited by the amount more than the cost of stock-in-trade to the assessee partner, and no amendment like insertion of ss. 45(2). 45(3) and 45(4) has been made in the IT Act, the learned senior standing counsel for the Revenue has submitted that if it is the case of the assessee that stock-in-trade has been given to a firm by the partner towards its capital at a value more than the cost to the assessee, there is a transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 201 : (2001) 115 Taxman 326 (SC). 14.11 He further submitted that position of apex Court in the case of Hind Construction Ltd. would be of no help to the assessee in as much as the transaction of constituting firm by contributing land held by the assessee at higher value than the cost to the assessee is nothing but a colourable and calculated device to evade payment of correct taxes in respect of the surplus amount credited in the assessee's capital account by the firm when the resulted profit has been credited by the assessee in its P L a/c, but has not offered it to tax. He, therefore, submitted that the transaction of contribution of capital of land in a partnership firm by the assessee partner is to be considered as transfer or sale of stock-in-trade by the assessee to a partnership firm i.e., from one taxable entity to another. 14.12 On the applicability of the provisions contained under s. 45(3) of the Act to the facts of the present case, the learned standing counsel for the Department has submitted that the said land contributed by the assessee partner to a partnership firm in which the assessee became a partner is otherwise to be considered as capital asset in as much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act if not found to be assessable under s. 28 of the Act. Rejoinder by the assessee 15. In the rejoinder, the learned counsel for the assessee reiterated that the main argument of the Revenue that the assessee has reflected the surplus in its P L a/c and has shown the sales of land in the books, and, therefore, the treatment given by the assessee in its books of accounts clearly proves that it was a transaction of sale and it is only in the IT return that the assessee was claiming the surplus to be exempted from tax, is not tenable and acceptable in as much as it is well-settled that the entries in the books of account are not conclusive or determinative in deciding the taxability or otherwise of a given item, and, thus, merely on the basis of entry in the books of account, it cannot be said that the any income or gain arises or accrues to the assessee in the true commercial sense which a businessman would understand as real income or gain. 15.1 With regard to the Revenue's reliance on the decision in the case of Baldevji vs. CIT in support of the contention that there was a transfer of land in question when the land was contributed towards capital by a partner to a firm in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is of sale or transfer of stock-in-trade by the assessee to a firm as against the assessee's claim that it is the case of capital contribution of stock-in-trade by a partner to a firm and not the case of any commercial or trading transaction in the business sense, and thus no sale or transfer of stock-in-trade had taken place. The answer to the controversy, in our opinion, rests mainly and primarily upon the determination of the nature of transaction made by the assessee as a partner with the firm in which assessee became a partner. We, therefore, find it necessary and proper on our part to first ascertain and determine the true nature and character of the transaction and the asset employed in the transaction. Tests to determine the nature of transaction and asset employed therein 16.3 It is well-settled that name or label which is given to any transaction by any party is irrelevant in assessing the exigibility of receipt arising from the transaction to tax. The true character or nature of any transaction is to be decided in each case on its facts. Various rules have been enunciated as furnishing a key to the solution of the question, but as often observed by the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into a stock-in-trade or vice versa, which can be determined with reference to the combined effect of all the factors appearing in any given case including the nature of the transaction in which it is employed and the intention of the party. 16.4 As held by various Courts time and again, for determining the real nature of income, the entries in the books of account are not decisive or conclusive. Whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto, and not on the view, which the assessee may take on his rights nor can the existence of entries in the books of accounts be decisive or conclusive in the matter. In other words, it is settled law that the manner in which entries are made in the books of account is not determinative of the question whether the assessee has earned any profit or suffered any losses. It is the true nature and quality of the receipt and not the head under which it is entered in the account books, which would be proved decisive. The name which the parties may give to the transaction, which is the source of the receipt, and the characterization of the receipt by them are of little consequence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true and correct nature of the transaction of contribution of partner's personal asset as capital contribution in the firm in which he became a partner. The facts of the present case reveal that the assessee company was carrying on a business of real estate, besides others. In the course of carrying on business of developing and dealing in real estates, the assessee held certain lands and right in lands as stock-in-trade of its business. The assessee company entered into a partnership with four of its subsidiaries companies and one individual as evidenced by the memorandum of partnership executed at New Delhi on 23rd day of March, 1992, with a object to start and carry on the business of developing and dealing in real estate, construction of buildings and letting them out or selling them. The assessee company had 76 per cent share, while the four subsidiary companies held 5 per cent share each and the individual 4 per cent in the profit or loss of the firm. In pursuance to their intention to enter into partnership with the object to start and carry on the real estate business, the assessee had agreed to bring all its rights in five plots of land measuring about 199.99 acres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: Partnership deed This memorandum of partnership made at New Delhi the 23rd day of March, 1992 between 1. M/s DLF Universal Ltd., a public limited company incorporated under the Companies Act, 1956 and having its registered office at Model Town, Faridabad in the State of Haryana of the one part; 2. M/s Apollo Land Housing Co Ltd. also a company incorporated under the Companies Act 1956 and having its registered office at 1-E, Jhandewalan Extension, New Delhi of the second part; 3. M/s Moonlight Builder Developers Ltd. also a company incorporated under the Companies Act, 1956 and having its registered office at 1-E, Jhandewalan Extension, New Delhi of the third part; 4. M/s Sunrise Land Housing Co. Ltd. also a company incorporated under the Companies Act, 1956 and having its registered office at 1-MM, Jhandewalan Extension, New Delhi of the fourth part; 5. M/s DLF Builders Developers Ltd. also a company incorporated under the Companies Act, 1956 and having its registered office at 1-E, Jhandewalan Extension, New Delhi of the fifth part; 6. Mr. Rajinder Singh son of Late Sri Kartar Singh Lamba resident of C-36, Fateh Nagar,New Delhi110 018 of the sixth part; Whereas the parties of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that further amounts required for the business of the partnership will be contributed by the parties hereto as may be mutually agreed upon from time to time; and Whereas the board of directors of the parties of the first to fifth part approved the proposal for their respective companies entering into partnership at their respective meetings. Whereas the business of the partnership has already commenced w.e.f. 16th day of March, 1992. Whereas the parties hereto are now desirous of recording the terms and conditions on which they have entered into partnership on the 16th day of March, 1992. Now this memorandum witnesseth and it is hereby recorded and confirmed as under: 1. That the parties hereto have entered into partnership w.e.f. the 16th day of March, 1992 with the object of starting and carrying on the business of developing and dealing in real estate, constructing buildings and letting them out or selling them. 2. That the business is being and shall continue to be carried on under the name and style of DLF Commercial Developers. 3. That the party of the first part has brought all its right in the said plots of land admeasuring about 16.98 acres situated in DLF Qutub Enclave C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock-in-trade was contributed to the firm as capital contribution by the assessee in the capacity of a partner. (iii) That the stock-in-trade contributed to the firm as capital contribution by the assessee in the capacity of a partner was also held as stock-in-trade by the firm. (iv) That the surplus arises to the assessee on account of revaluation of stock-in-trade at higher value than the cost to the assessee and from contributing the same to a firm as its capital is not a profit or gain from business as contribution of stock-in-trade by a partner as its capital to a firm at higher value is not a commercial or trading transaction in a business sense, and it does not amount to a sale or transfer . 