TMI Blog2011 (9) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... e CHITRA VENKATARAMAN, Mr.Justice M.JAICHANDREN, JJ. For Appellants : Mr.V.S.Jayakumar For respondent : Mr.J.Narayanaswamy Standing counsel for Income Tax Dept. J U D G M E N T CHITRA VENKATARAMAN, J. The assessee is on appeal as against the order of the Income Tax Appellate Tribunal, "C" Bench dated 20th October 2003 in ITA.Nos.747,748, 650 and 651/Mds/(1991) relating to the assessment years 1985-86 in TC(A).No.166 and 167/2004 and 1986-87 in TC(A).No.168 and 169/2004, raising the following questions of law:- T.C.(A).No.166/2004:- "1. Whether in law the Income Tax Appellate Tribunal is justified in not granting registration to the appellant firm for the assessment year, not withstanding the fact that the appellant had complied with the provisions of Section 184(4) and 184(5) as applicable for the assessment year 1985-86 and when the assessing officer had not even doubted the genuineness of the firm in his assessment order? 2. Whether in law the Income Tax Appellate Tribunal is justified in treating the appellant as an Association of persons applying the provisions of Section 184(5) of the Income Tax Act, 1961 as it stood with effect from 01.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivasan (individual), A.R.Srinivasan (HUF), Mrs.Geetha Shivakumar and Mrs.Uma Shankar, daughters of A.R.Srinivasan, as partners and later on constituted with three more persons namely, Jayapradha and her two brothers Rajbabu and Ramkumar under the partnership deed dated 24.4.1985. On 23.10.1985, there was a dissolution deed executed by the above seven partners. In the background of the above-said facts, questions arose as regards the status of the firm assessed as Association of Persons and capital gains arising at the hands of the firm on the allotment of the property viz., Midland Theatre, situate in an extent of 10.92 grounds, to the partners falling under Jaypradha Group. There was also a protective assessment at the hands of A.R.Srinivasan (individual) and A.R.Srinivasan (HUF), who were partners in the firm who had contributed their respective equal shares in the property Midland theatre towards their capital contribution in the firm. On the allotment of the lands to Jayapradha, A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) were protectively assessed on long term capital gains for the assessment year 1986-87. 4. Before going into the various issues arising in these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Srinivasan (HUF) took over the business of Leo Theatre. In October 1984, A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) sold the fixtures to Smt.Jayapradha for Rs.10 Lakhs, and Leo Theatre with land and building on 30.07.1985, for Rs.15 Lakhs. As far as the capital gains arising on the sale of Leo Theatre is concerned, it was the contention of A.R.Srinivasan that the fixtures and superstructure belonged to the firm Midland Picture Circuit. The land belonged to A.R.Srinivasan (individual) and A.R.Srinivasan (HUF). On dissolution on 31.3.2004, A.R.Srinivasan (individual) took over the assets and liabilities of the firm at the revalued figure at Rs.25 lakhs. He was running the Theatre till March, 1985 and the cost of acquisition was to be taken at Rs.25 lakhs and hence, there was no capital gains. 6. The firm Midland Theatre consisting of partners A.R.Srinivasan (individual), A.R.Srinivasan (HUF), Mrs.Geetha Shivakumar and Mrs.Uma Shankar, underwent a change in the constitution on 24.04.1985, by which, Jayapradha and her brother Raj Babu and Ramkumar were taken as partners therein, having the following share:- Share of Profit/Loss A.R.Srinivas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed on 31.12.1986, the firm Midland Theatre claimed its status as that of a registered firm showing loss from business, which was subsequently revised, enhancing the loss to Rs.13,66,146/-. The assessee Midland Theatre did not file any application under Section 185 of the Income Tax Act for registration of the firm before the close of the accounting year. In the course of the assessment proceedings, the assessee placed only a photocopy of the Partnership deed. The claim of the assessee that the deed in original with the form sent from Kumbakonam through ordinary post, was verified only to find that there was no such entry in the tapal register. In the absence of any proof on filing of the application, the Assessing Authority held that there was no valid partnership in the eye of law and the question of treating it as a registered firm did not arise. Further, he viewed that A.R.Srinivasan (individual) could not represent in dual capacity for HUF also. He viewed that this was obviously resisted to, so as to bring the land and building called Midland Theatre into the firm and be transferred to Jayapradha Group, who were inducted on 23.4.1985 and from which firm, A.R.Srinivasan (ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffirmed the view of the Assessing Officer on the aspect of existence of partnership firm, treating the status as Association of Persons as well as on the aspect of Protective assessment to Capital Gains on Midland Theatre at the hands of A.R.Srinivasan (HUF) and A.R.Srinivasan (individual). Thus the Commissioner of Income Tax (Appeals) upheld the orders of the Assessing Officer. 10. Aggrieved by the same, the respective appellants, for the respective assessment years, filed appeals before the Income Tax Appellate Tribunal, which confirmed the view of the Assessing Officer, particularly as regards the status of the assessee to be assessed as Association of persons. As regards the assessment to Long Term Capital Gains at the hands of A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) on the sale of Midland Theatre, the Income Tax Appellate Tribunal, once again reaffirmed the view of the Assessing Officer on the protective assessment made therein. However, the Income Tax Appellate Tribunal, in so holding, viewed the inclusion of the property Midland Theatre at the hands of Association of persons as double inclusion and held that the same could not be assessed at the hands of Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 as it stood at the material point of time and submitted that as per the law that stood at the relevant assessment year, if the assessee did not comply with the registration procedure for getting the status as a Registered Firm, under the stated circumstances therein, the only other option to the Revenue was to treat it as an Unregistered Firm and make assessment thereon. He further pointed out that prior to the amendment to Section 185 of the Income Tax Act, 1961 under the Finance Act, 1992, effective from 1.4.1993, substituting Sections 184, 185 and 186, as per the law that stood at the material time, the question of treating a firm as an Association of Persons did not arise. Thus only on and from 1.4.1993, that a firm not complying with the registration provisions would get assessed as Association of Persons. In the circumstances, the Income Tax Appellate Tribunal committed serious error in applying the amended provisions to the facts of the case. Consequently, he submitted that when there were enough evidence before the Income Tax Appellate Tribunal as regards the validly constituted partnership firm and its dissolution, the Tribunal ought not to have treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue and perused the material available on record. 