TMI Blog2009 (1) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... after giving opportunity in both the parties of being heard. On the facts and in the circumstances of the case as well as in law, learned CIT(A) failed to appreciate that the partner s interest in the firm was transferred to the company at a higher value and hence, the benefit needs to be taxed in the hands of the partner as the definition of transfer as given in section 2(47) is an inclusive definition and, therefore, it does not restrict the scope of the definition to what is enumerated in the said section and there is no dissolution or reconstitution of the firm to warrant applicability of section 45(4)." 3. Grounds raised in cross objections in all these cross objections are also identical and they read as follows : (1)The learned CIT(A) rightly held that section 47( xiii ) is applicable to the facts of the case and hence, no addition can be sustained in the hands of the assessee. (2)The learned CIT(A) rightly held that section 45(4) cannot be applied to the facts of the case, as there is no gain on distribution of capital assets on dissolution. (3)Without prejudice to the above, there was no benefit or perquisite, whether convertible into money or not arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65965952.59 77868345.59 11902393.00 5. Moulds 12781114.00 2704000.00 15485114.00 40195500.00 24710386.00 6. Motor car/vehicle 1283028.00 - 1283028.00 1659000.00 375972.00 7. Furniture Fixtures 575871.00 671097.80 1246968.80 1246968.39 - TOTAL 48017529.00 56255149.39 104272678.39 175016904.39 70744226.00 1.1 Thus, as a result of this revaluation in the fixed assets of the partnership firm, there has been an accretion of Rs. 7.07 crores in the value of fixed assets in the hands of the firm as on 1-4-1998 and the same has also been admitted to be capital gain, in its hands by partnership firm. However, the firm claimed that as per provisions of section 47( xiii ) of the Income-tax Act, which are operative from 1-4-1999, this transaction does not amount to a transfer for the purpose of capital gains. The partnership firm wherein all the appellants are partners has, therefore, not offered any capital gains in its hands on this accretion of Rs. 7.07 crores in the value of fixed ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g capital on 1-4-1998 (after crediting capital gain on sale of assets claimed exempt u/s. 47( xiii ) Value of shares allotted on 1-4-1998 by a newly formed company Mulchand S. Chheda 12045398.94 22657032.84 22657032.84 Arvind S. Chheda 7856704.17 18468338.07 18468338.07 Sunder M. Chheda 3417832.74 101492255.34 10492255.34 Nirmala A. Chheda 10796551.16 24945396.36 24945396.36 Mulchand S. Chheda, HUF 5169727.31 10475544.26 10475544.26 Name of partner of Prince Multiplast Closing capital on 31-3-1998 Closing capital on 1-4-1998 (after crediting capital gain on sale of assets claimed exempt u/s. 47( xiii ) Value of shares allotted on 1-4-1998 by a newly formed company Manish M. Chheda 4678849.76 13521878.01 13521878.01 Payal M. Chheda 1680330.67 5217541.97 5217541.97 Nehal A. Chheda 8350672.20 18962306.10 1896230610 53996066.95 124740292.95 124740292.95 1.4 All the appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulting from the transfer. The Legislature never intended to exempt an individual partner who gets benefited as a result of revaluation of assets of firm and consequently gains by way of allotment of shares of more value than his capital in the erstwhile firm through which the business was being carried on. The learned counsel for the assessee is not correct when he says that the legislators while enacting the law [ i.e., introducing section 47( xiii )] did not envisage simultaneously operation of section 28( iv ), because the absence of any legislation in the Act covering and given situation one cannot substitute his own views to suit one s convenience. In other words, unless there was a specific legal provision in section 47( xiii ), restricting or prohibiting the taxing of benefit under section 28( iv ), the same could not be presumed. Similarly, it is immaterial if the two provisions namely, section 28( iv ) and section 47( xiii ) are related to two different heads of income envisaged in the Act namely, the former to Income from business and the latter to Capital gains . That in case of other partners such addition has not been made, could also not be a ground to exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing provisions of section 28( iv ) of the Act have been deleted by the Tribunal; and whether in the set aside proceedings, validity of bringing to tax the amount received by the assessees under section 28( iv ) is still alive. On this issue, the stand of the revenue was that the taxability of the amount received by the assessees from the firm under section 28( iv ) are still alive and can be examined by learned CIT(A). Learned CIT(A), however, did not agree with the contention of the Assessing Officer. In his opinion, the Tribunal had restored the matter to the file of the learned CIT(A) only with regard to taxability of receipts by the assessees under the head Short-term capital gains . In opinion of learned CIT(A), had the ITAT felt that the provisions of section 28( iv ) are applicable, it could have upheld the action of the Assessing Officer. 9. The next issue that arose for consideration before learned CIT(A) was as to whether the excess amount received by the partners can be taxed as income under the head Short-term capital gains . On this issue, learned CIT(A) held as follows : "I have carefully pursued this line of argument advanced by the Assessing Officer. As alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assets and liabilities of the firm relating to the business immediately before the succession became the assets and liabilities of the company; ( b )All the partners of the firm immediately before the succession became the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession; ( c )The partners of the firm did not receive any consideration or benefit directly or indirectly, in any form or manner, other than by way of allotment of shares in the company and ( d )The aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five days from the date of the succession. As per provisions of section 47A of the Income-tax Act, in case any of these conditions are violated, the amounts can be taxed as capital gains in the hands of the company in the year in which the violation takes place. These provisions show that in no case, tax liability will be shifted to individual partners. In the present case, all the partners got the shares equivalent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, which can be taxed as income under section 28( iv ). Ground No. 3 could arise for adjudication only if Ground No. 1 of the revenue is accepted. 12. At the time of hearing, there was an application for adjournment filed on behalf of the revenue. The said application had been signed by Mr. S.S. Hardikar, Inspector, office of the ITAT B-I Bench, Mumbai. Nobody was present when the appeals were called for hearing. In the above circumstances, request for adjournment on behalf of the revenue was rejected by the Tribunal on the ground that the same has not been made by competent person. 13. We have heard the submissions of learned counsel for the assessee who relied the stand as taken before the learned CIT(A) besides relying on the order of learned CIT(A). 14. We have considered the rival submissions. As far as issue with regard to whether taxability of income in question was under section 28( iv ) of the Act was still open before the learned CIT(A) in the remand proceedings, we are of the view that the directions of the Tribunal have to be read as whole. This is contained in para No. 11 of the order of the Tribunal, which reads as follows : "We have heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to adjudicate the same. We are of the view that provisions of section 28( iv ) would not be attracted to a case of increase in capital of partners of a firm pursuant to revaluation of the assets of the firm. Under section 28 of the Act, the following income shall be chargeable to income-tax under the head Profits and gains of business or profession : ( i )The profits and gains of any business or profession which was carried on by the assessee at any time during the previous year. . . . ( iv )the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. . . . The following conditions are required to be satisfied for applicability of section 28( iv ) of the Act, (1)That the appellant-companies should have carried on any business at any time during the previous year; (2)That there should be a benefit arising to the appellant-companies; (3)That the benefit must be one arising from the business carried on by the appellant-companies. (4)That the benefit, if any, must be revenue in character; must be of income in nature; (5)That the benefit has arisen to the appellant-companies in a business tran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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