16.10 The Revenue, on the other hand, has drawn inference/conclusion on the facts of the present case as under: (i) That as per entries in the books of the assessee where the assessee has shown sale. reduction of stock-in-trade, crediting of sale account, crediting surplus in the P L a/c, utilizing the surplus by way of distribution of dividend and carrying the surplus to balance sheet, and as per entry in the books of the partnership firm where the assessee partner's account was cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of a given case. Therefore, the entries in the books of accounts of the assessee and the partnership firm alone are not decisive or conclusive to decide the question whether the assessee has transferred its personal assets to a partnership firm by way of capital contribution or it is a normal sale in the ordinary course of its business or trading transaction. We have carefully gone through the terms of the deed of partnership entered into between the assessee and five other partners, four are subsidiaries of the assessee company and one is an employee of the group company. There is no prohibition in law in entering into a partnership by a company with its subsidiaries. Further, under the law, a partner is permitted to bring his personal assets into a partnership by way of his capital contribution. The Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT was dealing with the situation where an individual makes over his capital asset to a partnership as his contribution towards capital and the asset was valued for that purposes at the market value, and in that event, it was held by the Hon'ble Supreme Court that there was a transfer of capital asset within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to consider all the relevant indicia in this regard, whether the partnership is formed between the assessee and his wife and children or substantially limited to them, whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that there was no real need of the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the ITO enters upon a scrutiny of the transaction for in the task of determining whether a transaction is a sham or illusory transaction or a device or ruse he is entitled to penetrate the veil covering it and ascertain the truth. 16.15 In the light of aforesaid word of caution emphasized by the Hon'ble Supreme Court, we proceed to examine whether the transaction of creating the partnership firm in the present case before us is a genuine or a sham transaction, or even where the partnership is genuine, whether the transfer of land in question as capital contribution by the assessee to a partnership firm in which the assessee became a partner was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC) upholding the decision of Hind Construction Ltd. Against CIT(A)'s observation, the assessee submitted his comments (placed at pp. 22 to 23 of paper books filed by the assessee on 10th April, 2006/12th April, 2006) stating that since it was initial year of consisting of less than a month, no commercial activities were started during the year under consideration, but in subsequent assessment years from asst. yr. 1993-94, the firm has been duly assessed under s. 143(3) of the Act by the AO, and all the partners whether they are companies or individuals being separate entities, were being assessed to tax separately. It was further stated that the funds for carrying out business of the firm were raised by the firm. Before us, the learned counsel for the assessee has reiterated the comments of the assessee against the observations of the AO and the CIT(A) and pointed out that the Hon'ble Supreme Court in the case of Sunil Siddharthbhai issued a word of caution by stating that the principles laid down by their Lordships will hold good if the firm is a genuine one. The observation of Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. To examine and decide this aspect of the matter, certain factors or indicia as mentioned in the said decision including some other pertinent consideration may be taken into regard, and the AO shall be entitled to penetrate the veil covering it and ascertain the truth. The relevant passage of this decision has been set out above in para 16.14 of this order. 16.20 From the material placed on record, we find that the partnership firm so constituted has been assessed to tax as such from year to year by the Department, and the Department has not considered the firm as bogus or sham. Thus, we do not find any material to hold that the very transaction of creating the partnership itself is not genuine but a sham transaction. Having said so, we have to examine further even if the partnership is genuine, whether the transaction of transferring the assessee's personal asset in the form of land to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of each partner in the books of a firm have been created. These statement of accounts are placed at pp. 39 to 64 of a paper book dt.1st April, 2006filed by the assessee on10th April, 2006/20thApril, 2006 before us in this appeal. On perusal of partner's current account as on 31st March, 1993, it is seen that assessee's share in loss of Rs. 57,191.16 for the year ended on 31st March, 1993has been debited in the assessee partner's current account. In the year ended on 31st March, 1994, an amount of Rs. 4,46,75,888 (i.e., Rs. 446.75 lacs) has been withdrawn by the assessee from the firm though the firm had incurred a loss of Rs. 14,92,448, and the share in loss fallen in assessee's share was Rs. 11,34,260. It is thus seen that the assessee had received the sum of Rs. 4,46,75,888 for its benefit in the year ended on 31st March, 1994. The year-wise withdrawal made by the assessee from the firm vis-a-vis its share in profit or loss of a firm upto31st March, 1998are detailed as under: Year ended Withdrawal (in Rs.)(Receipt) Profit/(loss) 31-3-1993 Nil (57,191) loss 31-3-1994 4,46,75,888 ( 11,34,260) loss 31-3-1995 2,64,45,376 (5,25,877) loss 31-3-1996 (2,08,99,797) (3,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting in some economic detriment of prejudice to the national interest as so observed by the Hon'ble Supreme Court in Union of India vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC). But this proposition is applicable insofar as the act of assessee in constituting partnership firm by contributing its personal assets to a firm as capital contribution is concerned. However, with regard to assessee's conduct in converting land into money by withdrawing huge and substantial money from the firm is to be viewed from the words of caution emphasized by Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT and also in view of the following observation of Constitution Bench of Hon'ble Supreme Court in the case of McDowell Co. Ltd. vs. CTO, which has been referred to in the case of Union of India vs. Azadi Bachao Andolan and was quoted with approval: Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on capital field or the revenue, and the surplus so arising to the assessee is assessable to tax as profits from business or capital gain. It is an admitted position that the land in question has been transferred to a firm towards capital contribution by the assessee in the capacity of a partner. The firm so constituted is considered to be genuine one. The transaction cannot, therefore, be considered to be made in the nature of any normal and ordinary transaction of sale in course of any commercial or trading activity. The land has been contributed to firm as capital by the assessee partner in its capacity as a partner and not as a trader in any trading transaction. We are, therefore, in agreement with the contentions of the learned counsel for the assessee that the land in question belonging to the assessee was contributed to a partnership firm as assessee partner's contribution towards capital in the partnership when the assessee entered into a partnership with five other partners, and so, the transaction cannot be regarded as a trading or commercial transaction in the business sense. Resultantly, the transaction of making over of any personal assets of a partner to a firm a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership or with his retirement from the partnership, to get the value of his share in the net partnership assets as on the date of the dissolution or retirement after deduction of liabilities and prior charges. In other words, in consideration for the transfer of the personal asset by a partner to a partnership firm towards his capital contribution, in which he becomes a partner, the following rights arise or accrue to a partner: (i) Right to get his share of profit from time to time during the subsistence of the partnership; and (ii) On the dissolution of partnership or with his retirement from the partnership, the right to get the value of his shares in the net partnership asset as on the date of dissolution or retirement after deduction of liabilities and prior charges. 16.29 In the aforesaid decision in the case of Sunil Siddharthbhai vs. CIT, Hon'ble Supreme Court further observed that at the 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 considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property 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 cl. (a) and sub-cls. (i), (ii) and (iii) of cl. (b) of s. 48..... 16.31 In the aforesaid case of Addanki Narayanapa vs. Bhaskara Krishanappa the position has been elaborated by Hon'ble Supreme Court, which has been noted by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai, as under: ....The whole concept of partnership is to embark 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not amount to a transfer to the erstwhile partners. What the partner gets upon dissolution or upon retirement is the realisation of a pre-existing right or interest. It is nothing strange in law that a right or interest should exist in praesenti but its realisation or exercise should be postponed. Therefore, what was the exclusive interest of a partner in his personal asset is, upon its introduction into the partnership firm as his share to the partnership capital, transformed into a shared interest with the other partners in that asset. Qua that asset, there is a shared interest. 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 latter, the value will be represented by his share in the net assets on the dissolution of the firm or upon the partner's retirement. 