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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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in the said 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that since the 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 befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Tribunal in the present 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 dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be assessed as the business profits of the assessee?" 11. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was contributed by the assessee to a firm as its capital contribution. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to the firm is completely misleading and against the settled legal positions on the 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 pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT r/w s. 45(3) inserted in the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm to the assessee partner. If it is the case of the assessee that stock-in-trade is given as stock-in-trade to 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as would be clear from the treatment given by the assessee to the transaction in its books of accounts, by crediting the 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at stock-in-trade of the assessee partner against the consideration credited in the assessee's capital account, and the surplus arising 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n question, a reliance was also placed upon the decision of Hon'ble apex Court in the case of CIT vs. Mrs. Grace Collis & Ors. (2001) 166 CTR (SC) 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost to the assessee, which has been credited in the capital account of the assessee in the books of the firm, is to be assessed under s. 45(3) of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s its income under IT Act, 1961. 16.2 In the light of the treatment given by the assessee to the transaction in its books of accounts, the main case made out by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered whether the case is a case of conversion of asset from one nature to another. In other words, it is also to be seen whether any capital asset has been converted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution, in which he is or becomes a partner, and the nature of asset at time when it is employed therein 16.7 In the instant case before us, we are called upon to determine 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in the deed of partnership executed on23rd March, 1992between the assessee and five other persons, and made effective from16th March, 1992, are being reproduced here as under: "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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Whereas all the other parties hereto have agreed to contribute such amounts towards the capital of the partnership firm as are mentioned hereinafter and which may be varied from time to time; and Whereas it was agreed 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the learned counsel for the assessee has tried to make out the nature and character of the transaction in question as under: (i) That the said land contributed as capital contribution by the assessee to the firm was held as stock-in-trade by the assessee. (ii) That the stock-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. red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the way in which entries are made by parties in their books of account or documents or papers is not determinative of the true and correct nature of the transaction. What is to be considered in the true and correct nature of the transaction with regards to the totality of the facts and circumstances 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tempt 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. The ITO will be entitled 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given effect to. In any case, the alleged surplus for enhancing the value of the land by book entries does not tantamount to sale as no one can sell to himself, in view of the law laid down by the Supreme Court in the case of Hind Construction Ltd. 1974 CTR (SC) 157 : (1972) 83 ITR 211 (SC) and considered 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the transaction of creating the partnership is a genuine or sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents 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. 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance as on 31st March, 1992. The capital so credited in assessee's account remained the same till31st March, 1998. However, on perusal of statement of accounts of a firm, viz., M/s DLF Commercial Developers, for the year ended on 31st March, 1993 to 31st March, 1998, filed by the assessee before us, we find that besides partner's capital account, current account 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to give a totally wrong picture about the huge money withdrawn by it by debiting the same in a separate current account of partners and that too without making a whisper about it in its submissions made in this case either before the authorities below or before us. There is no dispute as to the proposition that an act which is otherwise valid in law cannot be treated as non est merely on the basis of some underlying motive supposedly resulting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee on the transfer of its personal asset to a partnership firm. We, therefore, hold that the surplus arising from making over assessee's personal asset, i.e., said plot of land in question, to the firm as his contribution to its capital account is a profit or gain accrued to the assessee and is chargeable to tax. Whether transaction is on capital field or the revenue 16.25 Now, we have to examine whether the transaction in question is 