21. A reading of the order of the Income Tax Appellate Tribunal shows that it affirmed the view of the Assessing Officer on the aspect of existence of a valid partnership firm. As far as the claim for registration or at least to follow the procedure relating to the registered firm as applicable to the unregistered firm is concerned, the Tribunal pointed out that the assessee did not produce the original partnership deed either before the Assessing Officer or before the Tribunal. The assessee was directed to produce at least possible evidence and contemporaneous records that there existed a genuine partnership. 22. It is seen from the order of the Tribunal and the other authorities that the said partnership firm claimed that it had sent the original deed of partnership to the Income Tax Officer by ordinary post. The Tribunal pointed out that the assessee could not show that the cover sent from the Auditor's Officer at Kumbakonam contained the application for registration along with the partnership deed in original. The assessee had sent it in an insufficiently stamped cover. There was nothing on record to show that the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the assessee firm in relying on the provisions as it stood, to contend that they be treated as an unregistered firm. The question of treating them as unregistered firm would arise only if and when the assessee is able to prove the existence of a valid partnership deed to constitute a firm. Registration is only a second aspect in the matter of applying the provisions under Section 184 of the Income Tax Act. 26. A reading of the provisions as contained in Section 184 of the Income Tax Act, 1961 shows that for the purpose of registration, the assessee has to enclose the original instrument evidencing the partnership. Sub Section (5) of Section 184 states that if the Income Tax Officer is satisfied that for sufficient reason, the original instrument cannot conveniently be produced, he may accept a copy of it, certified in writing by all the partners. Even where the application is made after the dissolution of the firm, the application shall be accompanied by a duplicate copy of the original instrument signed by all the persons referred to in clause (b) of sub section (3) who were partners in the firm immediately before its dissolution and by the legal representative of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he materials as to the formation of the firm as claimed under the partnership deed dated 1.4.1984 and 24.4.1985. (ii) The original of the deed was nowhere produced at any point of time before the Officer. (iii) The deed dated 24.4.1985 was drawn on a stamp paper of the date much later to the date of execution of the deed, which raised serious doubts as to the genuineness of the claim. The Tribunal confirmed the view of the Assessing Officer that the intention of the parties to frame a firm was clearly to transfer the theatre to Jayapradha as though it was a distribution on dissolution, thereby evade payment of capital gains. The Tribunal held that the partnership alleged to have been entered into with Jayapradha Group had to be treated as an Association of Persons in continuation from the Assessment Year 1984-85. 28. In the light of the above said facts, we have no hesitation in rejecting the first substantial question of law raised in T.C.Nos.166 and 167 of 2004. As already pointed out, on the ground of rejection of the existence of a genuine partnership firm, the Tribunal upheld the order of the Assessing Officer, holding the status of the assessee as Association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. (4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we do not find that the Revenue could fit the transaction under any of the clauses mentioned therein. Learned Standing Counsel appearing for the Revenue submits that the said aspect has not been considered right from the Assessing Officer to the Income Tax Appellate Tribunal. The consistent case of the Revenue is that the property allotted to Jayapradha and Group is a 'sale' attracting Long Term Capital Gains at the hands of A.R.Srinivasan (individual) and A.R.Srinivasan (HUF). Admittedly, the Revenue could not place any document under which the transfer of the immovable property was effected by A.R.Srinivasan (HUF) and A.R.Srinivasan (individual) in favour of Jayapradha. In the absence of any such documents, we fail to understand how the transaction would come within the meaning of the term "transfer" to attract Capital Gains under Section 45 of the Income Tax Act, 1961. The Tribunal pointed out to the order of the Assessing Officer in the case of A.R.Srinivasan (HUF) that he had treated the sale of Midland Theatre at the hands of Association of Persons as resulting in short term capital gains and had assessed so. The status given to the firm as Association of Persons in 1985-86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejection of the assessee's claim to have the status as a partnership firm. 38. A reading of paragraph 17 and 18 shows that the Tribunal rejected the assessee's contention as to the existence of firm, saying that no material was produced to show the existence of the firm. However, considering the fact that the so called partners had joined hands in the matter of carrying on business, it concluded by saying that the status of the assessee has to be taken as an Association of Persons. The said finding had not been challenged by the Revenue. 39. Thus, going by the findings of the Tribunal on the constitution of Association of Persons, whatever may be the correctness or otherwise of the contention of the assessee as regards the existence of the firm, the fact remains that the Revenue could not dispute that there was Association of Persons and there was, in fact, dissolution on 23.10.1985 and that after 23.10.1985, there was no Association of Persons. In that event, the terms of the dissolution deed of the Association of Persons, as of today, stand. On dissolution, as per Clause 3, excluding the portion belonging to Leo Theatre and M/s.Savith Snacks, the land and building of Mid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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