TMI Blog2015 (9) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the loan does not alter the cost of the assets purchased or the value of the asset transferred to the transferee. Therefore we do not have any hesitation to confirm the order of the Ld. CIT (A) as well as the order of the Ld. Assessing Officer. - Decided against assessee. - I.T.A. No.2323/Mds. /2014 - - - Dated:- 12-6-2015 - SHRI N.R.S.GANESAN AND SHRI A.MOHAN ALANKAMONY, JJ. For The Appellant : Mr.K.Ravi,Advocate For The Respondent : Dr.S.Moharana,CIT, D.R ORDER PER A. MOHAN ALANKAMONY , ACCOUNTANT MEMBER: This appeal is filed by the Assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-I, Madurai dated 20.08.2014 in ITA No.0053/2013-14 passed under Sec.143(3) read with section 147 Sec. 250 of the Act. 2. The Assessee has raised 24 elaborate argumentative grounds in its appeal, however the crux of the issue is that:- (1) The Commissioner of Income Tax (Appeals) had erred in sustaining the validity of the re-assessment proceedings u/s.147 of the Act as it is beyond the scope of the powers conferred by Sec.148 of the Act . (2) The Commissioner of Income Tax (Appeals) had erred in sustaining the order of the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. A. R. had objected to the addition before the Ld. Assessing Officer for the following reasons:- The term or otherwise as interpreted in the case of CIT Vs. A. N. Naik Associates (2004) 265 ITR 346 (Bom.) cannot be made applicable unless there is a transfer of capital asset by way of distribution happens in the partnership. Only when there is a transfer of capital asset by way of distribution on the dissolution of a firm or otherwise, can the provisions of section 45(4) be invoked. In the present case there is no distribution as envisaged by the section 45(4), since there has been no cessation of business as the other partners continue the business as a going concern after the retirement of one of them, There can be no distribution where a running business as a going concern is taken over as pointed by the Supreme Court in Sakthi Trading Co. Vs. CIT in (2001) 250 ITR 871. Reliance was also placed on the following case laws: o Puranyannur Industries Vs. ACIT (2010) 188 Taxman 34(Mag.)(Cochin)(Trib.) wherein it was held that on allocation of properties and goodwill to the account of the retiring partner, and constitution by remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Case law quoted Held/Discussed Reasons for rejection Sakthi trading Co. V. CIT in (2001) 250 ITR 871 The ruling of the apex court is relating to reconstitution of firm on the death of one of the partners and relating valuation of closing stock. There is no transfer of capital asset and the case law irrelevant to this case. Puranyannur Industries Vs. ACIT (2010) 188 Taxmann 34(Mag.)(Cochin)(Trib.) There was no dissolution and no de-facto distribution of assets. The Tribunal has considered the question of dissolution and not dealt with the menaing of otherwise . Further there is de-facto transfer of asset. Puranyannur Industries Vs. ACIT (2010) 188 Taxmann 34(Mag.)(Cochin)(Trib.) Here again the Tribunal has considered the question of dissolution and not the meaning of otherwise . Gujarat H. C in CIT Vs. Mohanbhai Pamabai (1973) 91 ITR 393 Case law relates to retirement of partners and with regard to share of goodwill. Both the points in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g assets in favour of a retiring partner. The expression otherwise has not to be read ejusdem generis with the expression dissolution of a firm or body of individuals or association of persons. The expression otherwise has to be read with the words transfer of capital assets by way of distribution of capital assets. If so read, it becomes clear that even when a firm is in existence and there is a transfer of capital assets, it comes within expression otherwise as the object of the amending Act was to remove the loophole which existed whereby capital gain tax was not chargeable. Therefore, when the asset of the partnership is transferred to a retiring partner, the partnership which is assessable to tax ceases to have a right or its right in the property stands extinguished in favour of the partner to whom it is transferred. If so read, it will further the object and purpose and intent of the amendment of section 45. Once that be the case, the transfer of assets of the partnership to the retiring partners would amount to the transfer of the capital assets in the nature of capital gains and business profits which are chargeable to tax U/s. 45(4). Therefore, the word ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and have considered the matter holistically in a very detailed manner discussing and considering the statement of objects of Finance Act 1987 for introducing the section 45(4) taking into consideration whether partnership assets are converted to individual assets holding that provisions of section 45(4) are applicable. The case laws cited by the Appellant, discussed earlier, are not on identical facts and also they ignored the statement of objects of Finance Act 1987 for introducing the section 45(4). In my view the decision of High Court off Bombay, Goa Bench in CIT Vs. A. N. Naik Associated (2004) 265 ITR 346 and ITAT Mumbai Bench I Sudhar M. Shetty vs. ACIT, Mumbai [2011] 130 ITD 197(Mum.) are directly applicable to the present case. Following above two decisions it is held that provisions of section 45(4) are applicable as there is conversion of partnership assets into the individual assets. 5.27 It is held that the decision of the Assessing Officer on this issue is in order. Objects of the appellant on this issue are rejected. 6. What is the consideration to be adopted: The next objection relates adopting ₹ 9,04,10,000/- as the consideration while comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to loan taken from Federal Bank, which was to be settled by the continuing partners that need to be factored while computing capital gain of the assessee was also decided against the assessee by the Ld. CIT (A) thereby sustaining the order of the Ld. Assessing Officer. 8. Before us, the Ld. A. R. reiterated the submissions made before the Revenue on either occasions and also heavily relied in the decision of the Chennai Bench of the Tribunal in the case ACIT Vs. Goyal Dresses reported in 126 ITD 131 which was confirmed by the Hon ble Jurisdictional Madras High Court vide order dated 20.8.2013 in Tax Appeal No.222 of 2013, 84 of 2009 88 of 2010. However, we find the decision of the Goyal Dresses not applicable to the case of the assessee because that case relates to family arrangement which is not the case of the assessee before us. Ld. D. R on the other hand relied on the orders of the Revenue. 9. We have heard both the parties and carefully perused the materials available on record. The case of the assessee is very simple. During the year under consideration the assessee firm was reconstituted wherein one of the partners Mrs. Arunan Visvewar had retired and therefore rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o its partners otherwise than on dissolution of the firm. (iii) CIT Vs. A. N. Naik Associates [2004] 136 Taxman 107/265 ITR 346(Bom.) The expression otherwise has not to be read ejusdem generis with the expression dissolution of a firm or body of individuals or association of persons. The expression otherwise has to be read with the words transfer of capital assets by way of distribution of capital assets. If so read, it becomes clear that even when a firm is in existence and there is a transfer of capital assets, it comes within expression otherwise as the object of the amending Act was to remove the loophole which existed whereby capital gain tax was not chargeable. Therefore, when the asset of the partnership is transferred to a retiring partner, the partnership which is assessable to tax ceases to have a right or its right in the property stands extinguished in favour of the partner to whom it is transferred. If so read, it will further the object and purpose and intent of the amendment of section 45. Once that be the case, the transfer of assets of the partnership to the retiring partners would amount to the transfer of the capital assets in the nature of c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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