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Astt. Commissioner of Income-tax 131) , Mumbai Versus Shri Mohamed Hussain Umer Merchant,

2016 (4) TMI 502 - ITAT MUMBAI

Taxability of the amount received from the partnership firm - assessee declared the same as capital gains in its return of income and proposed to avail exemption u/s 54F - Held that:- CIT(A) has rightly referred to the provisions of sec. 45(4) of the Act, which provides for manner of taxation in case of dissolution of a partnership firm or other association of persons. We have earlier noticed that the assessing officer has proceeded the to assess the amount of ₹ 2.50 crores as revenue rece .....

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mpugned amount of ₹ 2,50,00,000/- in the hands of the assessee. - Decided against revenue

Taxability of amount received by the assessee from M/s Samarth Erectors & Developers - Held that:- The assessee has spent money in connection with the land belonging to the Society cannot be disputed in this assessment year. Further, what the assessee received from M/s Samarth Erectors & Developers is the reimbursement of expenses already incurred by the assessee. When the said fact is conf .....

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ed that the receipt of ₹ 1,30,00,000/- as a separate source of income distinct and separate from the expenses incurred by the assessee on the land. It is also an admitted fact that the details of expenses incurred by the assessee are available in the books of accounts of the past years and further the assessee has also furnished the statement of expenses to the assessing officer during the course of assessment proceedings. Hence we are of the view that the Ld CIT(A) was justified in direct .....

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following issues:- (a) Deleting the addition of ₹ 2.50 crores treating the same as capital receipt. (b) Deleting the addition of ₹ 1.30 crores relating to the amount received from M/s Samarth Erectors & Decorators. 2. The facts relating to the issues are stated in brief. The assessee is a partner in a partnership firm named M/s Venus Builders. Besides, he is also running proprietory concerns under the name M/s Star Petrol Pump and M/s Venus Builders (same name as that of partner .....

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. Co. P Ltd into the books of Partnership firm as its capital. As per the partnership deed, the assessee took up the responsibility to clear certain encumbrances attached to the property that was proposed to be developed. Subsequently disputes developed between the partners and when the matter went to Hon ble High Court of Bombay, it appointed an arbitrator named Shri J.V. Chinai to arbitrate and settle the dispute between the partners. As per the decision of the arbitrator, the partnership firm .....

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e course of assessment proceedings, the assessee changed his stand and contended the same represented capital receipt and hence not taxable. 5. The AO examined the claim of the assessee and took the view that the claim of existence of partnership firm itself is not acceptable for the following reasons:- (a) Even though it was claimed that the partnership agreement was entered on 19.10.1998, the same was registered only on 01.10.2003. (b) Under the deed of partnership, the role of the assessee is .....

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t between the assessee and M/s M.D. Choksi Const. Co. Pvt Ltd for clearing the property in question belonging to M/s M.D. Choksi Const. Co. P Ltd of all its encumbrances. At best, it can be stated that it was an association of persons by which the services of the assessee were drafted with an express purpose for deriding the property belonging to M/s M.D. Choksi Const. Co. Pvt Ltd of all its attendant liabilities and encumbrances and in recognition of services rendered by the assessee, he was to .....

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which or the basis on which the computation of quantum of compensation finally which came to be paid to the assessee was worked out. As far as the income tax proceedings are concerned, this was another aspect of inquiry which was precluded on account of incomplete data furnished by the assessee in this context. This alone would merit adequate ground for rejecting the plea of the assessee. Then the assessing officer placed reliance on the decision rendered by Hon ble Delhi High Court in the case .....

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onst. Co. Pvt Ltd and accordingly assessed the amount of ₹ 2.50 crores as revenue receipt. 6. In effect, the assessing officer did not accept the claim of existence of a partnership firm and hence he proceeded to examine about the nature of receipt and finally concluded that the same represents revenue receipt and in this regard, he placed reliance on the decision rendered by Hon ble Delhi High Court, referred supra. 7. The Ld CIT(A) however held that the assessee has received the impugned .....

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n a firm by name and style of M/s Venus Builders (India) which was registered on 1/10/2003 w.e.f. 19/10/1998 and evidenced by a deed of partnership on stamp paper of ₹ 100/-. The issue that requires consideration is if this firm was validly formed as per the requirements of the Indian Partnership Act, 1932 and merely because it did not file an income tax return nor applied for registration u/s 184 etc., then later on can this by itself disentitle the firm for being considered as a firm for .....