16.33 The Hon'ble Supreme Court in the aforesaid case of Sunil Siddharthbhai vs. CIT proceeded further to observe as under: 'The learned counsel for the assessee has attempted to draw an analogy between the position arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es only out of all the estates comprising the totality of rights in the property. In a third case, there may be a reduction of the exclusive interest in the totality of rights of the original owner into a joint or shared interest with other persons. An exclusive interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest it would seem that there is a transfer of interest. Therefore, when a partner brings in his personal asset into the capital of the partnership firm as his contribution to its capital, he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm. While he does not lose his rights in the asset altogether, what he enjoys now is an abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital. 16.36 With reference to the provisions contained in s. 17(1)(b) of the Registration Act, whether there is transfer when partner's exclusive interest, on its introduction as capital in the firm is reduced into a shared interest, the Court observed as under: Our at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought in would cease to be the exclusive property of the person who brought it in. It would be the 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. (ii) The person who brought in his personal asset into a firm would not be able to claim or exercise any exclusive right over any asset which he has brought in, much less over any other partnership asset. He would not be able to exercise his right even to the extent of his share in the business of the partnership during the subsistence of the partnership, no partner can deal with any portion of the partnership asset as his own. (iii) Where a partner of a firm makes over his personal assets to a firm as his contribution towards capital, and whatever may be the character of the property which is brought in by the partners when the partnership is formed, what a partner, is entitled to or what right, which accrues or arises to a partner, is, during subsistence of partnership, to get his shares of the profits from time to time, and upon dissolution of the firm or with his retirement from the partnership, to get the value of his shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and an exclusive interest in property is larger than the share in that property. To the extent to which the exclusive interest is reduced to a shared interest, there is a transfer of interest. Therefore, when a partner brings in his personal asset into the capital of the partnership as his contribution to its capital, he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm. While he does not lose his right in the asset altogether, what he enjoys now is a abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital. (viii) When a partner retires or partnership is dissolved, what the partner received is his shares in the partnership, qua the net asset of the partnership firm. What happens here is that a shared interest in all the assets of the firm is replaced by an exclusive interest in an asset of equal value. That is why it has been held that there is no transfer. It is the realization of a pre-existing right. The position is different when a partner brings his personal asset into the partnership firm as his contribution to its capital. An individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to consider all the relevant indicia and other pertinent consideration in this regard, and he is entitled to penetrate a veil covering and ascertain the truth. Nature of right accrues or arises to a partner on his capital contribution of his personal assets to a firm in which he is or becomes a partner 16.39 From the said decision of the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT, it is settled that when the partner brings personal asset into the partnership firm as his contribution to its capital, and whatever may be the character of the property which is brought in by the partner when the partnership firm is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what right the partner acquired is to get his share of profit during the subsistence of partnership, and upon dissolution of the partnership or on retirement, to share in the asset of the firm which remain after satisfying the liabilities. Thus, the nature of the right acquired by the assessee by contributing his personal asset of whatever character into a partnership firm towards its capital is a right of capital in nature to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of partner's personal asset to a partnership firm as his contribution to its capital is not a commercial or trading transaction. We find no difficulty in accepting this proposition in the light of the decision of Hon'ble Supreme Court in the case of CIT vs. Hind Construction Ltd., which has been accepted and approved in the case of Sunil Siddharthbhai vs. CIT. When a view that when a partner hands over his personal asset of whatever character to a partnership firm as his contribution to its capital, the partner cannot be said to have effected a sale of that item is accepted, the question of treating that personal asset as stock-in-trade in the course of transaction when the same was contributed to a partnership firm as its capital, cannot arise irrespective of whatever may be the character while remaining in the hands of a partner before the same was contributed by him to a firm as its capital. In order to decide the character of an asset at the time when it transferred to a firm by a partner by way of capital contribution, one has to determine the nature of the asset that attaches to it at the time when the transaction of contributing the capital by a partner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its same character only (till) it continues to be employed for the purpose of any business or commercial activity carried out by the assessee. This would mean that when a businessman withdraws his stock-in-trade held by him for the purpose of business or profession from his business for some purpose or purposes other than the purpose of dealing with it in the course of any trading or commercial transaction, it would lose its character of being stock-in-trade , and will acquire such character with regard to the purpose for which same has been employed. In other words, the stock-in-trade held by the assessee for the purpose of his business or profession shall get converted into such other nature of asset having regard to the purpose for which it has been withdrawn from the business. In business, it does happen that capital asset is converted into stock-in-trade, and stock-in-trade into capital asset or asset ceases to be stock-in-trade. For example, where a dealer in jewellery brings in his personal jewellery to business, there is a conversion of capital asset to stock-in-trade. Similarly, a stock-in-trade is converted into a capital asset, when the dealer in jewellery withdraws je ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. Further, in the light of the ratio of decision of Hon'ble Supreme Court in the case of Sir Kikabhai Premchand vs. CIT, we may say that when stock-in-trade by a businessman is withdrawn from his business, its nature and character gets converted into a different character, and the act of withdrawing the stock-in-trade by a businessman cannot be held to be a business or commercial or trading transaction in the sense a businessman would understand. In Sir Kikabhai Premchand vs. CIT, where a part of the stock-in-trade was withdrawn by the assessee and endowed them on certain trusts of which the assessee was a trustee, the Hon'ble Supreme Court held that there being no commercial or trading transaction, it was not a case of sale of stock-in-trade and the withdrawal of stock-in-trade should be taken at cost. The Supreme Court further held that no man can be supposed to be trading with himself. From the said decision, it thus transpires that withdrawal of stock-in-trade from business is not a trading or commercial transaction in the course of carrying on business, and the withdrawal of stock-in-trade should be taken at cost. In the present case, when the assessee withdra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred after deducting therefrom the cost of acquisition, and other deductions as provided under the law. 16.42 In the instant case of the assessee, it is not in dispute that the said land in question, amongst others, was acquired as stock-in-trade of the assessee's business. However, later on in the year under consideration, the said land in question being a part of the total stock-in-trade of the business got revalued by the assessee, and was contributed as capital contribution to a partnership firm in which assessee became a partner with a view to carry on business in partnership. At the cost of repetition, it is emphasized that the transaction of making over assessee's personal asset i.e., land in question, to a firm as its capital contribution in the capacity of a partner is not a commercial or trading transaction as so admitted by the assessee also. To say it differently, the land in question contributed by the assessee to a firm as its capital contribution has not been transferred or sold to a firm in the course any trading or commercial activity or transaction carried out by the assessee. We fail to understand that when land in question has not been sold or transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt with as stock-in-trade, or consumable stores or raw materials, he must prove that the transaction of that asset effected by him is in the course of his business or profession, so as to treat the asset in question as stock-in-trade, consumable stores or raw materials, at the time when the transaction was made. The aforesaid definition of inventories mentioned in AS-2 has also been taken note of by the Hon'ble Supreme Court in the recent decision of Liberty India vs. CIT (2009) 225 CTR (SC) 233 : (2009) 28 DTR (SC) 73 : (2009) 317 ITR 218 (SC) by observing as under: 19. Since reliance was placed on behalf of the assessee(s) on AS-2 we need to analyse the said Standard. 20. AS-2 deals with valuation of inventories. Inventories are assets held for sale in the ordinary course of business; in the process of production for such sale; or in the form of materials or supplies to be consumed in the production. 'Inventory' should be valued at the lower of cost and net realizable value (NRV). The cost of 'inventory' should comprise all costs of purchase, cost of conversion and other costs including costs incurred in bringing the 'inventory' to their present lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner towards its capital, and it gets converted from stock-in-trade into capital asset at that material point of time. Therefore, the question as to whether any income or gain has arisen or accrued to the assessee in the course of contributing the said land as capital contribution into a partnership firm at the time when assessee becomes a partner, is to be decided in the light of the premise that assessee has transferred or contributed a capital asset as capital contribution to a partnership firm in which he became a partner, and not in the light of the premise that there was a sale or transfer or contribution of stock-in-trade by a partner to a firm by way of capital contribution when the assessee became a partner. 