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 coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee to support his contention advanced before us. 16.28 In the said decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai, it has been held that the consideration for the making over of the personal asset by the partner to a firm is the right, which arises or accrues to the partner, during the subsistence of the partnership, is to get his share of the profit from time to time, and after the dissolution of the partnership 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 afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he character of the property which is brought in by the partners when the partnership 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 a partner is entitled to is his share of profits, if any, accruing, to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the interest and receive its value. What is realized is the interest which the partner enjoys in the assets during the subsistence of the partnership firm by virtue of his status as a partner and in accordance with the terms of the partnership agreement. It is because that interest exists already before dissolution, as was held by this Court in Malabar Fisheries Co. vs. CIT (1979) 12 CTR (SC) 415 (1979) 120 ITR 49 (SC), the distribution of the assets on dissolution does 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction may not amount to a sale, can it be described as a transfer of some other kind? 16.35 In the said case the Hon'ble Supreme Court then observed and held as under: "In its general sense, the expression 'transfer of property' connotes the passing of rights in the property from one person to another. In one case there may be a passing of the entire bundle of rights from the transferor to the transferee. In another case, the transfer may consist of one of the estates 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal." Various propositions of law laid down by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT 16.38 From the aforesaid decision of three Judges of the Hon'ble Supreme Court in the case of Sunil Siddharthbhai, the position of law that emerges is summarized as under: (i) 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 whatsoever is 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) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion "transfer of property" connotes the passing of right in property from one person to another. In one case there may be a passing of the entire bundle of rights from the transferor to the transferee. In another case, the transfer may consist of one of the estates only out of all the estates comprising the totality of the 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, 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 reti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee in a true commercial sense which a businessman would understand as real income or gain. (xiii) However, the situation would be different if it transpires that either partnership firm in question is not genuine or if the partnership firm is genuine, the transaction of transferring the personal asset to the partnership firm represents a devise or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on capital gain, and in that respect the AO is entitled 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a partner is entitled to get share in the asset of the firm which remains after satisfying the liabilities of the firm. Whether a partner hands over his business asset to a firm as his capital contribution, he can be said to have effected a sale 16.40 The learned counsel for the assessee has rightly contended that when a partner hands over his business asset to a partnership firm as his contribution to its capital, he cannot be said to have effected a sale within the meaning of Sales of Goods Act, meaning thereby that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eption has been provided in the definition of "capital asset" under s. 2(14) of the Act to exclude "stock-in-trade or consumable stores or raw material held by the assessee for the purposes of his business or profession" from the purview of a capital asset. The phrase "stock-in-trade" would mean all those goods or commodities in which the particular individual deals in the sense of buying or selling in the course of its business activity. The stock-in-trade held by the assessee for the purpose of his business or profession would retain 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 professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock-in-trade by a businessman is not a business transaction and by act of withdrawal no profit can be said to accrue to him and, accordingly it is sufficient if said businessman has credited it business with cost price of stock so withdrawn. It is well-settled that profits from sale of stock-in-trade in the course of trading operation is business profit. As a natural corollary, when any asset is not employed in the course of any trading or commercial operation, the same cannot be considered to be stock-in-trade held for the purpose of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Hon'ble Supreme Court in the case of CIT vs. Bai Shirinbai K. Kooka, it was considered fair by the legislature that the assessee should pay tax on such capital gains with reference to the market value adopted when computing the business income arising to the assessee from investment or personal asset converted into stock-in-trade. Conversely, a stock-in-trade can be converted into capital asset, and the tax on transfer of a such capital asset will be imposed in the year in which such capital asset is sold or otherwise transferred 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 transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of his business or profession are excluded from the ambit of "capital asset". The expression