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nt terms/award that since no business was carried on and no returns relating to the said firm was filed and it was agreed to treat the firm as dissolved - clearly shows that a partnership firm deed (sic. did) exist in law as required by the Indian Partnership Act, 1932 and AO could not have ignored the same. Hence, what the appellant has received is nothing but his share on the dissolution of the partnership firm - as stated in Clause 3 of the consent/award, which is taxable in the hands of the .....

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lear finding that there existed a Partnership firm and the assessee has received the impugned amount of ₹ 2.50 crores on dissolution of the said partnership firm. We have earlier noticed that the assessing officer has proceeded the to assess the amount of ₹ 2.50 crores as revenue receipt only by rejecting the claim of existence of partnership firm. However, the finding of the Ld CIT(A) that there existed a Partnership firm and the assessee has received the impugned amount of ₹ .....

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e Ld CIT(A), on the facts and in the circumstances of the case, erred in law in deleting addition made of ₹ 2,50,00,000/- received by the assessee from the firm, on retirement treating it as capital receipt on dissolution of the firm without appreciating the fact that the amounts received by the partner on retirement does not amount to transfer u/s 2(47) of the I.T Act and does not fall within the ambit of Sec. 45 of the Act as there is no transfer of capital assset. (228 ITR 202 Delhi) 9. .....

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of the view that the assessing officer was not justified in rejecting the partnership firm, merely because the partnership firm did not file return of income or it did not produce the books of accounts before the arbitrator. The very fact that the partnership firm was registered under the Indian Partnership Act way back in October, 2003 (we are dealing with AY 2007- 08) clearly shows that the formation of partnership cannot be considered to be a make belief arrangement, since at the point of tim .....

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n the caseof Manoranjan Pictures Corporation Pvt Ltd (1997)(228 ITR 202). We notice that the assessment year considered by Hon ble Delhi High Court was assessment year 1971-72 and the scheme of taxation of partnership firm and its partners has undergone a sea change from AY 1993-94 onwards. Hence, in our view, the assessing officer should have not placed reliance on the above said decision, which was rendered in the context of the provisions then existing in the Act. 11. We are of the view that .....

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rgeable 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 full value of the consideration received or accruing as a result of the transfer. It can be noticed the liability to pay tax arising on distribution of assets on the dissolution of a partnership firm or association of persons or body of individuals is fa .....

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if the conditions prescribed therein are satisfied. 12. In view of the foregoing discussions, we do not find any infirmity in the decision of Ld CIT(A) in holding that the assessing officer was not right in law in assessing the impugned amount of ₹ 2,50,00,000/- in the hands of the assessee. Accordingly we uphold his decision on this issue. 13. The next issue contested by the revenue relates to the taxability of ₹ 1.30 crores received by the assessee from M/s Samarth Erectors & D .....

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e assessee also allocated a part of indirect expenses towards the land. The Land account disclosed a balance of ₹ 1,30,83,179/-, ₹ 1,31,88,474/- and ₹ 1,36,31,449/- respectively in the years relevant to the assessment years 2004-05, 2005-06 and 2006-07. It is also an undisputed fact that the assessee declared this land as his current asset, since he treated the dealing in the said land as his business activity. 14. Subsequently, the above said society entered into a development .....

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9/- (Rs.1,37,52,449/- less ₹ 1,30,00,000/-), since the amount received by him was lesser than the actual expenditure incurred by him. 15. The assessing officer took the view that the assessee does not have any document to explain the nature of compensation paid by M/s Samarth Erectors & Developers. He further observed that the assessee has failed to furnish copy of accounts submitted by him to M/s Samarth Erectors & Developers. Accordingly the AO held that the expenditure of ₹ .....

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s before the AO and also confirmation obtained from M/s Samarth Erectors & Developers to the AO. Accordingly the Ld CIT(A) held that the expenditure of ₹ 1,37,52,449/- claimed by the assessee should be allowed. 17. We heard the rival contentions on this issue and perused the record. In our view, the approach of the assessing officer in this matter and the reasoning given by him to disregard the claim of expenses are devoid of merits. There is no dispute with regard to the fact that the .....

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