TMI Blog2015 (5) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... to be “not proved”. Since the burden of proof was on the Assessee, the conclusions drawn by the revenue authorities have to be upheld. With regard to the question as to whether the Assessee owned the property or was it the property of the three individuals as was held by the Tribunal in the find round of litigation, we are of the view that once the dissolution of the firm is held to be not proved, the necessary corollary is that the property continues to be that of the Assessee firm. Admittedly the property was always considered as the property of the Assessee firm, though it stood in the name of partners. Therefore the conclusion that the property belongs to the Assessee has to be upheld. The grievances projected by the assessee in its CO are therefore rejected. - Decided against assessee. Capital gain computation - Whether asset in this case was held for business purpose and depreciation had been claimed and Capital Gains is to be worked out as per Sec.50(2)? - Held that:- The bifurcation of land and building was rightly done by the CIT(Appeals), keeping in mind the directions of the Hon’ble High Court and also following the decision rendered by the Hon’ble High Court of Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed and Capital Gains is to be worked out as per Sec.50(2). 4. The above issues were already decided by the ITAT in ITA No.2096/Bang/1992 by order dated 20.7.1995. On a reference by the ITAT in ITRC No.479/1998 the Hon ble High Court by its order dated 27.1.2006 set aside the order of the tribunal and remanded the above issues for fresh consideration by the Assessing Officer (AO). Thereupon the AO passed his order taking the same stand as he took in the original assessment proceedings and taxed the gain on sale of property as short term capital gain in the hands of MSC. The CIT(A) upheld the order of the CIT(A) in bringing to tax capital gain in the hands of MSC but directed the AO to calculate Capital gains on land and building separately as per the principle laid down in the Hon ble High court of Karnataka in the case of CIT Vs. C. R. Subramanian (242 ITR 342). According to the Revenue the CIT(A) erred in not appreciating that the asset in this case was held for business purpose and depreciation had been claimed and Capital Gains is to be worked out as per Sec.50(2) and not in the manner as had been directed by the CIT(A) in the impugned order. 5. Facts under which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property of the firm and the capital of the partners was constituted mostly by way of impressing the said property with the partnership character. This partnership firm also carried on business in the same line viz., iron and steel items with the additional provision that the partnership under its object clause was entitled to act as commission agent, manufacturer s representative and agents and developers and exploitation of properties. At the time of dissolution of the earlier firm MSC, the value of the property for the purpose of ascertainment of assets and liabilities of the different partners, is stated to have been revalued at ₹ 25 lakhs. ln the new partnership firm MA also, the property was shown at this new value of ₹ 25 lakhs and the capital shown to have been contributed by the three partners was also fixed accordingly. 7. By a registered sale deed executed on 23.12.1987, the above mentioned property was sold by the three partners viz. Shri M.V. Mahendraswamy, M.V. Narendranath and M.V. Rajendranath on behalf of the partnership firm MA to M/s. Bapuji Co-operative Bank Ltd., for ₹ 24,01,101. The dispute in the instant case is at the time of sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.10.88, 5.3.1989 and 30.3.1989 respectively. The ITO, however, passed an order u/s. 185 for assessment year 1985-86 on 12.10.1988 in respect of MA in which this partnership was considered as sham and a device to defeat the provisions of the Income Tax Act. Registration was accordingly refused to MA. Again, when the proposal regarding sale of the property was under consideration, MA applied for a clearance certificate under section 230A, which was duly granted by the ITO. 9. The main dispute between the Department and the assessee which is required to be resolved by the Tribunal was, whether MSC had actually been dissolved with effect from 30.9.1983 and the new firm had come into existence from 1.10.1983. The AO had collected evidence from various authorities and discussed them in detail in the assessment order to show that by circumstantial evidence it could be considered that the dissolution of the earlier firm and formation of the new firm were not genuine. At the first appellate stage also, the CIT (Appeals) made detailed discussions of the said arguments. The Department wanted to establish its point about the return in case of MA for assessment year 1985-86 and also the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the three male persons, as stated above, who had sold away the property and appropriated the entire sale proceeds amongst themselves. Accordingly, the Tribunal deleted the levy of capital gains tax in the hands of the assessee firm viz., MSC. 12. The Hon ble High Court of Karnataka in ITRC No.479 of 1998, by its judgment dated 27.11.2006 set aside the order of the Tribunal and remanded the case to the AO for fresh consideration, observing as follows:- The reference is accepted. The order of the Assessing Officer and the appellate orders are set aside. The matter is remitted to the Assessing