used in s. 2(14) of the Act is "any stock-in-trade, consumable stores or materials held for the purposes of his business or profession". Thus, the emphasis has been given to the criteria that any stock-in-trade, consumable stores, or raw materials must be held for the purpose of his business or profession in order to treat the same as such. As a natural corollary, if one claims that any asset is/are either acquired or disposed of or otherwise 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the right that the partner acquires when he contributes his personal asset to a partnership firm as its capital, and such transactions being not in the nature of any commercial or trading transaction, notwithstanding the fact that the said land contributed by the assessee to a partnership firm as its capital was held as stock-in-trade for the purpose of assessee's business before the same was so contributed as capital in a firm, it ceases to be stock-in-trade at the time when the same was contributed into a partnership firm by the assessee partner 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 16th March, 1992 for the purpose of contributing the same as capital contribution in to the partnership firm in which he became a partner on and from 16th March, 1992, clearly indicates the intention and motive of the assessee that the assessee did not have any intention to treat the land in question as stock-in-trade anymore, but the intention was to treat the same as capital asset for the purpose of contributing the same as capital contribution to a firm for becoming a partner. It is an accepted system of accountancy that stock-in-trade of business at 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to the effect that the AO as well as the CIT(A) have not controverted or disputed the fact that the land in question was a stock-in-trade both before and after the same was contributed by the assessee partner as its capital contribution to the partnership firm in which the assessee became a partner, and this finding of fact cannot now be changed at this stage. We have given our serious consideration to this contention raised by the learned counsel for the assessee. On perusal of orders of the authorities below, it becomes clear that both the authorities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the contention of the learned counsel for the assessee that the facts admitted by the Revenue authorities below are now being changed. Whether particular income assessed by the AO under one head can be brought to tax under another head by the Tribunal 16.48 The learned counsel for the assessee has also contended before us that the Revenue has changed its stand when an alternative argument was advanced by the learned special counsel for the Revenue that in the event the Tribunal comes to the conclusion that the transaction of making over personal assets 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 cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below and from the submissions of the assessee made before the authorities below as well as before us. It is not the new source of income or new item of income that is sought to be taxed by the Revenue at this stage. It is the same income assessed by the AO that is now sought to be taxed under s. 45(3) of the Act in the light of the legal inferences drawn from same set of facts, as against the business profit assessed in the assessment made by the AO. The subject-matter of appeal has not been really changed. The change is only with regard to the correct head 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be withdrawn, the subject-matter of the appeal was completely changed and the assessment was sought to be enhanced. 16.48.4 In this connection, a reliance was placed by the Revenue upon the decision of Special Bench of the Tribunal, Mumbai Bench "C" (Special Bench) in the case of Sumit Bhattacharya vs. Asstt. CIT (2008) 113 TTJ (Mumbai)(SB) 633 : (2008) 2 DTR (Mumbai)(SB)(Trib) 25 : (2008) 112 ITD 1 (Mumbai)(SB), where the Special Bench has taken a view that the Hon'ble Bombay High Court in the case of CIT vs. Gilbert & Barkar Manufacturing Co. 1977 CTR (Bom) 347 : (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te contention of the Revenue that in the event the Tribunal came to the conclusion that the amount in question was not taxable under the head 'Income from salaries', the Tribunal might also adjudicate on the question whether or not the impugned amount be held as income from other sources. The Supreme Court in the case of Emil Webber vs. CIT (1993) 110 CTR (SC) 257 : (1993) 200 ITR 483 (SC) : (1993) 67 Taxman 532 (SC) has held that merely because an employment related income/benefit cannot be taxed under the head 'Income from salaries', such a benefit cannot go outside the ambit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chand Mills Ltd. vs. CIT (1967) 63 ITR 232 (SC) has held that the power of the Tribunal in dealing with appeals are expressed in s. 254(1) in the widest possible terms, however, with a restriction of its jurisdiction to the subject-matters of appeal. 16.48.7 Further, having regard to the actual controversy involved in the present appeal, in response to the Bench's suggestions, and notings, the Hon'ble President vide his order dt. 6th March, 2009, after hearing both the parties, has directed this Special Bench to decide the appeal in its entirety without confining itself to the question earlier framed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and after dissolution of the partnership or on his retirement from the partnership firm, to receive the value of the share in the net partnership asset as on the date of dissolution or retirement after deduction of liabilities and prior charges. (ii) When the land in question being the personal asset of the present assessee was contributed by the assessee partner to a firm towards its capital, the assessee reduced his exclusive right in the land in question to shared rights in it with other partners of the firm, and to that extent to which the assessee's exclusive interest in the said land is reduced to a shared 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the partnership firm as his contribution to its capital is equally applicable to all kinds of assets belonging to a partner, and that is why the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT has used the expression "personal asset" while laying down a law that "it is apparent, therefore, that when a partner brings in his personal asset into a partnership as his contribution to its capital, an asset which originally was subject to the entire ownership of the partner becomes now the subject to the right of other partners in it........... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et brought into a firm by a partner as capital contribution should be held by him as capital asset even before the same was contributed in order to treat the contribution of asset by a partner to a firm as a transfer of capital asset within the terms of s. 45 of the IT Act. Further, the Hon'ble Supreme Court referred to its own observation in the case of Addanki Narayanapa vs. Bhaskara Krishanappa with approval where this Court explained that "whatever may be the character of the property which is brought in by the partner when the partnership is formed...........", which goes to show that when any property of whatever character held 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee as in such a case the profits shown on revaluation is only notional. We do not find any difficulty in accepting this contention raised by the learned counsel for the assessee in the light of the decision in the case of Sir Kikabhai Premchand vs. CIT, Chainrup Sampatram vs. CIT, CIT vs. Hind Construction Ltd., CIT vs. Birla Gwalior (P) Ltd. 1973 CTR (SC) 349 : (1973) 89 ITR 266 (SC) and Sanjeev Woollen Mills vs. CIT. However, facts are different in the present case. It is not the case where increase in the value of land can be said to be notional. In the present case, the asset has been valued at market rate, which is more than the cost 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the asset recorded in the books of the firm shall be deemed to be full value of the consideration received or accruing as a result of the transfer of such asset contributed by the partner. Consequently, in the present case, there was no transfer of land held by the assessee as stock-in-trade when the same was merely revalued at a market value in its books and it was converted into capital asset and no profit or gain did accrue or arise to the assessee merely on its revaluation at a higher value more than the cost to the assessee in its books or on its mere conversation from stock-in-trade to a capital asset. In such a case, the conversion of stock-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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even in case it is otherwise held that the land contributed by the assessee to a firm towards capital contribution should be treated as stock-in-trade even during the course of making the transaction of transferring or contributing the land to the partnership firm as capital contribution, the surplus arising to the assessee from the said transaction of contributing stock-in-trade to a firm shall then be assessable under the head "Business" in the view of the colourable device or ruse adopted by the assessee to convert stock-in-trade into money for its own benefit. 16.50 In the light of our finding that the transfer or contribution by the assessee of its personal land 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. CIT (2001) 72 TTJ (Pune)(TM) 341 : (2001) 78 ITD 95 (Pune)(TM) (what is relevant for purpose of capital gain is cost of acquisition and not the value on date on which the asset became a capital asset.) 17. Ground No. 2 is in respect of the issue whether the interest received on FDRs made from internal development account is eligible for deduction and not to be included in assessee's assessable income. This issue was decided by the Tribunal in the first round by remitting the matter back to the file of the AO to decide the issue afresh by complying with the directions given by the Tribunal in other years as detailed in para 35 of the Tribunal's order dt. 30th March, 2007, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming addition to the extent of Rs. 3,00,000 out of sales promotion and business promotion expenses. However, even otherwise, in the course of hearing of this appeal in the second round, nothing new has been submitted by the assessee. We, therefore, decide this issue in the light of earlier order dt. 30th March, 2007whereby the addition of Rs. 5,30,258 sustained by the CIT(A) has been reduced to Rs. 3,00,000 by the Tribunal. We order accordingly. 21. Ground No. 10 is with regard to the disallowance of Rs. 1,03,505 being the amount written off out of advances and deposits. This issue has been discussed by the Tribunal in the first round at paras 67-70 of the Tribunal's order 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 grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly followed by the assessee, the addition made by the AO on this account is not justified, and the ground is decided in favour of the assessee. We allow this ground raised by the assessee. 