16.46 The question whether, on facts of the present case, the land in question held by the assessee as stock-in-trade has been converted into capital asset and it partook the character of capital asset at the time when the assessee contributed it as its capital to a firm when he became a partner, can also be judged from one more point of view about the conduct, motive and intention of the assessee while making over the land in question as capital contribution to a firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of the year are valued at cost or market price, whichever is lower, to determine the profit or loss, as the case may be of any business. Thus, the question of valuating the stock-in-trade at market value higher than the cost price in the middle of the year before the year ends, and then passing corresponding entries in the books of accounts, is totally unwarranted and is not usually associated with the stock-in-trade, unless the assessee intended to withdraw the stock-in-trade from his business and convert the same into capital asset for the purpose of contributing the same as capital in a partnership firm in which assessee became a partner. There is no mandatory Accounting Standard, which mandates the assessee to revalue its inventory upward as so admitted by the learned counsel for the assessee in reply to the query raised by the Bench. In the present case, we, therefore, find that there were material changes in circumstances under which the land was valued al market price higher than the cost price, the land was then contributed by the assessee partner to a partnership firm as capital contribution and the surplus arising from the said transaction was credited in the P L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties below have recorded a finding of fact that the land, which was contributed by the assessee company to a firm, was its stock-in-trade, and it became the partners' capital in the firm being the asset received in lieu of capital of the partner. Both the authorities below have also accepted the position that the land, which was contributed by assessee company as its capital, was held as stock-in-trade by the partnership firm in which the assessee became a partner. We have also accepted this position that the land in question contributed by assessee partner to a partnership firm as its capital contribution when the assessee become a partner, was held by the assessee as stock-in-trade before the same was contributed as its capital contribution to a firm. There is no dispute as to the fact that after receiving the land in question as capital contribution by the assessee partner, the firm treated the same as stock-in-trade of its business of real estate and started making construction thereupon for its business of real estate development in subsequent years. At the same time, the fact that the land in question was contributed to a firm as capital contribution by the assessee in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets by a partner to a partnership firm as its capital contribution is a case of capital asset brought in by a partner as its capital contribution in a firm in which it became a partner, the Tribunal may adjudicate the question whether the profit or gain arising to the assessee as a result of the said transaction is chargeable to tax under the provisions of s. 45(3) of the Act effective from 1st April, 1988 even if not under s. 28 of the Act. Both the parties have been heard on this aspect of the matter and also on the merits whether the surplus arising from the transaction involved in this case could indeed be assessed as capital gain. 16.48.1 There is no dispute to the position that the profits or gains or benefits arising to the assessee from said transaction in question has been assessed under the head Business by the AO in the light of the view that stock-in-trade was sold or transferred by the assessee company to a firm at an appreciated price. It was the claim of the assessee itself that the stock-in-trade held by it was contributed to a firm in which the assessee became a partner, and in the light of the stand so taken by the assessee, the AO brought the surplus to tax unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad of income under which it is to be assessed under the IT Act. Thus, the contention of the assessee in this regard that the Department has no right to take an alternative plea to tax the profits or gains arising from transfer of land by assessee to a firm by way of capital contribution as per provisions of s. 45(3) of the Act is not found convincing. 16.48.2 Further, the answer to a question that whether the land in question had a character of capital asset or stock-in-trade at the time when the same was contributed as capital to a firm in which the assessee became a partner is based on a legal conclusion to be drawn from same set of facts. The relevant provisions of law contained in ss. 2(14). 2(47) and 45(3) were very much relied upon by the Departmental authorities below to bring the item to tax though the tax has been imposed by the AO and the CIT(A) under the head Business profit . This makes it clear that the Department has not made out a new claim for the first time before the Tribunal by way of an alternative argument made before us. 16.48.3 It is not the case where any enhancement of income is sought for by the Revenue. It is also not the case where any benefit already gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1978) 111 ITR 529 (Bom) has held that the Tribunal is competent to change the head of income even at the instance of the respondent when all the relevant facts are already on record as long as both the parties are heard on that issue. This decision of Special Bench in the case of Sumit Bhattacharya vs. Asstt. CIT and Hon'ble Bombay High Court in the case of CIT vs. Gilbert Barkar Manufacturing Co. are directly on the issue that arises in the present case before us. In the case of CIT vs. Gilbert Barkar Manufacturing Co., which has been relied upon by the Tribunal in the case of Sumit Bhattacharya vs. Asstt. CIT, the High Court has held as under: ................ The Tribunal would have the discretion to allow any party to the appeal, may be the appellant or the respondent, to raise a new point or a new contention provided two things are satisfied. First, that for urging such a new point no new facts are required to be brought on record and the point is capable of being disposed of on the facts which are already on record and, secondly, an opportunity is given to the other side to meet that point that is being allowed to be raised for the first time in appeal. In the instant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of taxable income and such an income can be taxed under the head 'Income from other sources'. Therefore, even if the amount received by the assessee on redemption of share appreciation rights was held to be not taxable under the head 'Income from salaries', this fact, by itself, would not take the same outside the ambit of taxable income. Since, in such an eventuality and following the Supreme Court's judgment in Emil Webber's case, the said amount would be taxable under the head 'Income from other sources'. Therefore, even if it was held that the amount in question was received from a person other than the employer of the assessee, and that in order for an income to be taxed under the head 'Income from salaries' it is a condition precedent that the salary, benefit or the consideration must flow from employer to the employee, the amount received by the assessee on redemption of stock appreciation rights would still be taxable though under the head 'Income from other sources'. The plea raised by the assessee that the amount in question could not be taxed as 'income from salaries' was thus irrelevant. 16.48.6 In the instant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med in the present case, in accordance with the law and in the light of the facts of the case including the High Court's direction as so agreed by both the parties. Therefore, the alternative plea raised by the Revenue to the effect that the surplus arising to the assessee may otherwise be held to be assessable under the head Capital gain instead of business profit is admitted for our consideration so that the income, if found by us as to be taxable, can be assessed under the correct head of income under the provision of the Act. 16.48.8 Before parting this aspect of the matter, we would like to make a reference to a decision of Hon'ble Supreme Court in the case of CIT vs. Ram Kumar Aggarwal Bros. (1994) 116 CTR (SC) 98 : (1994) 205 ITR 251 (SC) relied upon by the learned counsel for the assessee to the effect that the respondent is not entitled to for the first time to claim before the Tribunal and the High Court that the shares ceased to be its stock-in-trade on the conversion of the company from public company to a private company. This case is rendered in the context of altogether different situation where it was an admitted position that the assessee held the shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest, there was a transfer of interest in the land notwithstanding, the fact whether the land in question was being held by the assessee as its stock-in-trade or capital asset or otherwise before the same was contributed to a firm towards capital. (iii) Having regard to the nature of right acquired by the assessee in consideration of his making over his land to a firm as its capital contribution to get his share of the profit from time to time during the subsistence of the partnership, and after the dissolution of the partnership or with his retirement from the partnership, to get the value of his shares in the net partnership asset as on the date of the dissolution or retirement after deduction of liabilities and prior charges, as understood in the general law, the land brought in by the assessee became the property of the firm, which would vest in all the partners, and in that sense, every partner has an interest in the property of the partnership, and during the subsistence of the partnership, no partner can deal with any portion of the property as his own, and the assessee's exclusive right in the said land has reduced to shared right in it. This position is undoubtedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal asset is, upon its introduction into the partnership firm as his share to the partnership capital, transformed into an interest shared with the other partners in that asset. Qua that asset, there is a shared interest............ The Hon'ble Supreme Court has also used the expression personal asset while deciding the issue whether there is a transfer of property when the individual property of a partner is contributed to a firm towards capital contribution by observing that. Therefore, when a partner brings in his personal asset into the capital of the partnership firm as his contribution to its capital, he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm . In this view of the matter even without applying of s. 2(47), we may hold that there was a transfer of property when any personal asset of whatever character of a partner is brought into a partnership firm by the partner as his contribution to its capital in as much as the exclusive interest of a partner in that property or asset is, upon its introduction into the partnership firm as his share to the partnership capitals transformed into an interest shared with the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a partner is brought into a firm by the partner, it becomes the property of the firm, and what a partner is entitled to is his share of profits, if any, in the profit of the partnership firm, and upon the dissolution of the partnership, a right to share in the money representing the value of the property after meeting all the liabilities and expenses. Further, while stating the words of caution by the Hon'ble Supreme Court in the said case, they have used the words if the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money, which would substantially remain available for his benefit without liability to income-tax on a capital gain , which goes to show that whenever the matter of transfer of assets by a partner to the partnership firm by way of capital contribution was under their Lordships consideration, their Lordships used the words transfer of personal asset by the assessee to a partnership in which he is or becomes a partner but when question had arisen whether it is an attempt to avoid liability to income-tax, their Lordships has used the words liability to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the assessee, and it has been contributed to a firm as capital contribution in which the assessee became a partner, and the market value was credited in the capital account of the assessee in the books of the firm, and similar amount is credited in the books of the assessee and surplus has been shown as income in the P L a/c out of which the dividend was also paid. Therefore, decisions rendered in the context of the fact where mere revaluation of asset was made in books without anything more are not applicable to the facts of present case. (vii) The contribution of land by the assessee to a firm as its capital contribution may in itself cannot be called as sale . But the same does not mean that it is also not a transfer because, in such a case what was the exclusive interest of the assessee in the said land has, upon its introduction into the partnership firm as its share to the partnership capital, transformed into an interest shared with the other partners in or upon that land. When one talks of the partnership firm's property or firm's assets all that is meant is property or asset in which all partners have a joint or common interest. Accordingly, upon introduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in-trade into investment has to be at cost/book value. Thus, the legal proposition that no man can make a profit out of himself or there could not be any actual or real profit or loss on withdrawal of stock from a trading business shall govern this type of cases. However, the position would be different in cases where on or after conversion of stock-in-trade into a capital asset either by implication of law or by act or conduct of the assessee, or otherwise, the asset is contributed to a firm as capital contribution by a partner at the value more than the cost to the assessee. In such a case, there is a transfer of asset being taken place and the value of the asset recorded in the books of the firm shall be deemed to be the full value of consideration received or accruing as a result of the transfer of the asset. Therefore, in the present case, when the land in question was contributed by the assessee to a firm as its capital contribution, in which the assessee became a partner, a transfer of capital asset had taken place, and the amount recorded in the books of account of the firm as the value of the land shall be deemed to be the full value of the consideration received or accrui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to the share capital of the firm represent a device or ruse for converting the land into money substantially withdrawn by the assessee from the firm for its benefit and even otherwise in view of our finding that the provisions contained in s. 45(3) of the Act inserted with effect from asst. yr. 1988-89, are applicable to the present case in this asst. yr. 1992-93 under consideration and in view of other findings we have given above, we hold that the earlier decisions of the Tribunal passed in the asst. yr. 1985-86 in the assessee's case shall have no application to the present case. We, therefore, reject the claim of the assessee that the issue involved in ground Nos. 1.1 to 1.7 should be decided in the terms of earlier order of the Tribunal passed in the asst. yr. 1985-86. 16.51 For the above reasons, we, therefore, direct the AO to compute the capital gain arising from the transfer of the said land by the present assessee to a partnership firm, in which it became a partner, by way of capital contribution, after taking the value of the consideration received or accruing as a result of such transfer at Rs. 11.50 crores being the amount recorded in the books of account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, passed in the first round of this appeal before the Tribunal. At this stage, it is pertinent to note that the assessee went in appeal against the aforesaid order dt. 30th March, 2007passed in the first round, before the Hon'ble High Court, and no grounds were raised by the assessee in respect this issue before the Hon'ble High Court as would be clear from the memorandum of appeal filed by the assessee before the Hon'ble High Court. Thus, this ground No. 2 stands decided in the terms of order dt. 30th March, 2007of the Tribunal passed in the first round of this appeal. 18. Similarly, the issue involved in ground Nos. 4, 5, 6, 7, 8, 9, and 11 relating to (i) the disallowance of Rs. 2,74,702 being local conveyance and other incidental expenses, (ii) the disallowance of Rs. 15,000 under s. 40A(12) of the Act, (iii) disallowance of Rs. 4,49,485 being 10 per cent for common maintenance, (iv) ad hoc addition of Rs. 1,00,000, on account of guest house expenses, (v) taxability of Rs. 1,35,850 being the enhancement compensation received on acquisition of agricultural land, (vi) ad hoc disallowance of Rs. 2,00,000 out of foreign travelling expenses and (viii) the disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 30th March, 2007, whereby the Tribunal has upheld the order of the CIT(A) on this issue in the light of the Tribunal's order in the case of this very assessee in the asst. yr. 1991-92. The assessee has raised this issue in the appeal filed before the Hon'ble High Court about Tribunal's order dt. 30th March, 2007 but nothing is mentioned in Hon'ble High Court's order whereby some other matter has been remitted to Tribunal for fresh consideration as observed above. Thus, this ground stands decided in terms of our order dt. 30th March, 2007passed in the first round, and we do not find any reason to take a view other than the view already taken by the Tribunal in the first round. Thus, this ground stands rejected. ITA No. 2546/Del/2001: Asst. yr. 1997-98 22. Now we shall come to the appeal filed by the assessee for the asst. yr. 1997-98, against the order dt. 14th May, 2001, passed by the learned CIT(A) in the matter of an assessment made under s. 143(3) of the IT Act, 1961 ( the Act ). 23. The ground No. 1 is directed against the CIT(A)'s order in holding that the mercantile method of accounting followed by the assessee, is such that the income cannot prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical issue has been decided by this Tribunal in asst. yr. 1994-95 in ITA No. 3232/Del/2001, which has been followed in subsequent years i.e., asst. yrs. 1995-96, 1996-97 and 2001-02, and thus, it is to be decided accordingly. Respectfully following the Tribunal's order, where the Tribunal has held that the Revenue was not justified in restricting writing off cost of land pertaining to Phases I to III of Qutab Enclave, and in holding that the assessee was justified in taking Phases I to IV as one project, and accordingly writing off cost of land, and the reworking done by the Department was set aside by the Tribunal. Respectfully following the aforesaid order, we decide this issue in favour of the assessee in the terms of Tribunal's order for asst. yr. 2004-05, which has been followed in asst. yrs. 1995-96, 1996-97, and 2001-02. 26. Ground No. 5 is against the CIT(A)'s order in holding that interest of Rs. 58,14,994 accrued on FDRs made from internal development is assessable in the assessee's hands. 26.1 In the course of hearing of this appeal, it was pointed out by both the parties that this issue has been decided by the Tribunal in asst. yr. 1994-95 in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials on record. 