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2015 (5) TMI 466 - ITAT BANGALORE

2015 (5) TMI 466 - ITAT BANGALORE - TMI - Dissolution of Firm - Computation of capital gain in the hands of Firm or partners (or new Firm) - whether MSC had actually been dissolved with effect from 30.9.1983 and the new firm had come into existence from 1.10.1983? - whether firm M/s. Maganahalli Steel Corporation was liable to be taxed on capital gains on sale of the immovable property at Binny Company road, Davangere? - Held that:- It is no doubt true that if the circumstances of the assessee h .....

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f litigation. The evidence on record shows that the factum of dissolution of the firm was neither proved nor disproved. It is held 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 .....

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s 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 Karnataka in the case of C.R. Subramaniyan (supra). We find no grounds to interfere with the order of the CIT(Appeals) on this issue also. Land is not a depreciable a .....

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icial Member The appeal by the Revenue and Cross Objection by the assessee is against the order dated 8.4.2009 of the CIT(Appeals), Hubli relating to assessment year 1989-90. 2. The issues that arises for consideration in the CO by the assessee are as follows:- (1) Whether on the facts and in the circumstances of the case, the Revenue authorities were right in coming to the conclusion that the firm M/s. Maganahalli Steel Corporation was not dissolved on 30.09.1983 as per the deed of dissolution .....

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t the AO has passed the order after the expiry of period of six months from the date of the Hon ble High Court s order and contrary to the directions given by the Hon ble High Court in the said order to dispose of the case within six months? 3. The issue that arises for consideration in the appeal by the revenue is as under:- 2. The learned CIT(A) erred in directing to calculate Capital gains on land and building separately as per the principle laid down in the Hon ble High court of Karnataka in .....

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e 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 Karn .....

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Assessee or MSC ) was formed as a partnership firm on 1.4.1976 for the purpose of carrying on business of dealing in iron and steel items. On 26.08.1977, a property at B.C.Road, Davangere bearing D.No.120/1 (hereinafter referred to as the property ) was purchased out of the firm s funds in the name of the then partners Shri M.H. Nijananda for a consideration of ₹ 52,344. Subsequently, by means of a registered sale deed dated 27.11.1978, executed by the two partners viz. Shri M.H. Nijananda .....

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2,249. It was claimed by the assessee/MSC, that the firm at that time consisting of the four partners viz., Shri M. V. Mahendraswamy, M.V. Narendranath, M.V.Rajendranath and Smt.M.R. Jayashree was dissolved with effect from 30.09.1983. A copy of the said deed of dissolution dated 01.10.1983 was filed on the record of the AO. According to the said dissolution deed, whereas the property was allotted to the three retiring partners viz., Shri M.V. Mahendraswamy, M.V. Narendranath and M.V. Rajendrana .....

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after referred as MA ) by a partnership deed executed on 2.10.1983. A copy of the said partnership deed was also placed on the records of the AO. According to the above partnership deed, the above mentioned property belonging jointly to the three partners was made 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 .....

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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 the property, who was its actual owne .....

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formation of a new firm viz., MA. Accordingly, the AO assessed the capital gains arising on the sale of the above mentioned property as short term capital gains in the hands of the assessee firm, MSC. Some business income disclosed by MA during this year was also assessed in the hands of MSC. 8. In this connection, certain other facts are also required to be mentioned. Return of income of MSC for the assessment year 1985-86 for the truncated period up to the date of dissolution viz., 30.09.1983 .....

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to have been issued on the body of the copy retained by the assessee. The Department contested the genuineness of filing of this paper also. Form No.11 in respect of the new firm i.e., MA for assessment year 1985-86 is also stated to have been filed on the records of the assessee on 02.10.1983 about which also the Department raised a challenge. It is, however, a fact that an assessment was made on 26.10.1987 under section 143(1) in respect of the above mentioned return of income for the period u .....

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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 effec .....

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case of MA for assessment year 1985-86 and also the other letter intimating dissolution of the firm having been planted at a later date by referring to the regular receipt register maintained with the Department in which there were no entries relating to receipts of such papers. The assessee, on the other hand, argued that when the assessee was having in its possession duly acknowledged receipts in support of filing of the respective documents, the Department cannot now deny the said facts. The .....

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and the other documents in question had not been filed with the Department in a regular manner. 10. However, the Tribunal examined the totality of circumstances prevailing at the relevant time. Taking into consideration all the different aspects of the case and considering the theory of preponderances of probability, the Tribunal ultimately came to the conclusion that the Departmental contention about non-dissolution of MSC and subsequent non-inception of MA in October 1983 was required to be ac .....

