TMI Blog2002 (1) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was embroiled in controversy as to title from the beginning and was under acquisition by the Income-tax Department. However, late Shri A.V. Bhat and Shri C.V. Shah took several steps in pursuance of their intention to develop the property like entering into an agreement with Poona Timber Industrial Association and Members thereof for development of the property; challenging the acquisition order etc. A bank account was also opened in the joint names of Shri Bhat and Shri Shah for the venture and was being operated by both of them. They also received various amounts from the Members of the Association in pursuance of the development contract. 3. Unfortunately, Shri A.V. Bhat died on 26-10-1990 in a car accident and the assessee herself was also very seriously injured. Though the assessee was vaguely familiar with the business affairs of her husband, it took her sometime not only to recover from physical injuries, but to get grasp of those affairs. In consultation with her relatives and friends, she decided to continue quite a few of the businesses left by her husband in partnership or otherwise; one such business venture related to the above property. It is significant to note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his sons should be admitted to the said Partnership to ensure the continuity. The assessee agreed to this reasonable request and accordingly, another Partnership Deed appearing on page 140 of the paper book was executed admitting two sons of Shri C.V. Shah as partners. Thereafter, the assessee and her daughter retired from the said Partnership by executing a Deed of Retirement dated 25-1-1994 (appearing on page 158 of the paper book). On retirement, each of them received a sum of Rs.62.50 lakhs which amount is in dispute in this appeal. 5. Before the Assessing Officer, the assessee did not offer the amount of Rs.62.50 lakhs for tax in the return filed, relying on the decision of the Gujarat High Court in the case of CITv. Mohanbhai Pamabhai [1973] 91 ITR 393 as well as the decision of the Hon'ble Supreme Court in the same case Addl. CITv. Mohanbhai Pamabhai [1987] 165 ITR 166. The assessee explained that transfer of a capital asset, in order to attract capital gains tax, must be one as a result of which consideration is received or accrued to an assessee. When a partner retires from the Partnership, what he receives in his share in Partnership which is worked out and realised a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer without bringing on record any material whatsoever. According to the learned counsel, the CIT(A) has overlooked the facts that as early as on 14-7-1991 the assessee and Shri Shah had reaffirmed their Partnership and undertook all the obligations of the old Partnership between Shri Shah and the assessee's husband late Shri A.V. Bhat. His conclusion, therefore, that what was transferred was shares in immovable property is totally baseless; firstly, the assessee did not have any interest in the property as such but merely in the development agreement as also contained not only rights, but several obligations also. This cannot be described as immovable property and even if it is treated so, the assessee could not have transferred any interest in the immovable property except by a Registered document which admittedly is not the case. The learned counsel, therefore, submitted that the CIT(A) was not justified either on facts or in law in making out an entirely new case totally unsupported by any factual evidence. In support of his arguments, the learned counsel relied upon the following judgments: (i) CITv. P.N. Sreenivasa Rao [1988] 171 ITR 562 (Ker.); (ii) CITv. Neba Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CTO [1985] 154 ITR 148. He submitted that the extenuating circumstances of the assessee by themselves would not and should not enable the assessee to get away without payment of the correct amount of taxes and even in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC) it has been held that the CIT(A) has a right to penetrate the veil and ascertain the truth. 9. We have considerd the rival submissions and perused the facts on record. It is noted that the Assessing Officer has not challenged the genuineness of the Partnership Deed or the recitals in various Deeds. This fact is clear from the observations of the CIT(A) in para 13.1 of his order when he states, "The Assessing Officer is also of the view that partnership is not 'sham' or an 'arrangement'. The Assessing Officer has accepted the fact that the amount was received on retirement. He, however, took a legal stand that the retirement amounts to transfer and relying heavily on the judgment of the Bombay High Court in Tribhuvandas G.Patel held that the amount is liable to capital gains tax. The Hon'ble Supreme Court in Mohanbhai Pamabhai has confirmed the decision of the Gujarat High Court in Mohanbhai Pamabhai case that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt was opened in the joint names of Shri Bhat and Shri Shah for this venture and was being operated by both of them. They also received various amounts