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2017 (9) TMI 171 - HC - Income TaxRelation of "sole proprietor" and his "business concern" - Profits or gains arising from the transfer of capital assets - "proprietorship concern" had borrowed an amount from the "proprietor" - ITAT treating the amount in the current account of the proprietorship concern, as a "loan to the proprietor" - transfer u/s 2(47) - worth of the assets of the proprietorship concern transferred to the company by the assessee - whether the "sole proprietor" and his "business concern" can be treated as two separate entities in the realm of the assessment of long-term capital gain tax ? - Can, a person borrow from himself? - section 47(xiv)(c) applicability - value of the "goodwill" admittedly forming part of the assets transferred - revision u/s 263 Held that:- Since the value of the total shares amounted to only ₹ 1,52,94,900 (while showing ₹ 2,73,07,905 as unsecured loan), it was observed that section 47(xiv)(c) was not satisfied completely and the "good will" portion to an extent of ₹ 2,45,00,000 was also liable to be taxed. This is not an attempt on the part of the Commissioner "to generate some more revenue" by refixing the assessment, if two views were possible. It is not a question of two alternate views, but a case of only "one view", which came to be wrongly decided by the Tribunal. As it stands so, it is the correct view that can be sustained and not the impaired one. Non-satisfaction of the ingredient under section 47(xiv)(c) in toto is a major defect and as such, value of the "goodwill", i.e., ₹ 2,45,00,000 admittedly forming part of the assets transferred, required to be taxed under such circumstances. This being the position, the judicial precedents cited and sought to be relied on by the assessee (as relied on by the Tribunal) actually do not come to the rescue of the assessee. This court is of the firm view that the power exercised by the Commissioner under section 263 of the Act is correct and that the finding rendered by the Tribunal, to the contrary, is not sustainable. Coming to the reasoning given by the Tribunal, that "deficit" has to be treated as "loan" given by the proprietorship concern, to the proprietor; (in turn taken over by the company as "loan" to be cleared on demand), it is to be noted that, under no circumstances can a person borrow from himself and transpose as "creditor" and "borrower" at the same time. To this extent, "proprietor" and "proprietorship concern" are not two different entities. Whatever is pumped in by the "proprietor" to his proprietorship, is nothing other than investment and it forms part of the asset, which, when taken over by the company, will have to be compensated (after deducting the liabilities). The proprietorship concern could have borrowed any amount to have categorised as a "loan", only if it was procured from some other source, than himself/the proprietor. The finding and reasoning given by the Tribunal are not at all correct and it is liable to be intercepted. Part of the consideration was paid by the company to the "proprietor" pursuant to taking over the proprietorship concern with all the assets and liabilities; which included the cost of the "goodwill" as well, to an extent of ₹ 2,45,00,000. In so far as there is no dispute that the total number of shares transferred was only 1,52,949 (having face value of ₹ 100 each), with a total worth of ₹ 1,52,94,900, there was clear deficit, which was never paid or satisfied in the form of shares as envisaged under section 47(xiv)(c) of the Act. The value of "goodwill" of the proprietorship firm passed on to the company, having a value of ₹ 2,45,00,000 as part of consideration/benefit which has been indirectly/wrongly shown as "loan" from the "proprietorship concern, to the proprietor", taken over by the company, to be satisfied as and when demanded. Viewed in the above circumstances, the said consideration had legally come to the credit of the proprietor/assessee on October 1, 2000 itself, to have transposed the latter as a creditor of the company, who sought to show the said amount as a "loan" procured from the proprietor. The legal position applied correctly by the Commissioner to the given set of facts and circumstances, as per annexure B order, came to be disturbed by the Tribunal, as per annexure D order. It is true that in tax parlance, "partnership" is different from "partners" and both can be taxed, though partnership firm is not a legal entity. But coming to proprietorship concern, there is no identity to "proprietorship concern", leaving the "proprietor" and the assessee is always the proprietor in such cases. In other words, there cannot be any assessment separately for the "proprietor" and "proprietorship concern". There is absolutely no rhyme or reason to have interfered with annexure B order. The finding and reasoning given by the Tribunal is per se wrong and unsustainable in all respects. Annexure D order passed by the Tribunal stands set aside. Annexure B passed by the Commissioner is restored. The appeal stands allowed.
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