25. Ground No. 3 with sub-grounds (a) and (b) is with regard to the reworking of the cost of land at the average price of the cost of the land in Phases I to III and IV, Qutab Enclave Complex, now known as DLF city by dividing the cost of land acquired till end of each year by sellable in each phase separately and treating the area year-marked for schools, hospitals, clubs, and other community building as sellable area. In the course of hearing of this appeal its has been pointed out by the parties that 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he surplus of Rs. 14,36,41,533, which was not offered to tax by the assessee by giving a reason that same is not taxable in view of the decision of Hon'ble Supreme Court in the case of CIT vs. Hind Construction Ltd. The assessee also stated before the AO that in asst. yr. 1985-86, such surplus was held to be not taxable. However, the AO as well as the CIT(A) brought the said surplus to tax in the light of their view taken in asst. yr. 1992-93 after relying upon the decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT and after making a reference to the provisions contained in ss. 2(47) and 45(3) of the Act. 27.2 We have heard both the parties and perused the materials 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for the reasons given on identical issue in the asst. yr. 1992-93. 27.4 Even otherwise in the light of the word of caution emphasized by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT, where it has been emphasized that 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 tax, it will be open to the IT authority to go behind the transaction and examine, even where the partnership is genuine, whether the transaction of transferring the personal asset to the partnership firm represents 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decided in terms of our order deciding the identical ground in asst. yr. 1997-98. The decision given in asst. yr. 1997-98, on these issues shall apply to the identical issues involved in the asst. yr. 1998-99. 30. Ground No. 4 in asst. yr. 1998-99 is directed against the CIT(A)'s order in confirming the addition of Rs. 17,12,17,554 being the surplus amount arising on land/rights in land held as stock-in-trade and brought into the partnership firm as capital contribution by the assessee. 30.1 During the period relevant to the asst. yr. 1998-99, the assessee company became a partner in two newly constituted partnership firms viz., M/s DLF Office Developers and M/s DLF Property Developers, with profit/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 subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t into the common stock of partnership, which were valued at Rs. 3,25,00,000, which amount was credited to the account of the assessee in the books of the partnership firm of24th Feb., 1998. The assessee also brought its right to purchase the land in respect of certain 47 plots of land into the common stock of the partnership firm, which were valued at Rs. 17,75,00,000. Thus, the total amount credited to the assessee's account was Rs. 21 crores out of which sum of Rs. 12 lacs was credited to the capital account of the assessee as its capital contribution without carrying any interest, and the remaining amount has been treated as loan by the assessee to the partnership firm, which may be either free of interest 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by sum of Rs. 78.55 crores. However, the assessee claimed the surplus 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. The assessee also stated before the AO that in asst. yr. 1985-86, such surplus was held to be not taxable. However, the AO as well as the CIT(A} brought the said surplus to tax in the light of their view taken in asst. yr. 1992-93 after relying upon the decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT and after making a reference to the provisions contained in ss. 2(47) and 45(3) of the Act. 33.2 We have heard both the parties and have carefully gone through the orders of the authorities below. 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 boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the surplus arising on land held as stock-in-trade by the assessee but contributed to the partnership firm towards capital by the assessee. 37.1 During the period relevant to the asst. yr. 2000-01, the assessee became a partner in a partnership firm M/s DLF Phase-IV, Commercial Developers and contributed certain land owned by it as well as its right of purchase of land, to the aforesaid firm towards its capital, and surplus of Rs. 5,60,00,000, being the difference between the value credited in assessee's capital account, and the cost to the assessee was credited in the P&L a/c, but claimed as exempted from tax in the light of the decision of the Hon'ble Supreme Court in the case of CIT vs. Hind Construction Ltd. and 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 comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rs. 5.49 crores. At the time of introduction of the said land the market value was determined at Rs. 11.5 crores. The amount credited to the account of partner in the books of firm when the land was contributed was taken as Rs. 11.5 crores. The difference of Rs. 6.01 crores was credited by the assessee to its P&L a/c. The assessee claimed the difference as not exigible to tax, relying on the decision of the Hon'ble Supreme Court in the case of Hind Construction Ltd. The AO treated the difference as chargeable income under the head "Profits and gains of business or profession". Learned CIT(A) also confirmed the same and held in p. 24 of his order as under: "4. Since the land so transferred represented the stock-in-trade, the profits 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t credited to the account of partner in the books of the firm and the resultant surplus will not amount to any income accruing or arising to the partner for the reason that: 1. The firm is no separate legal entity than the partners constituting it. 2. The partner is not legally entitled to claim the amount standing to the credit of his capital account as debt due by the firm in favour of the partner. 