from the Members of the Association in pursuance of the development contract. After the unfortunate death of her husband in a car accident, the assessee as his heir, stepped into the shoes of her husband to continue the business and the Partnership in respect of the above property. This fact is duly established from the reading of Clause 2 of the Agreement dated 14-7-1991 read with Clauses 19 20 of the Agreement dated 20-11-1993 appearing on page 106 of the assessee's paper book. It was clearly recited therein that the assessee and Shri Shah agreed to develop certain land and that amounts were invested in the 'said partnership'. The bank account was also continued by the assessee with Shri Shah. As heir of her late husband, the assessee was entitled to inherit 50% share of her husband and accordingly, in view of the legal complications involved and her own perception of Shri Shah, the assessee entered into a regular partnership with Shri Shah and, thereafter, desired to retire from the said Partnership. There was nothing wrong/sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not apply to the facts of the present case. In the case of McDowell Co. Ltd., the Hon'ble Supreme Court has held that "the tax planning may be legitimate provided it is within the framework of the law. Colourable devices cannot be part of tax planning."' In the instant case, as is evident from the facts enumerated supra, no colourable device was adopted by the assessee and whatever the assessee did she did within the framework of law. Hence, the reliance placed by the learned D.R. on the decision of the Hon'ble Supreme Court in the case of McDowell Co. Ltd. is of no assistance to the Revenue. Accordingly, the assessee succeeds on ground Nos. 1 to 5, and the impugned addition of Rs.62.50 lakhs stands deleted. 13. The ground No. 6 reads as under: "The learned CIT(A) erred in confirming the addition of Rs.4,04,412 without giving adequate opportunity." The Assessing Officer made an addition of Rs.4,04,412 on account of unexplained capital introduced. The assessee submitted before the CIT(A) that the source of addition to the capital could clearly be explained, if sufficient opportunities were given by the Assessing Officer. The CIT(A) stated that the Assessing Officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point out how enhancement was not warranted. The CIT(A) refused to look into the evidence on the ground that it was fresh evidence and without giving any further opportunity enhanced the income by Rs.1,00,000. 19. Shri Inamdar, the learned counsel for the assessee, submitted that surprisingly when the CIT(A) issued notice of enhancement, the assessee produced the evidence to point out how the enhancement was not warranted. The CIT(A) refused to look into the evidence on the ground that it was fresh evidence. He failed to appreciate that when enhancement notice is issued, the assessee is bound to produce fresh evidence. Further, he totally ignored Rule 46A(4). In the said circumstances, the learned counsel submitted that the matter may be sent back to the CIT(A) to consider all the evidences produced (already filed before the ITAT). 20. Shri Adhir Jha, the learned D.R. relied on the order of the CIT(A). 21. After hearing both the parties, we agree with the contention of the learned counsel that the matter deserves to be restored to the file of the CIT(A) because he failed to take note of the evidence produced before him in support of the argument of the assessee that no enhanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1993. It has also been held by him that what was received by the assessee on the death of her husband was 50% share in the partnership and not any specific share in the property. For the similar reason, it has been held that the amount received by the assessee on the date of retirement was nothing, but that amount towards the satisfaction of her share in the partnership. Since it is not possible for me to agree with such conclusion, I proceed to express my descending view. 27. The proposed order has been gone through by me carefully. The perusal of the same shows that the entire conclusions are based on the assumption that there existed in oral partnership between Shri Ashok V. Bhat and Shri C.V. Shah. It is well settled principle of law that burden of proving the existence of a fact lies on the person who asserts the existence of such facts. The assessee has filed voluminous paper book containing 182 pages and additional paper book of 25 pages, but there is no contemporary material/evidence to show the existence of such partnership. In the entire arguments, the Ld. counsel for the assessee has tried to establish this fact by referring to certain clause in the agreement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee that joint bank account was maintained by Shri Ashok V. Bhat and Shri C.V. Shah as partners, but not material has been brought to prove that any such account was maintained with any bank in the status of partnership despite proper opportunity being given to him. At one stage of hearing, it was argued by the ld. counsel for the assessee that aforesaid agreement to purchase such