27.3 It is admitted position that the assessee entered into a partnership with 12 numbers of its subsidiary companies with a view to start and carry on the business of constructing houses on 61 plots and 11 plots of land situated in the DLF Qutab Complex, which has been introduced by the assessee to the common stock of the firm for achieving the aforesaid purpose of the firm. The memorandum of partnership was executed on25th Feb., 1997. However, it has been made effective from31st Jan., 1997. The value of the 61 numbers of plot of lands brought in by the assessee partner to a firm was made at Rs. 17,60,00,000. In the partnership, it was also stated that the assessee was also the absolute owner or otherwise well substantially entitled to another lot of 11 plots jointly with the parties of 2nd to 5th parts described in the deed of partnership, admeasuring about 6,321.06 sq. mtrs. situated in the said complex, out of which the assessee was the owner to the extent area of land admeasuring about 3,036.78 sq. mtrs. and the balance area of 3,257.28 sq. mtrs. was owned by the parties of 2nd to 5th parts. The assessee also agreed to contribute his right in the said plots to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. From the facts of the present case, it is more than clear that the transaction of transferring plots of land owned by the assessee to the partnership firm is not a real attempt to contribute to the share capital of the firm for the purpose Of carrying the partnership business as out of the total value of land, amounting to Rs. 21.15 crores, which has been recorded as value of land in the books of the partnership firm, the only sum of Rs. 20,00,000 has been allocated towards assessee's contribution to the share capital and a substantial portion amounting to Rs. 20,95,00,000 (Rs. 20.95 crores) has been made available with the assessee for his benefit in the nature of loan payable by the firm to the partner. It is well-known that the advances given in addition to the capital by a partner to a firm occupies a better position for the benefit of a partner as could be seen from s. 13(1)(c) vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit/loss sharing ratio of 12 per cent in each firm. The assessee company contributed its right to purchase in one plot of land owned by its subsidiary companies at admeasuring about 1.152 acres inPhase-IIIDLFCity, Gurgaon, into the common stock of the partnership firm viz., M/s DLF Office Developers. The assessee company also contributed its ownership of nine residential plots of land in Phase-II admeasuring 4,631.17 sq. mtrs. as well its right to purchase 47 plots owned by its subsidiary companies into the common stock of partnership firm viz., M/s DLF Property Developers. These plots of lands were converted as a capital investment in the firm at an agreed value of Rs. 24.62 crores, which resulted in surplus of Rs. 17,12,17,554 to the assessee. The assessee credited this surplus to the P L a/c but it claimed it to be exempted from tax in the light of the decision of Hon'ble Supreme Court in the case of CIT vs. Hind Construction Ltd., and in the light of the decision taken in the asst. yr. 1985-86. However, the AO had brought the surplus to tax for the reason given in the asst. yr. 1992-93 by relying upon the decision of Hon'ble Supreme Court in the case of Sunil Siddharthb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest or may carry interest at such rates as may be mutually agreed upon from time to time. As a result of this transaction crediting the assessee's account by market value of the plot of land brought in by the assessee in a firm, the sum of Rs. 17,12,17,554 resulted as surplus to the assessee, which was credited to the P L a/c of the assessee to claim as exempted from tax relying upon the decision of Hon'ble Supreme Court in the case of CIT vs. Hind Construction Ltd. 30.6 In the light of our decision in the asst. yr. 1992-93 and 1997-98, we hold that the amount of Rs. 17,12,17,554 being surplus arising to the assessee is chargeable to tax as capital gain. The AO is directed to compute capital gain as per law as so held by us in asst. yr. 1992-93 and 1997-98. 30.7 We further hold that our view in para 27.4 in the asst. yr. 1997-98 shall also be applicable to this issue arising in this asst. yr. 1998-99. ITA No. 267/Del/2003: Asst. yr. 1999-2000 31. Now we shall take up the appeal filed by assessee for the asst. yr. 1999-2000, directed against the order dt. 25th Oct., 2002, passed by the learned CIT(A) in the matter of an assessment made under s. 143(3) of the IT Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow. 33.3 In this year also five partnership firms were newly constituted in which the assessee became a partner. The assessee brought in certain plot of land in the common stock of this newly constituted firm at a value of Rs. 78.55 crores. The aforesaid amount of Rs. 78.55 crores was credited in the assessee's account in the books of account of the partnership firms. Out of the aforesaid amount of Rs. 78.55 crores credited in the assessee's account in the books of the firms sum of Rs. 9.50 was credited on account of assessee's capital contribution and balance amount of Rs. 69.05 crores (Rs. 78.55 crores - Rs. 9.50 crores) was treated as loan by the assessee to the newly constituted firms. 33.4 In the light of our decision in the asst. yrs. 1992-93, 1997-98 and 1998-99, we hold that the amount of Rs. 54,82,91,077 being surplus arising to the assessee is chargeable to tax as capital gain, and the AO is directed to compute capital gain as per law as so held by us in asst. yrs. 1992-93, 1997-98 and 1998-99. 33.5 We further hold that our view in para 27.4 in the asst. yr. 1997-98 shall also be applicable to this issue arising in this asst. yr. 1999-2000. ITA No. 4986/Del/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the light of the order decided in assessee's favour in the asst. yr. 1985-86. However, the AO rejected the assessee's claim in the light of the assessment order for the asst. yr. 1992-93 as well as for asst. yr. 1999-2000. 37.2 In the asst. yr. 2000-01, a partnership firm under name and style of M/s DLF Phase-IV, Commercial Developers, was constituted in which the assessee became a partner. The assessee brought in certain plot of land to the common stock of the partnership firm. These plots were valued at Rs. 8 crores, which was credited in the assessee's account in the books of the firm. Out of the aforesaid amount of Rs. 8 crores, the sum of Rs. 75,00,000 has been credited in the capital account of the assessee as assessee's capital contribution, and the balance sum of Rs. 7,25,00,000 has been treated a loan by the assessee to the firm. From this transaction a surplus of Rs. 5,60,00,000 had arisen to the assessee, which was credited in the P L a/c of the assessee but claimed as exempted in the return of income filed by the assessee. 37.3 In the light of our decision in the asst. yrs. 1992-93, 1997-98 and 1998-99, we hold that the amount of Rs. 5,60,00,000 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were chargeable under s. 28 of the Act which stands on a different footing then the gains arising from transfer of a capital or fixed asset. In light of the above undisputed facts the issue which arises for consideration is whether the surplus credited to the P L a/c on introduction of the land as its capital contribution, held by the assessee as stock-in-trade is chargeable to tax or not. 42. The question is regarding taxability of the land held by assessee as its stock-in-trade and introduced in the partnership firm as its capital contribution when the assessee became partner of the said firm. The words 'firm', 'partner' and 'partnership' are defined under the IT Act, 1961 (hereinafter referred to as 'the Act') in s. 2(23) of the Act. As per the said definition the words firm, partner and partnership have the meaning respectively assigned to them in the Indian Partnership Act, 1932 and the expression 'partner' shall also include any person who being a minor has been admitted to the benefits of partnership. Therefore, it is clear that the relation of firm and partner are the same as commonly understood under the Partnership Act. The firm i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax in the hands of the partner when he introduced his stock-in-trade as his capital contribution. 42.2 Hon'ble Supreme Court in the case of Sunil Siddharthbhai held that when the assessee, a partner in a firm, made over to the firm certain shares in a company which were held by him as 'capital asset', there was a transfer of the shares, but that he received no consideration within the meaning of s. 48. Nor did any profit or gain accrue to him for the purpose of s. 45. To overcome the situation the income-tax was amended whereby sub-s. (3) was inserted in s. 45 of the Act by Finance Act, 1987 w.e.f. 1st April, 1988. According to s. 45(3) the profit or gain arising out of the transfer of a 'capital asset' by a person to a firm in which he becomes a partner by way of capital contribution or otherwise shall be chargeable to tax as his income. Sec. 45 is a section to charge the capital gain arising on transfer of a capital asset affected in the previous year. The phrase capital asset has been defined in the Act in s. 2(14) of the Act. According to the definition 'capital asset' means property of any kind held by an assessee but does not includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be said that when the assessee introduced its stock-in-trade as its capital contribution in the firm at the time when it became the partner gives rise to any profit or gains chargeable to tax under the head 'Business income'. 