3. The right is merely to share profits from time to time during subsistence of partnership and only on dissolution or on retirement to get the value of his share in the net partnership asset. Thus it will be incorrect to hold that the amount of Rs. 11.5 crores credited to the account of the partner in the books of the firm is giving rise to any income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is also found that after the land was contributed by the assessee in the partnership firm as its capital contribution, the said land was developed by the firm and profit was earned by the firm which has been assessed as such. This fact has been reiterated in para 16.25 of the draft order also. Even in para 16.20 of the draft order it has been accepted as under: "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." If this factual situation prevails then it cannot 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 again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictional income might have been caused in the records of the company or in the records of the firm. But no real income was received by the assessee. The nature and the character of the transaction is such that it is impossible to believe that there is any question of profit having been received in the accounting year. As a result of the appreciation of the value of the machinery the assessee as a partner in the partnership firm might get a future advantage. But, as the Supreme Court has said in Sir Kikabhai's case, tax cannot be imposed on the future advantage which might be available to the assessee. Further, there is no question of withdrawal of a part of the stock-in-trade, in the instant case, as it took place in Sharkey (Inspector of Taxes) vs. Wernher (1956) AC 58 : (1956) 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. Such a 'person' may be natural or legal or artificial. A natural person, like a human being, is a being to whom law attributes personality in accordance with the reality and truth. A legal and artificial person, however, is a persona real or imaginary to whom law attributes personality by way of fiction, when there is none in fact. Thus, natural person is a person in fact as well as in law, whereas a legal or artificial person is a person in law but not in fact. A firm accordingly is neither a natural nor an artificial person. It is not natural, because a firm represents only a relationship or arrangement between persons who carry on business with a view to profit. It is not a living being. If a firm represents individual partners and, as such, is called a natural person, there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership (societas) or joint adventure are just so many individuals acting together under contract the property they contribute or acquire is their joint property; every debt due to the firm belongs in rateable shares to the various partners, and they are individually liable for the debts owing by the firm.' Thus, it is obvious that unlike a company where there is perpetual succession a firm, although an entity for a limited purpose, cannot be considered as a juristic person. In the instant case, the assessee has got 50 per cent share in the fund and the other partner, Patel Engineering Co., who also owned the remaining 50 per cent share in the disposal machinery also transferred his share in the partnership capital. Thus, the assessee and Patel Engineering Co. have only transferred their respective 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains of business or profession'. 42.5 The reason given in the draft order for holding that surplus is chargeable to tax as business income is because of: 1. The amount is credited in the P&L a/c of the assessee. 2. The decision of Hon'ble Supreme Court in the case of McDowell & Co. Ltd. applies. 3. The assessee has withdrawn substantial sum from the firm in subsequent years. 42.5.1 As discussed earlier the entries in the books of accounts are not the determinative factor for computation of income under the IT Act. For this proposition, further reliance is placed on following decisions: (i) Kedarnath Jute Mfg. Co. Ltd. vs. CIT; (ii) Sutlej Cotton Mills Ltd. vs. CIT; (iii) United Commercial Bank vs. CIT (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC); (iv) Karnataka Small Scale Industries Development 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as noticed the change in judicial attitude to the tax avoidance devices. Justice Reddy mentioned that in the country of its birth the principles of Westminster of condoning tax avoidance have been given a decent burial. In that very country, the phrase 'tax avoidance' is no longer condoned or looked upon with sympathy. 3. It is true that tax avoidance in any under-developed developing economy should not be encouraged on practical as well as ideological grounds. One would wish, as noted by Reddy, J. that one could get the enthusiasm of Justice Holmes that taxes are the price of civilization and one would like to pay that price to buy civilization. But the question which many ordinary taxpayers very often in a country of shortages with ostentious consumption and deprivation for the large masses ask is, does he with taxes buy civilization or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Madras High Court appears to be correct. Not only is the principle in Duke of Westminster's case alive and kicking in England, but it also seems to have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell & Co. Ltd.'s case. In Waman Rao vs. Union of India (1981) 2 SCC 362 and Minerva Mills Ltd. vs. Union of India (1980) 3 SCC 625 the Court considered the import of the word 'device' with reference to Art. 318 which provides that the Acts and Regulations specified in Ninth Schedule shall not be deemed to be void or even to have become void on the ground that they are inconsistent with the fundamental rights. The use of the word 'device' was not pejorative, but to describe a provision of law intended to produce a certain legal result. If the Court finds that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. What is to be taxed is the income accruing or arising during the year and the transaction cannot be viewed at that point of time on the basis of likely effect five years after the transaction has been effected. Therefore in my humble opinion the withdrawal by the assessee from the firm during the financial year relevant to asst. yr. 1997-98 will not determine the nature of transaction on23rd March, 1992when the land was contributed as capital contribution in the firm in which the assessee became partner. 