property was subject to acquisition proceedings by appropriate authority. We asked him to produce the correspondence between the assessee and appropriate authority as well as copy of form 37-I so that it may be shown that Shri Ashok V. Bhat and Shri C.V. Shah acted as partners. But this was also not produced. In the course of hearing, reference was also made to the writ petition (No. 494 of 1990) filed by Shri A.V. Bhat and Shri C.V. Shah in the High Court of Bombay challenging the acquisition proceedings by the appropriate authority. The assessee was asked to produce the copy of the W.P. so as to prove the fact that Shri Ashok Bhat and Shri C.V. Shah acted as partners. Even this evidence was not filed despite proper opportunity being given to him. It is, therefore, clear that no contemporary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat any bank account was operated as partners. During the period between 26-10-1990 (date of death of Shri Ashok V. Bhat, husband of the assessee) and 15-12-1993 (date of partnership between the assessee and Shri C.V. Shah), there is not even an iota of evidence to establish the existence of any partnership between the assessee and Shri Shah. Therefore, in my opinion, no such presumption can be raised on the basis of agreement dated 14-7-1991. 30. Lastly reference has been made to the agreement dated 20-11-1993 and partnership deed dated 15-12-1993 as a circumstantial evidence to establish the existence of such partnership. These agreements are itself subject matter of dispute by the CIT(A) as a part of device to avoid the tax on "capital gains" arising out of the transfer of her interest in the development rights in the said property. Therefore, no evidential value can be attached to such material. Such material could be taken into consideration only when there was some material in existence in the past to indicate such partnership. In my opinion, the circumstantial material to which reference has been made cannot be the basis for holding that there existed any partnership in 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ashok Bhat and Shri C.V. Shah and later on between the assessee and Shri C.V. Shah. Still I would now deal with the real controversy as to whether the arrangement between the parties between 20-11-1993 to 25-1-1994 was a device to avoid the tax on "capital gains" on account of transfer of interest in the property belonging to assessee and her children. 34. Before coming to the merits of the case, it would be useful to refer the disallowance of their Lordships of the Hon'ble Supreme Court in the case of Sunil Siddharthbhai and appearing at page 523 which are, being reproduced as under: "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 the share capital of the firm for the purpose of carrying on the partnership business. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been found as discussed above that there was no partnership either between Shri Ashok V. Bhat and Shri C.V. Shah or between the assessee and Shri C.V. Shah prior to 15-12-1993 when the alleged partnership agreement was entered into. It is to be noted that only capital of Rs.5,000 to each was required to be invested by the parties. Further right from the inception i.e., 22-6-1986, no development activity whatsoever was carried on till 15-12-1993. Even no development on land took place after the commencement of so-called partnership. Lastly within a short period of 40 days, the assessee and her daughter retired from the said partnership only to receive the hefty amount of Rs.62.5 lakhs each in lieu of giving up their interest in the aforesaid land. It is also interesting to know that value of such right was not brought as their capital in the partnership firm on 15-12-1993. So such right did not become the asset of the partnership firm. Therefore, the question of transferring the same through so-called arrangement was a mockery. Even otherwise, the only intention in creating the partnership was to convert their interest in the land into money without paying tax on the "capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns may be referred to a Third Member or to pass such orders as the President may desire: (1) Whether on the basis of material on the record, can it be said that there was no partnership between Shri Ashok V. Bhat and Shri C.V. Shah or between the assessee and Shri C.V. Shah, prior to 15-12-1993? (2) Whether on the facts and circumstances of the case, can it be said that creation of partnership by an agreement dated 15-12-1993 was merely a device to convert the right of the assessee in the land into money with a view to avoid the liability of tax on "capital gains"? THIRD MEMBER ORDER M.K. Chaturvedi, Vice President--Under section 255(4) of the Income-tax Act (hereinafter called the Act), the following two questions were referred for my opinion: "(1) Whether on the basis of material on the record, can it be said that there was no partnership between Shri Ashok V. Bhat and Shri C.V. Shah or between the assessee and Shri C.V. Shah, prior to 15-12-1993? (2) Whether on the facts and circumstances of the case, can it be said that creation of partnership by an