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bunal also found that not only did the purchaser accept these three male persons to be the owner of the property as vendor thereof, but even the sale consideration also was deposited in the bank account of MA constituted by the three male persons only. The Tribunal thus came to the conclusion that on the face of such facts, it could not be concluded that the firm itself has sold away the property. On the other hand, the Tribunal held that it was the three male persons, as stated above, who had s .....

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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, with .....

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vidence already available on record, the AO came to the following conclusion:- The followings are the undisputed facts: (1) The assessee firm was not really dissolved on 30/09/1983 and it continued to exist till the date of sale which was evidenced by (a) The bank account and loan facility availed with Corporation bank which was closed only on 01/01/1988. (b) The sales tax assessment was made for the period subsequent to the said dissolution. (c) The insurance policies dated: 03/03/1983 were tak .....

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and formation of a new firm were clearly a device to avoid incidence of capital gain tax on sale of the said property. Thus, I hold that the whole transaction was Shun transaction. I, therefore, hold that the assessee firm is liable to tax on Capital Gains arriving out of sale of immovable property by rejecting and assessee s claim that the firm was dissolved and did not exist as on the date of sale and also the claim that property and the capital gain would be at a figure of ₹ 24,01,101/ .....

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y 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 .....

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n 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 constitution. Even same cannot be called as change of constitution in true term because said property has not been apportioned in profit/Loss sharing ratio but when property has been sold to Bapuji Bank on 23.12.1987 it can be treated as dissolution of firm to redistribute sale proceeds as per pro .....

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ollow in computation computing capital gain separately for land & building as per above discussion. 7. Thus, AO has followed direction of Hon ble High Court of Karnataka directions in the spirit directed by the Court. 8. Under the circumstances, principally action of AO is confirmed but technically for computation of capital gain tax as per directions of Hon ble Karnataka High court, appeal is treated as partially allowed. In result appeal is allowed in part. 15. It can be seen from the dire .....

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Appeals) held as follows:- 6. I have gone through materials on file and appeal is decided as under: 6.1 Date of passing order: It is crucial to know that when HONORABLE High Court mentions about specific date of performance of passing an order, if for laid down procedures of IT department of giving effect to such order only after receipt of such order by CIT/CCIT six month time as per IT Act will commence, Is the main Issue of content. (a) As per AO after receiving order from counsel order is gi .....

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ge 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 dissolv .....

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ssessee and holding that the order was passed within the time limit passed by the Hon ble High Court. 17. We have heard the submissions of the ld. counsel for the assessee and the ld. DR. 18. The ld. counsel for the assessee reiterated the submissions, as was made before the lower authorities and in the proceedings before the Tribunal in the first round of litigation. He drew our attention to the various circumstances which are listed in para 6 of the order of the Tribunal dated 20.7.1995 in ITA .....

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appeal and ought to have been considered by the Tribunal. He submitted before us that the same should be taken cognizance of. According to him, the fact of intimation of MSC was duly intimated to the AO by the assessee and the fact that under Sales Tax Act, returns were filed after the period of dissolution and bank accounts were operated by MSC cannot be the basis to come to the conclusion that MSC was not dissolved on 30.9.1983. 19. The ld. DR, on the other hand, placed firm reliance on the o .....

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eful consideration to the rival submissions. This Tribunal, in the original order passed in the appeal, after considering the material on record, came to the 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 intimat .....

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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 sand that as per the assessee s own version, the assessee had intimated the dissolution of MSC to the ITO and furthermore that a return of income for MSC .....

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eturn of income pertaining to MSC. The assessee argues hat when the assessee is having duly acknowledged receipts in support of filing of the respective documents, the Department cannot now deny the said facts. The other point raised by the assessee that the Department, having even made thorough investigations into the matter by referring it to the Government Examiner of Questioned Documents, could not come to any proper finding and furthermore that the Department did not even make proper enquir .....

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. Narendranath continued to sign the declaration forms in respect of turnover submitted before the Sales-tax authorities, as partners of MSC. The argument of the learned counsel for the assessee that the composition of the trading organization is not of much importance before the sales tax authorities may have some force. We are, however, confronted in this matter with the conduct of S/Shri M.V. Mahendraswamy and M.V. Narendranath. Had the dissolution of MSC really taken place, they would have b .....

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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 .....

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having intimated the income-tax department of its dissolution is given due credence and the factum of MA having filed the return of income even prior to the sale of the property is given due credence, it is possible to come to a conclusion that there was a dissolution of MSC on 30.9.1983. We do not wish to take a contrary view that was already taken by the Tribunal on identical set of facts. In other words, we give the benefit of doubt to the Revenue, as was done by the Tribunal in its order in .....

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