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2016 (5) TMI 582 - ITAT PUNE

2016 (5) TMI 582 - ITAT PUNE - TMI - Taxability of capital gain in the hands of the partnership firm - assessee 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 - Held that:- 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, (2003 (7) TMI 46 - BOMBAY High Court ) discussed by t .....

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The Hon’ble Supreme Court in the case of ITO vs. Ch. Atchaiah (1995 (12) TMI 1 - SUPREME Court ) 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 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 .....

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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 ₹ 14,63,500/-. The project was sold to one M/s Fame Constructions for a consideration of ₹ 75 lacs resulting in income of ₹ 60,36,500/-. 3. In the course of assessment proceedings, two issu .....

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hand, the assessee claimed that the partners have offered the income for taxation in their hands. 4. The dispute was carried to the ITAT. The ITAT in its combined order dated 28/11/2008 in ITA No.278/PN/2001 and others, after analysing the facts concerning the above issues decided in the first issue in favour of the Assessee. The ITAT held that the under-construction work is a capital asset in the facts of the case and accordingly chargeable to tax under the head capital gains on its transfer. .....

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und favour with the CIT(A) on the first issue. The CIT(A) after taking note of the order of the ITAT accepted that income arising from sale of unfinished construction project is required to assessed as capital gains and not as business income . 6. On the second issue however, the CIT(A) held that income is required to taxed in the hands of the partnership firm and not in the hands of individual partners in view of the express provisions of the statute. The relevant paras of the order of CIT(A) c .....

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ss 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 th .....

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incidentally took on three different occasions and different dates still the appellant has not been able to furnish any such details which could justify the claim made. The first assessment u/s 143(3) was completed on 28.03.2000 and the last set aside assessment u/s 143(3) was completed on 24.12.2009 and for the past nine years the appellant has been seeking an opportunity to present their view point and explanation which as contended has not been provided. The appellant has been harping on the .....

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ncluded and filed during the present appellate proceedings, it has been mentioned that in A.Y. 1993-94 the investment was distributed among the partners by crediting investment account and debiting the partners' capital account and that unsold part of the property was sold to another developer M/s Fame Construction and a power of attorney was executed in favor of the partner of the firm, Fame Construction, Shri. M.Y. Shaikh and thus arose the capital gain to the various partners. The appella .....

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law requires the formalities of registration when the relevant law makes such formalities a categorical imperative. The whole concept of partnership is to embark upon a joint venture and, for that purpose, to bring them as capital 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 .....

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anied 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 the partners by mere entries in the books during subsistence of partner .....

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ble, the ITAT Pune held that capital gain arises to firm u/s 45(4). The Hon. ITAT held that the land was purchased with the funds of the firm and it was shown in the balance sheet of the assessee year to year till it was distributed in connection with the dissolution of the firm. Section 14 of the Partnership Act, clearly provides that any property obtained by the means of partnership from time to time during its continuation whether by way of purchase or by employment in the business, is the pa .....

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vidence has been produced and therefore, it is held that the land belonged to the firm. 4.12 Sec. 45(4) introduced w.e.f. AY. 1988-89, provides that profits or gains arising from the transfer of a capital asset by a firm to a partner on dissolution or otherwise shall be chargeable by the firm's income in the previous year in which the transfer took place. The A.O. has not taken into account this specific provision while deciding the issue as the income has been assessed as business income an .....

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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 .....

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here is no transfer, is not sustainable. Firstly, the definition of transfer itself is inclusive. Before the introduction of 45(4), there was clause (ii) of section 47. Clause (ii) contained earlier in Sec. 47 meant that the distribution of capital assets on the dissolution of the firm etc, were not regarded as 'transfer'. The Finance Act, 1987 w.e.f. 1st April 1988 omitted this clause, the effect of which is that distribution of capital assets on the dissolution of a firm would hencefor .....

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Even the details with respect to the issues raised by the ITAT for which specific directions were issued has not been complied with by the appellant. The appellant has not filed any further details with respect to either the discontinuation of business, transfer of assets from the firm to partners and also with respect to any agreement entered into between the parties. Thus, in the absence of any details with respect to the above the position remains as it was earlier before the CIT(A)-II during .....

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dispute as to whether the firm was dissolved or not dissolved. One of the partners who had attended before the A.O. had confirmed that the partners had taken over the work in progress on dissolution of the firm, other partners of the firm contend otherwise. The fact of the case are therefore not very clear. But the sale deed despite indicating that the Naiks were owners of the work in progress also indicate that they were partners of the firm which had developed this project. It is not understoo .....

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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 t .....

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of the firm and not in hands of the individual partners as claimed by the appellant under the head income from capital gains and not under the head "income from business' as worked out by the A.O. The grounds of appeal no.1, 2 and 3 raised by the appellant are accordingly decided and the appeal is partly allowed. 7. Aggrieved by the order of the CIT(A), the assessee is in appeal before us by raising the following Grounds of Appeal reproduced hereunder :- 1. In the facts and circumstanc .....

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ner of Income-tax (Appeals) erred in holding that there cannot be valid transfer from a firm to a partner without a registered deed. The learned CIT (Appeals) failed to note that in view of the decision of the Hon'ble Apex court in case of Chandra Pandian Vs. Shivlinga Nadar (1993) 1 SSC 589, no registration is necessary. 4. The learned Commissioner of Income-Tax (Appeals) fell in error of law in not appreciating that transfer from a firm to its' partner(s) can be made in a manner other .....

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