agreement dated 15-12-1993 was merely a device to convert the right of the assessee in the land into money with a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h on the one hand as developers and the Poona Timber Small Scale Industrial Association on the other hand. This Agreement indicates that the assessee continued to carry the business which her husband was doing. The learned counsel invited my attention on Clause 25 of the Deed of Partnership dated 15-12-1993. This reads as under: "The Parties hereto however propose to continue the partnership business carried on by the said C.W. Shah and A.V. Bhat with the object of carrying out the said transactions in anticipation of the order of acquisition being set aside or withdrawn and now propose to do the business relating to the said transactions or venture in partnership on the terms and conditions herein mentioned." It was stipulated in the said Deed of Partnership that the partnership shall be deemed to have been commenced from 27-10-1990 and the period of partnership will be coterminus with the completion of the business or venture contemplated by and comprised in the said Agreement. 5. The learned counsel placed before me the bank account with the Vidya Sahakari Bank Ltd., Laxmi Road, Pune. It was pointed out that the name of assessee was substituted in the bank after the demise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partnership was that co-ownership was not necessarily the result of an agreement whereas partnership was. In this case, there was nothing in the record to show that there was any agreement between the individuals to form a partnership. The second difference was that a co-ownership did not necessarily involve a community of profit or of loss but a partnership deed. The third difference was that one co-owner could, without the consent of the other, transfer his interest to a stranger. A partner could not do this. In a partnership each partner acted for all, whereas in a co-ownership one co-owner was not as such the agent, real or implied, of the other. 7. Shri Rajkumar next relied on the decision of the Apex Court rendered in the case of Mohanbhai Pamabhai. In this case, Hon'ble Supreme Court decided the issue following their decision rendered in the case of Sunil Siddharthbhai. In this case, Hon'ble Gujarat High Court Mohanbhai Pamabhai's case took the view that when a partner retired from the firm and received his share of an amount calculated on the value of the net partnership assets including goodwill of the firm, there was no transfer of interest of the partner in the goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f lands. Assessee brought her land valued at Rs.10 lakhs as her share of capital contribution in partnership. The company did not introduce any capital. There was no business of sale and purchase of land conducted by the firm. Assessee retired from the firm within three months of its formation without giving required notice. Thereafter, the firm was dissolved. The land was retained by the company. Assessee in consideration got shares worth Rs.10 lakhs. There was no evidence except Affidavit of assessee that she converted land into stock-in-trade. On this factual backdrop, the Hon'ble High Court held that the transaction was sham transaction. No genuine firm was in existence. On the basis of aforesaid precedents, it was argued that the assessee failed to adduce any evidence apropos the existence of oral partnership. Onus was on the assessee to prove the existence of partnership. The assessee could not discharge such onus. As such, contention of the assessee cannot be accepted. 11. I have taken into consideration the entire conspectus of the arguments raised by both the parties. In my opinion, if the evidence available on record can warrant the inference that a person did act as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty into partnership stock and they become partners. 14. Adverting to the facts of the present case, I find that Shri A.V. Bhat and Shri C.V. Shah were engaged in the real property business. Market Yard property was acquired with a view to earn profit. This is evident from the fact that both the persons entered into an Agreement with Poona Timber Small Scale Industrial Association. Indisputably, the Market Yard property was a commercial property. Shri C.V. Shah, the surviving partner accepted the existence of the partnership with Shri A.V. Bhat. In the Agreement dated 20-11-1993, it is stipulated, vide Clause 9, that lands were agreed to be purchased and developed by Shri C.V. Shah and Shri A.V. Bhat jointly as equal partners of a partnership between them, and though actually no partnership deed was executed by and between them, they continued to act as partners on the oral understanding between them. 15. Shri C.V. Shah ratified the act of partnership. Shri Ashok V. Bhat died on 26-10-1990 leaving behind his wife Smt. Aruna A. Bhat, a major daughter Miss Gauri Bhat, a minor daughter Supriya Bhat and a minor son Kedar Bhat. Thereafter, Shri C.V. Shah included Smt. Aruna A. Bhat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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