9911796707
TMI Blog2012 (2) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... rm in its application dated 18.10.2010 has raised an additional ground which reads as follows: "1. Without prejudice to the above grounds of appeals, the case of the appellant falls within section 49(i)(iii) (a) of the Act there being a 'succession, inheritance or devolution', the cost of acquisition has to be taken as the cost of acquisition to the previous owner and in computing the capital gains that cost of acquisition or the cost of the asset as on 1.4.1981 at the option of the appellant should be allowed and in addition that cost has to be increased by cost inflation index in terms of section 48 of the Act." 3.2.1. After due consideration of the Ld. Counsel's submission and also the version of the Ld. D.R on the issue, the assessee firm's application was admitted and the Registry was directed to place the assessee firm's application on record. 4. The assessee is a registered firm carrying on the business of trading in cement concrete blocks. For the concerned assessment year, a return of income was filed, declaring a total income of Rs.5,15,63,550/- [Rs.72,57,738/- as business income and Rs.4,44,09,562/- as LTCG ]. The assessment was taken up for scrutiny by issuance of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons given by the AO to adopt the book value as cost of acquisition are as follows: (i) that the contention of the assessee would have been true, if the asset was acquired in any of the modes as described in section 49 of the I.T. Act, 1961 and as it is not falling in those modes in the instant case; & (ii) the cost of acquisition of the asset brought into the firm by a partner as capital contribution is to be that value which was credited in the books of the firm, based on the decision in the case of Rajdoot Hotel Enterprises Corporation v. CIT 167 ITR 167 (MP). 6. The assessee being aggrieved of the re-computation of LTCG carried the matter in appeal before the first appellate authority. The assessee had filed elaborate written submissions before the first appellate authority which was reproduced at paragraph 3.4 of the impugned order under challenge. The assessee had also placed reliance on the following judgments of the Hon'ble Supreme Court as well as the High Court. * CIT v. K.H.Chambers (1965) 55 ITR 674 (SC) * CIT v. Sunil Diddarth Bhai (1985) 156 ITR 509 (SC); * CIT v. Jaideo Oil Mills (1992) 194 ITR 495. 6.1. The CIT (A), following the judgment of the Hon'ble M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the cost of acquisition for computation of Capital Gains. (iii) The Ld. Sr. Counsel further argued that the CIT (A) failed to appreciate that there was no cost of acquisition for the firm since the asset was already in the books of account of the proprietary concern which was, subsequently, converted into a partnership firm by an agreement of partnership entered into between the erstwhile proprietor and the new partners without change in the book value of the asset and, therefore, the book value of the asset as on the date of conversion of the proprietary concern into a partnership firm cannot be taken as the cost of acquisition of the asset. In conclusion, it was forcefully contended that the Ld. CIT (A) had failed to appreciate that the existing business of the erstwhile proprietary concern has been continued by the partnership firm and no new business was commenced by the partnership firm in 1981. The Ld. Sr. Counsel, during the course of hearing, furnished a paper book containing 1 - 55 pages which consist of, inter alia, copies of (i) partnership deed dated 1.4.1981; (ii) cost inflation index,; (iii) conversion sanctioned certificate; (iv) Valuation report etc., 7.1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the property not having been revalued, the value taken in the balance sheet of the partnership firm was, evidently, notional. We are, therefore, of the considered view that the case law relied on by the Ld. CIT (A) to justify his stand is clearly distinguishable. We have, with due respects, perused the ruling of Kalooram Govindram v. CIT reported in (1965) 57 ITR 336 (SC). The issue before the Hon'ble Court was obviously distinguishable to the facts of the issue on hand. 7.2.2. At this juncture, we would like to recall the ruling of the Hon'ble highest judiciary of the country in the case of Sunil Siddharthbhai v. CIT reported in (1985) 156 ITR 509 (SC). The issue of introduction of capital asset by partner to a firm, the firm crediting market price of asset to the partner as to whether it amounts to transfer has been deliberated upon in an exhaustive manner by the Hon'ble Court which extracted are as under: "Where a partner of a firm makes over capital assets which are held by him to a firm as his contribution towards capital, there is a transfer of a capital asset within the terms of s.45 of the Act because an exclusive interest of the partner in personal assets is reduced on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed no consideration within the meaning of section 48. Nor id any profit or gain accrue to him for the purpose of section 45. If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain, it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, 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 devise or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The Income-tax Officer will be entitled to consider all the relevant indicia in this regard...." 7.2.3. In the case on hand, the erstwhile owner of the proprietary concern made over his capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding credit was given to the capital accounts of the eight partners to the extent of the share of each partner in the ownership of the land. In 1970, the land was sold by the assessee for Rs.2 lakhs. The Income-tax Officer held that the transaction had resulted in a gain of Rs.75000/- to the assessee which was taxable and this was upheld by the Tribunal. On a reference: The Hon'ble Court had held that in the instant case, all the eight partners of the assessee brought the parcel of land of which they were co-owners into the partnership firm as their contribution to the capital. The amount of such contributions to be credited into the account of each partner was agreed upon by all the partners and this transaction had been found to be a genuine transaction. The cost of acquisition of the land incurred by the assessee was Rs.2 lakhs." 7.2.7. With due respects, we have also perused the ruling of the Hon'ble Madhya Pradesh High Court which was entirely on the different footing and no relevance to the issue on hand in the sense that in the present case under consideration the asset was not valued as on the date of formation of partnership firm and the entire balance sheet of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