42.3 This proposition has been laid down by Hon'ble Supreme Court in the case of CIT vs. Hind Construction Ltd. While dismissing the civil appeal filed by the Revenue against the order of Hon'ble Calcutta High Court reported in CIT vs. Hind Construction Ltd. (1970) 78 ITR 664 (Cal), Hon'ble Supreme Court held: If a person revalues his goods and shows a higher value for them in his books, he cannot be considered as having sold these goods and made profits therefrom. Nor can a person by handing over his goods to a partnership of which he is a partner as his share of capital be considered as having sold the goods to the partnership. It is also useful to refer the proposition laid down by Hon'ble Calcutta High Court in Hind Construction case wherein after referring to various case laws on the subject it was held: In our view, the taxability of a sum as income or profit would depend upon the real character or the substance of the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29 ITR 962 (HL). In fact, in the latter case, reduction of stock-in-trade took place but the original business with its reduced stock-in-trade was carried on by the assessee. In the instant case, the assessee has transferred the entire value of the machinery to the partnership firm with the whole object of increasing the capital of the partnership firm. The assessee has transferred its own property to his partnership account in the firm. The facts and circumstances in which the transaction took place repel the idea of a transfer for consideration or a sale. In the instant case also, the market value of the disposal machinery was not gone into at all. The next point which repels the contention of the Revenue is that there is no question of any transfer or sale in the instant case because the firm is not a juristic person. The partnership has been defined in s. 4 of the Indian Partnership Act, 1932, which reads as follows: 'Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a relationship of identity between partners and their firm. Nor can it be called a legal or artificial person because there is no general law by which its personality is recognized. It is suggested that because a firm carries on business in its firm name and because a firm can sue and be sued, under the CPC, it has a distinct personality. Such personality can at best be a matter of procedural law. In substance, the firm name is only the business name of partners. It is allowed to sue and be sued as a matter of procedural law by way of convenience or expediency. It is not a corporate body with the right of perpetual succession nor its existence depends upon substantive law. The creation, continuation and extension of a firm is purely contractual and depends on the agreement between the partners. It is in that sense that Mr. D.N. Pritt in the latest edition of Pollock and Mulla's the Sale of Goods Act and The Partnership Act, 3rd edition, has made the following observations: 'A firm is currently regarded as something distinct from its members; they may have claims on the firm's property but it is not theirs; it has separate accounts, and is their debtor and creditor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective interests in the disposal machinery to their own firm. The transfer, if at all, is a transfer to itself or to its own account. We are convinced that the nature of the transaction could at best be described as a readjustment of their assets in such a way that they can do their business in a different way. There is no question of ownership being transferred from one distinct person to another nor was there any consideration received by one individual from the other. Thus, there is no question of the assessee making any profit or gain and, therefore, the mere fact that the assessee transferred its interest to the assessee's firm at an appreciated value does not make the assessee liable to pay tax on the difference between the original price and the appreciated price. 42.4 Under the IT Act what is chargeable to tax is the income accruing to the assessee. The income can be said to have accrued provided the assessee either receives the sum or any legally enforceable right is acquired. Such right should be accruing immediately and should not be inchoate or contingent. The amount credited to the account of the partner is not a debt due by the firm to the partner. The partner ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Corporation Ltd. vs. CIT (2003) 179 CTR (SC) 1 : (2002) 258 ITR 770 (SC). 42.5.2 As regards applicability of decision of Hon'ble Supreme Court in the case of McDowell Co., the facts in the said case are entirely different than the facts of the present case. In the said case the transaction was found as a colourable device, whereas in the present case the transaction is not found to be a colourable device. The assessee is genuine; the land was held by it as stock-in-trade and is also found to be genuine. The firm constituted wherein the land was brought in as capital contribution is also found to be genuine. Therefore, there is no reason to hold that merely because higher amount was recorded in the capital account of the assessee partner, the transaction becomes a colourable device. On the contrary value of the land as agreed by the partners on the basis of valuation report at the time of formation of the firm was Rs. 11.5 crores. Therefore when identical amount is credited to the account of assessee as partner in the books of account of firm, such transaction cannot be branded as colourable device so as to bring the surplus as chargeable to tax as business income. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r does he facilitate the wastes and ostentiousness of the few. Unless wastes and ostentiousness in the Government's spending are avoided or eschewed, no amount of moral sermons would change people attitude to tax avoidance. 4. In any event, however, where the true effect on the construction of the deed is clear, as in this case, the appeal to discourage tax avoidance is not a relevant consideration. But since it was made it has to be noted and rejected. With these observations I agree. The observation of Hon'ble Supreme Court in McDowell Co. Ltd. has been further watered down by Hon'ble Supreme Court itself in its later decisions in the case of Union of India vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) : (2003) 132 Taxman 373 (SC) wherein the rule in McDowell case has been explained in following words: Far from being exorcised in its country of origin, IRC vs. Duke ofWestminster(1936) AC 1 continues to be alive and kicking inEngland. Interestingly, even in McDowell, though Chinnappa Reddy, J., dismissed the observations of J.C. Shah, J. in CIT vs. A. Raman Co. (1968) 67 ITR 11 (SC) based on Duke of Westminster's case and IRC vs. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the Court might be justified in overlooking the intermediate steps, but it would not be permissible for the Court to treat the intervening legal steps as non est based upon some hypothetical assessment of the 'real motive' of the assessee. The Court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the-wisp. The judgment of the Privy Council in Bank of Chettinad Ltd. vs. CIT (1940) 8 ITR 522 (PC), wholeheartedly approving the dicta in the passage from the opinion of Lord Russel in Duke of Westminster's case, was the law in India when the Constitution came into force. This was the law in force then, which continued by reason of Art. 372. Unless abrogated by an Act of Parliament, or by a clear pronouncement of the Court, this legal principle would continue to hold good. Having anxiously scanned McDowell Co. Ltd.'s case, one finds no reference therein to having dissented from or overruled the decision of the Privy Council in Bank of Chettinad's case. If any, the principle appears to have been reiterated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is a genuine firm and not the result of a sham or unreal transaction and that the transfer by the partner of his personal asset to partnership firm represents a genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnership business. In the present case, the fact, as also the draft order reveal that the firm is genuine and even the transfer by the partner of his asset to the partnership firm is a genuine intention to contribute to the capital of the firm for the purpose of carrying on the partnership business. It is not a case that the land was not contributed in the firm for the intended purpose but merely to walk away with the fund introduced by other partners. On the contrary the land has been developed by the firm by constructing building thereon and also subsequent sale thereof. Therefore, neither the firm is ingenuine nor the transaction of contributing to the capital of the firm is an ingenuine intention. The assessee holding the land can either develop it itself or the land can be developed by the firm in which the assessee is a partner. In both the cases the intended purpose of developing the land by the assessee is carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether a capital asset or stock-in-trade was never the subject-matter of dispute before the authorities below. On the contrary the concurrent finding by the AO and by CIT(A) is that what was introduced by the partner was its stock-in-trade and was charged to tax only under the head 'Profits and gains of business or profession'. Even in the draft order it has been accepted that the land was held by the assessee as its stock-in-trade immediately before it was introduced as its capital contribution in the firm of which it became the partner. It is never demonstrated or claimed by the assessee that such land was ever converted from stock-in-trade to capital asset. When the assessee held the land as stock-in-trade, he could deal with such land either himself alone or in partnership with other partners. The partnership is not a distinct legal entity from the partners constituting it. The assessee chose to deal with the land in partnership. In such a situation the assessee continues to deal with such land as its stock-in-trade only. A partner may contribute his part of capital in any form and bring different nature of assets whether stock-in-trade or capital asset. But in absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not allow the Tribunal to suggest another mode of assessment altogether. Hon'ble Bombay High Court in Indira Balakrishna, Manager of Estate of Balakrishna Purshottam Purani vs. CIT (1956) 30 ITR 320 (Bom), has held as under: Held further, that in giving findings and expressing opinions the Tribunal must confine itself to the questions that really arise in the appeal before it, and should not travel outside the ambit of its jurisdiction and express opinions prejudicial to the assessee on matters which do not really arise for decision in the appeal before it, which may help the Department in taking proceedings against the assessee e.g. under s. 34 of the Act. Hon'ble Bombay High Court in the case of Pokhraj Hirachand vs. CIT (1963) 49 ITR 293 (Bom), has held as under: Though the powers of the Tribunal in dealing with an appeal under s. 33 are very wide, they are not absolute. The expression 'thereon' occurring in sub-s. (4) of s. 33 means the 'subject-matter of the appeal'. So s. 33(4) gives power to the Tribunal to consider only the subject-matter of the appeal. The subject-matter of the appeal before the Tribunal is the grounds of appeal raised by the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deal with the matter, the law regards it sufficient to leave it to the parties going up as appellants before the Tribunal to limit their attack on the order of the first appellate authority and to seek the intervention of the Tribunal only to the extent necessary to correct the errors in the order of the AAC according to the case of the appellant. It should be noted that in comparison to the sections describing the power of the AAC, the sections which describe the appellate powers of the Tribunal do not make any reference to a power to enhance the assessment or to enhance the tax in the same way as the AAC is empowered to do while dealing with an appeal against the order of the assessing authority. As the appellate power is a power which is conferred by statute, both its existence as well as its extent has to be gathered from the relevant statutory provision. The fundamental idea is that an appellant seeks a relief from an appellate Court, and not detriment to himself. Even under the general provisions of the law of procedure, the worst detriment which an appellate Court may visit on an appellant is to dismiss the appeal with a direction in an appropriate case to pay costs to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the land and at that point of time is reconverted into stock-in-trade. In absence of any material to hold that that land was at all converted firstly into capital asset and reconverted into stock-in-trade, the finding given in the draft order is contrary to the facts on record. 