42.5.4 The 'word of caution' as given by Hon'ble Supreme Court in the case of Sunil Siddharthbhai which has been heavily relied upon in the draft order is in the words of Hon'ble Supreme Court itself in following context as observed in p. 523 of the report as extracted herein: "We have decided these appeals on the assumption that the partnership firm in question 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner as capital contribution when a partnership is formed and he becomes a partner, the property brought in partakes the character of a capital asset." Similarly in para 16.40 it has been concluded that: "In the present case, when the assessee withdraws some plot of land being part of stock-in-trade for making contribution to a partnership firm as its capital at the time when he became a partner, there is a conversion on withdrawal of stock-in-trade into capital asset in as much as, as already discussed above, the act of contributing personal asset into a partnership firm as its capital when assessee becomes a partner in a firm is a transaction on capital field." In view of the above finding in the draft order the surplus is treated as capital gain and brought to tax under s. 45(3) of the Act. I am unable to concur with the above finding for the reasons stated below. 43.1 What was transferred was whether 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 he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds it can pass appropriate orders. But it is not open to the Tribunal itself to raise a ground or permit the party, who has not appealed to raise a ground, which will work adversely to the appellant. The words of the section are not wide enough to include a power to enhancement, without an appeal by the CIT. Rule 21 of the ITAT Rules, in terms, limits the appellant to the grounds urged in his memorandum of appeal and prescribes that if he wishes to raise any further ground, he has to do so after obtaining the leave of the Tribunal. The provision only says that the Tribunal is not obliged to rest its decision on the grounds urged by the appellant and does not enlarge the powers of the Tribunal to raise grounds of appeal against the appellant. It recognizes the principle that the judgment of the lower Court may be supported on any grounds, even though it is not raised in the memorandum of appeal. That, however, does 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 fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the lower appellate Court, the AAC, need not be the subject of attack before the Tribunal. The interests of the Revenue are sufficiently protected by the extensive powers given to the first appellate authority, the AAC. At that stage, the only appellant would be the assessee, not the Department, although it is entitled to be represented by an officer of the Department in support of the order of the original Court. A mistake, if any, committed by the original authority, which is adverse to the interests of the assessee, will be canvassed by the assessee before the AAC. A mistake, if any, committed by the original assessing authority which is detrimental to the interests of the Revenue is capable of being corrected by the AAC even without an appeal having been presented by the Department. At the next stage of second appeal to the Tribunal, the liberty is given to both the sides to go up in appeal to the Tribunal and when the Tribunal comes to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can hold the land as stock-in-trade and deal with the same either individually, he continues to hold as stock-in-trade in the capacity as partner of the firm. In both the cases the person holding the land can be said to deal with such land only in capacity of trader and not in the form of capital asset. The admitted fact is also that the firm was also treating the land as its stock-in-trade and after the land was developed and sold with building thereon, the profit was also assessed as business income in the hand of firm. Therefore if it is held that the land held by assessee as stock-in-trade before the same was contributed to a firm has been converted into a capital asset, on introduction of same as capital contribution by partner there will be conversion of such land at two points of time i.e., firstly at the time when assessee introduced as capital contribution when the asset gets converted into capital assets and secondly when the firm receives 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 dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. In such a situation it is impermissible for the learned Departmental Representative to come out with a submission contrary to the finding of the AO that DTAA with UK was not relevant as both the lead managers were resident of countries other than UK. In view of the admission of the AO and the further elaboration of the point in the light of DTAA between India and UK, we cannot permit the learned Authorised Representative to take contrary stand from the one taken by the AO. In our considered opinion the learned Departmental Representative has no jurisdiction to go beyond the order passed by the AO or CIT(A). His scope of arguments is confined to supporting or defending the impugned order. He cannot set up an altogether different case. If the learned Departmental Representative is allowed to take up a new contention de hors the view taken by the AO that would mean the learned Authorised Representative (sic-Departmental Representative) is stepping into the shoes 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal was filed before Hon'ble Supreme Court and following questions were referred for the opinion of the Hon'ble Supreme Court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in investigating the nature of the shares held by the assessee in Chrestian Mica Co. Ltd. when both the assessee and the IT authorities had treated them as the stock-in-trade of the assessee as a dealer in share for every assessment year since 1949-50 and proceeded on the same basis for the instant assessment year? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the shares held by assessee in Chrestian Mica Co. Ltd. were not its stock-in-trade for dealing in shares? (3) If the answer to question (2) be in the negative then whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of rupees thirty two lacs twenty five thousand and five 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading sense between the liquidator and the shareholders. By virtue of his holding, a shareholder is entitled to surplus assets on the liquidation of the company and such surplus assets are in the nature of an accretion to the shares held by him. The question is whether the opinion of the High Court is correct in law. We find it difficult to say so. Sec. 511 of the Companies Act applies to every voluntary winding up. It says that 'subject to the provisions of this Act as to preferential payments, the assets of a company shall, on its winding up, be applied in satisfaction of its liabilities pari passu and, subject to such application, shall, unless the articles otherwise provide, be distributed among the members according to their rights and interests in the company'. The concluding words of this section indicate that the assets of a company, on its liquidation, shall be distributed among the shareholders according to their rights and interests in the company which necessarily 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the nature of the shares held by the assessee so as to hold the same as not part of stock-in-trade. Thus it was concluded that the admitted position of the nature of asset between the assessee and the Revenue authorities cannot be allowed to be changed by the Tribunal in view of the plea raised before it. Applying the same principle in the present case also since there is no dispute between the assessee and the Revenue regarding nature of asset being stock-in-trade, the Tribunal is not called upon to give a finding as to whether such asset was at all converted to capital asset and whether such land is part of capital asset or not. 44.4 There is a difference between changing the head of income in respect of receipts which are income per se and changing the nature of asset itself. While the receipt which is income per se may be brought to tax under a different head, the Tribunal will exceed its jurisdiction if it decides the nature of asset itself in a dispute raised for the first time at the 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 ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity of being heard, pass such orders thereon as it thinks fit. The power conferred by that sub-section is wide, but it is still a judicial power which must be exercised in respect of matters that arise in the appeal and according to law. The Tribunal in deciding an appeal before it must deal with questions of law and fact which arise out of the order of assessment made by the ITO and the order of the AAC. It cannot assume powers which are inconsistent with the express provisions of the Act or its scheme." It can, therefore, be concluded that the Tribunal cannot decide an issue which does not arise out of the orders of the appellate authorities below. In this case, both the AO and the CIT(A) have held that the asset contributed by the appellant to the partnership firm was stock-in-trade and the assets continued to be held as stock-in-trade in the partnership firm. There is no difference of opinion between the authorities below on this issue and a finding of fact recorded by both the authorities below is 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by it as stock-in-trade in the form of its capital contribution was chargeable as business income or not. Since I have earlier held that such introduction do not amount to giving rise to business income as no legal right is accruing in favour of assessee because of the credit to the account of partner by the firm, no income can be brought to tax. The law laid down by Hon'ble Supreme Court in the case of Hind Construction Ltd. and the decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai are squarely applicable. Since the land was always held as stock-in-trade, which continued to be stock-in-trade even at the time of introduction and subsequently by the firm also, s. 45(3) which is applicable in respect of the capital asset cannot be applied to the stock-in-trade held by the assessee and introduced as capital contribution. 46. The issue which arises in appeal for asst. yr. 1992-93 in relation to ground No. 1 also arises in appeals for asst. yrs. 1997-98, 1998-99, 1999-2000 and 2000-01. The discussion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Sec. 13 only regulates only relation of the partner inter se. Section starts with the words "subject to the contract between the partners" i.e., if the partners agree amongst themselves, a partner is entitled to interest on the capital as also on the advance beyond the amount of capital. However, in either case, it does not amount to a debt by the firm to the partner and in the event of dissolution the firm is not obliged to pay such sum to the partner. This proposition will be clear on reading s. 48 of the Partnership Act as extracted herein: "48. In setting the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners be observed- (a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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