TMI Blog2016 (5) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... o option but to tax the income in the right hands irrespective of the fact that wrong person has already been taxed for the particular income. Hence, we decline to interfere with the order of the CIT(A) appealed against. - Decided against assessee - ITA No. 1644/PN/2012 - - - Dated:- 30-12-2015 - Ms. Sushma Chowla, JM And Shri Pradip Kumar Kedia, AM For the Appellant : Shri Sunil Pathak For the Respondent : Shri Pankaj Garg ORDER Per Pradip Kumar Kedia, AM The present appeal preferred by the assessee is against the order of CIT(A)-II, Pune dated 23.03.2012 relating to assessment year 1993-94 passed under section 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short the Act ). 2. Briefly stated, the Assessee is a partnership firm established to develop the ancestral property of the partners at Guruwar Peth, Pune. The development was commenced in phases and could not be completed owing to difference in the partners. In the financial year 1992-93 relevant to Assessment Year 1993-94, the partners divided under-constructed property i.e. work in progress (WIP) in their respective profit sharing ratio. The cost of unfinished construction project stands at & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A)-I vide his order dated 11.11.2000, the A.O. in view of the directions of the Ld. CIT(A)-I, Pune sought the details from the appellant and in compliance one of the partners namely Uday Naik had attended before the A.O. and had furnished a written submission dated 11-02-2002 wherein it was stated as under : (1) The work in progress was taken over by the partners of the firm after dissolution of the firm. (2) The information as required u/s 176(3) of the IT Act, 1961 was not filed. (3) No transfer deed in respect of the unfinished work in progressed was made by the firm. (4) The ownership of the work in progress was transferred to the partners in their profit sharing ratio. The AO had also remarked that no documentary evidences were produced by the appellant along with the aforesaid submission dated 11-02-2002. During the present assessment proceedings also, the appellant has not been able to furnish any such evidences as contended and the same partner Uday Naik had attended before the A.O. that too for seeking adjournment, though no details or any submission especially with respect to the detail as directed by the Hon. ITAT was furnished. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al money or even property including immovable property. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in and it would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. But, the transfer of property by the firm to an existing partner by mere adjustment of books entries otherwise than in connection with the dissolution of the partnership or retirement of the partner from the partnership, not accompanied by a duly registered deed of conveyance constitutes no transfer. It was so held in the case of CIT Vs Kedarnath Poddar Co (1993) 2001 ITR 639 (Cal) and also by the Bombay High Court in the case of J M Mehta Bras 214 ITR 716 (Bom) cited supra. 4.10.1 In the case of J M Mehta cited supra the Hon. Bombay High court held that there cannot be a division of the properties purchased in the name of the firm between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A N Naik Associates 265 ITR 346 (Bom) has held that transfer assets by the firm to partners as well as partner to firm capital gain arises. 4.13 The Hon. Bombay High Court in the case of CIT Vs A.N. Naik Associates (2004) 265 ITR 346 (Bom) held that if the object of the Act is seen and the mischief it seeks to avoid, it would be clear that the intention of Parliament was to bring into the tax net transactions whereby assets were brought into a firm or taken out of the firm. The expression otherwise has not to be read ejusdem generis with the expression dissolution of a firm of body or AOP . The expression 'otherwise' has to be read with 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 the expression 'otherwise' as the object of the amending Act was to remove the loophole which existed whereby capital gains tax was not chargeable. It was further observed that contention that Sec. 2(47) has not been amended and consequently even if Sec. 45(4) has been brought in by the amendment yet there is no transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icate that they were partners of the firm which had developed this project. It is not understood as to how the partners could apportion the assets held by the firm without completing the legal formalities. If the firm had developed the property then it is the firm, which is the owner of the property and the effect of transfer of this property to the partners by the firm could not be given by passing mere entries in the books of account of the firm. For income-tax purposes a firm is a separate entity having separate rights and distinct from the rights of the partners. A mere assertion that the partners took over the assets of the firm without completing the legal formalities would have to be rejected outright. In the case of CIT Vs J.M. Mehta Bros (1995) 214 ITR 716 (Bom), the Bombay High court have also held that the capital gain arising on the sale of the immovable property of a firm was assessable in the hands of the firm even if there was transfer of the property belonging to the firm to its partners by means of book entries. Under the circumstances, I would hold that the capital gains which arose from the sale of the work in progress of the firm, would have to be assessed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the submissions made for the CIT(A) and contended that the partners have already paid taxes in their individual hands and taxation on the firm for the same capital gains would amount to double taxation. 10. We notice that the issue is squarely covered against the assessee by the decision of the jurisdictional High Court in the case of CIT vs. A N Naik Associates, 265 ITR 346 (Bom.) discussed by the CIT(A) in para 4.13 of its order. The consideration received on transfer of the property by the partnership is taxable in the hands of the partnership firm in view of the expression otherwise employed in S. 45(4) of the Act. Accordingly, We are in agreement with the view of the CIT(A) that the impugned capital gains are taxable in the hands of the partnership firm. 11. We also do not find any merit seeking relief on the ground that the partners have already paid taxes in the individual capacity. The Hon ble Supreme Court in the case of ITO vs. Ch. Atchaiah, 218 ITR 239 (SC) has held that the Revenue has no option but to tax the income in the right hands irrespective of the fact that wrong person has already been taxed for the particular income. Hence, we decline to interfere w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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