44. The Tribunal while deciding the question as to whether it has power to change the head of income, the draft order holds that the Tribunal has such power under s. 254(1) and for this purpose reliance is placed on the decision of Special Bench of Tribunal in the case of Sumit Bhattacharya which in turn has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs. Gilbert Barkar Manufacturing Co. The issue before the Special Bench was whether the amount received by assessee on realization of 'stock appreciation rights' which was per se income but whether chargeable under the head Salaries . There was no dispute as to the nature of receipt which was in the form of income. In such a situation having found that when the amount received was income per se, the Tribunal within its power under s. 254(1) may bring it to tax under any head of income. However in the present case it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hoes of the CIT exercising jurisdiction under s. 263. We, therefore, do not permit the learned Departmental Representative to transgress the boundaries of his arguments. Similar view has been taken by the Jodhpur Bench of the Tribunal in the case of Kwal Pro Exports vs. Asstt. CIT (2007) 109 TTJ (Jd) 869 : (2008) 110 ITD 59 (Jd). This contention is therefore repelled as devoid of any permit. 44.2 I also find that almost similar issue arose before Hon'ble Supreme Court in the case of CIT vs. Ram Kumar Aggarwal Bros. In the said case the facts as noted by the Hon'ble Supreme Court in paras 2 and 3 are as under: 2. The assessee is a partnership firm. The accounting year relevant to asst. yr. 1956-57 was the year ending on 31st Dec., 1995. The ITO made an assessment on a total income of Rs. 36,41,544 which included a sum of Rs. 32,25,550 representing the surplus which he assessee received during the previous year from the liquidator of Chrestian Mica Co. Ltd. which went into voluntary liquidation in the year 1955. The assessee preferred an appeal to the AAC objecting to the inclusion of the said surplus amount. The appeal was dismissed. But on further appeal, the Tribunal agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hundred and fifty was not assessable in the hands of the assessee? Hon'ble Supreme Court held as under: 6. Whether shares of a company held by a person constitute his capital or his stock-in-trade, is not a pure question of law but essentially one of fact. While one person may hold the shares of a company by way of investment, the other may hold them as his stock-in-trade. In this case, it is clear beyond any doubt that the assessee has been holding the shares of the aforesaid company as its stock-in-trade. In the earlier years, it claimed a trading loss on the footing that they represented its stock-in-trade. Even in the present assessment proceedings for the asst. yr. 1956-57 (concerned herein), it took the very same stand though at the stage of Tribunal and High Court, it sought to wriggle out of the said admission unsuccessfully. The High Court has held rightly that it cannot do so and that it is bound by its admission and its course of conduct over the past several years. The High Court, it may be recalled, has also rejected its further submission that the said shares ceased to be its stock-in-trade on the conversion of the company from a public private limited company t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means according to their shareholding. What each shareholder gets is proportionate to his shareholding in the company. Once the distribution takes place, the shares and the shareholding come to an end. The fact that the shares may technically continue until the name of the company is struck off the register of the company is of little significance. After the distribution of the assets, nothing remains of the shares. To say that the assets a shareholder receives on the liquidation of the company are unrelated to his shareholding is to be blind to the reality. Such an argument ignores the basic reality recognized by s. 511 of the Companies Act. The same comment holds good about the argument that the amount received is an accretion to the shares. It is true that a liquidator does not sell the shares. It is equally true that there is no transfer of shares by the shareholder to the liquidator or to any other person. That is not really necessary. So long as money is received in lieu of shares, there is a receipt and where an assessee is a dealer in shares, any surplus amount received by him constitutes his income. As stated above, where a company goes into liquidation and the liquidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instance of respondent. The counsel for the respondent represents the AO and hence his role is confined to the dispute before the AO and the counsel for the respondent cannot for the first time raise a fresh issue before the Tribunal which is not a subject-matter of dispute. Sec. 254(1) of the IT Act reads as under: Sec. 254(1) The Appellate Tribunal may, after giving both the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit. The powers of the Tribunal are in the widest terms. The only restriction on the powers of the Hon'ble Tribunal is contained in the word thereon . The word 'thereon' has been interpreted to mean the subject-matter of the controversy before the Tribunal [Ref: Hukumchand Mills Ltd. vs. CIT at pp. 236-237]. The Tribunal can deal with only that part of the order of the first appellate authority which has been made the subject-matter of attack in the appeal before it. It is not open to the Tribunal to adjudicate or give a finding on a question which is not in dispute and which does not form the subject-matter of the appeal before it as held in Indira Balakrishna vs. CIT, affirmed, CIT vs. Indira Balakrish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not under challenge in the appeal filed before the Tribunal by the appellant or the Revenue. I therefore, hold that- (a) The nature of asset when contributed by assessee was and continued to remain as stock-in-trade only and was neither intended to be converted as capital asset nor there is any material on record to hold that the asset contributed was capital asset. (b) Since there was never a dispute between assessee and Revenue authorities regarding nature of asset of land being stock-in-trade, the Tribunal cannot go into the question whether the asset contributed was capital asset or not. 45. In the draft order it is proposed that primarily the surplus is chargeable to tax under the head 'Capital gains' and also held that in the situation that it is not chargeable as capital gain, it is taxable as business income also. This is so opined in sub-para (xii) of para 16.49 wherein the conclusion is arrived at. The Tribunal is a final authority on the finding of facts. The Tribunal is not an assessing authority but an appellate authority. Therefore, the Tribunal is required to give a finding of facts finally and not to give an alternative finding. This will be against the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in relation thereto in the draft order is tabulated below: Asst yr. Ground No. Para No. of draft order 1997-98 4 27 to 27.4 1998-99 4 30 to 30.6 1999-2000 2 33 to 33.5 2000-01 3 37 to 37.4 46.1 In relation to other grounds in appeals for asst. yrs. 1997-98, 1998-99, 1999-2000 and 2000-01. I am in complete agreement with the view in the draft order. However, I am unable to agree in relation to issue regarding taxability of surplus arising on introduction of land into partnership firm as capital contribution by the assessee as discussed in table referred above. 47. For all these years it has been held that in view of the finding given in para 16 of the draft order pertaining to asst. yr. 1992-93 is being followed and since I am unable to concur with finding given in para 16 of the draft order and in respect of which I have proposed a separate order, my finding for all these years in relation to the above-referred issue will be the same. Therefore, in view of my finding given for asst. yr. 1992-93, the surplus is not chargeable to tax. 47.1 For asst. yrs. 1997-98 to 2000-01, there is one more aspect. In relation to asst. yr. 1997-98 in para 27.4 of the draft order, reference is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner rateably what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. 47.3 Sec. 48 of the Partnership Act provides for the manner in which the accounts of the partners are to be settled after dissolution. Sec. 48 sets out priority in order of which the partnership assets are to be distributed. Firstly, it goes to pay the losses. Next it goes to pay the debts to the third parties. Only after the debts are paid to third parties, the priority will be first accorded to the advances given by the partner over and above his share of capital. Therefore, if there are no assets left after paying of the losses and debts to the third party, a partner will not receive any amount either towards his capital or towards advance given over and above his capital. In either case it is not debt due by the firm to the partner which is like debt due to third parties. Therefore, merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X
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