Officer for re-decision. Both parties are to appear before the Assessing Officer, without waiting for any notice on 27.12.2006. Liberty is reserved to both parties to place entire material in terms of this order. The Assessing Officer is to accept the additional material plus the material already available on record and in the light of the Judgment reported in 242 ITR 342, if available and thereafter proceed to pass a reasoned order on merits, without in any way being influenced by his earlier order or this order. The Assessing Officer is to complete the proceedings within six months the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bifurcating the sale consideration received by attributing a portion of it towards the value of land and another portion towards value of the building. The following were the relevant observations of the CIT(Appeals):- It is seen that AO has not bifurcated capital gains working separately for land building and now he is directed in view of direction by Hon ble High Court to follow principles of Hon ble Karnataka High Court decision in case of CIT vs. C.R. Subramaniyan to compute capital gain separately for Land building. It is stated in remand report that since depreciation was allowed in block of assets for A.Y.1989-90 further, depreciation is not allowed since sold during previous year. However, AO is directed to compute capital gain on Income received on transfer of such assets as per section 52(2) of the Act. 6.7 As discussed in above paras, I have gone through facts submitted by appellant and AO and it is seen that as claimed by appellant there cannot be a dissolution on 30.09.1983 by taking away jointly held property by firm by only male partners and allowing Lady partner to continue firm s business, same will not amount to dissolution at most it can be change in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act. (b) In second place AO has no option but to follow procedure laid down by department. (c) Further, AO has acted in bonafide belief that order is to be passed after receiving from proper channel. (d) Delay has to be attached to time order traveled from Registry of the Honorable High Court to Department as meant by remand report of AO dated:13.10.2008. (e) In the order of the High Court at para 7, page 12 it is held that In the order of Tribunal, we have seen that the Tribunal has not chosen to consider the material in terms of findings of AO or in terms of Commissioner in the light of available to either parties.... Therefore, AO has stated that fresh order is passed on 28.10.2007 after considering directions of Honorable High Court of Karnataka, it is also stated that certain facts whichever brought in during the course of original assessment are not disputed that the firm was not dissolved on 30.09.1983 but continue to exist till the date of sale of the said property to Bapuji co-operative Bank on 23.12.1987. The AO has given seven instances for treating the dissolution dated 30.09.83 as a change in the constitution. 16. Aggrieved by the order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following conclusions:- 7. It would be evident from the narrations made above that the claim of the assessee about dissolution of MSC and formation of MA, although evidenced by duly executed deeds in those regards, are subject to considerable doubt and suspicion on account of omissions on the part of the assessee and the new firm to intimate these matters to other parties like the Sales Tax Department, bank, insurance company etc. We are not paying much attention to the claim of the assessee about intimation having been given at the relevant time to the Registrar of firms, for obvious reasons discussed above. However, the assessee has come up with some reasons, which have been described by us above. The justification of these reasonings is required to be weighed in the light of the theory of preponderance of probabilities. 8. For the purposes of establishing that MSC had not been dissolved and MA had not actually come into existence, the Department mainly relies on the circumstantial evidence of nonintimation to the authorities other than the income-tax department and also certain other factors. So far as the income-tax department itself is, however, concerned the facts s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 1985-86 showing the dissolution of the firm, the IT Department has indirectly accepted the said fact of dissolution. The same may be again the case about making assessments on the returns filed by MA for different years. However, it is required to be noted that all these assessments were made u/s. 143(1) without the conscious application of mind on the part of the assessing authority. On the other hand, similar strange circumstances like non-recording of the receipt of papers filed by the assessee with the Income-tax Department are claimed to have happened in respect of more than one such papers viz., the return of income of MSC for assessment year 1985-86 and also the letter of the assessee dated 3-10-1983 intimating the dissolution of MSC. The co-incidence of such strange circumstances on more than one occasions has got to be considered as really improbable. Hence, taking into consideration all the different aspects of the case and considering the theory of preponderance of probability, we are led to hold that the departmental contention about non-dissolution of MSC and subsequent non-inception of MA in October 1983 itself has got to be accepted. 22. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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