TMI Blog2016 (10) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... full value of consideration in respect of land and building transferred on dissolution in an arbitrary manner without referring the matter to the valuation officer u/s 55A r.w.s 142A - Held that:- AO by way of issuing show cause notice to the assessee showed his intention to calculate capital gains for A.Y 2009-10 and the assessee did not object to the applicability of the Collector rate in calculation of capital gains and the assessee only stressed upon to take collector’ prevailing market rate on or before 31.3.2008 which could have been applied to the case of A.Y 2008-09 and this action of the AO was correct and as per provisions of the Act. There was no need to refer the matter to the valuation officer u/s 55A of the assessee Act, as such. Accordingly, Ground being devoid of merits is dismissed. Capital gain on the shellar building - Held that:- CIT(A) upheld the addition merely by observing that the assessee had failed to cooperate in furnishing details as called by the AO, therefore, addition of ₹ 2 lakhs as capital gain on the shellar building is considered reasonable. From the orders of the authorities below and conclusion drawn by them, as noted above, we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for rejecting the circle rate of land furnished by the assessee before him and also the rate of construction has been taken by him only on the basis of oral inquiry. Thus, the addition of ₹ 48,74,280/- is not justified and the same may please be deleted. 4. That the Ld CIT(A) has erred in law while confirming the action of the Ld. AO of calculating the full value of consideration in respect of land and building transferred on dissolution in arbitrary manner without referring the matter to Valuation officer u/s 55A r.w. section 142A of the Income Tax Act, and as such the addition of ₹ 46,74,280/- on account of capital gain u/s 45(4) made by the LD AO and confirmed by CIT(A) is not acceptable and may please be deleted. 5. That the Ld CIT(A) has erred in law while confirming the adhoc addition of ₹ 2,00,000/- made by the Ld AO u/s 45(4), in respect of transfer of building constructed on land belonging to third party, is unjustified and may please be deleted. Ground No. 1 3. Apropos this ground, we have heard the rival submissions and have carefully perused the relevant material on record of the Tribunal inter alia the assessment order, impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are attracted on 31.3.2008 only and therefore, the capital gains on the assets transferred to the outgoing partners should be taxed in A.Y 2008-09 only and not in A.Y 2009-10. Drawing our attention towards the decision of the Hon'ble Kerala High Court in the case of Southern Tubes [supra], the ld. AR pointed out that the A.O in his remand report para 2(vi) has placed his reliance on the decision of the Hon'ble Madras High Court in the case of CIT Vs. Vijayalakshmi Metal Industries reported at 256 ITR 540 [Mds] and after considering the ratio of this decision, the Hon'ble High Court of Kerala in the case of Southern Tubes [supra] observed held that dissolution deed is an agreement and if the provisions of such deed provide for relinquishment of right of one partner on the assets, namely, immovable property in favour of another partner, then the latter becomes absolute owner of the property. 7. The ld. AR drew our attention towards para 3, 4 and 5 of the said order, which is being reproduced herein below for ready reference: 3. Since the question raised pertains to interpretation of Section 2(47) and Section 45(4) of the I.T. Act, we extract hereunder these two pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(47)defining transfer does not take in the case of dissolution of a firm and since section 45(4) is not a self-contained code for assessment of capital gains arising from the transfer of capital assets by way of distribution of capital assets on the dissolution of the firm, no assessment is permissible in the case of the assessee. We are unable to agree with the view taken by the Tribunal that Section 2(47) does not cover dissolution and distribution of assets of a firm because sub- clause (vi) ofSection 2(47) covers every agreement or arrangement in whatever manner which has the effect of transferring or enabling enjoyment of any immovable property. In fact the transactions referred to in the latter part of clause (vi) are exhaustive and in our view the scope of the Section is such that if the result of arrangement or agreement of a transaction is a transfer of assets or enabling enjoyment of any immovable property, then the transaction which led to such result is a transfer. In this case the dissolution deed provides that land and factory building on dissolution will devolve upon one of the partners who wanted to continue business as a proprietor. Dissolution deed is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the above, the ld. DR supported the assessment order as well as the first appellate order and took us through the submission of the assessee before the CIT(A) dated 4.12.2012 and submitted that the assessee itself has not calculated and offered to tax any capital gains on the assets transferred to the outgoing partners during 2008- 08 and all transactions and transfer of assets including accounting entries have been made during F.Y. 2008-09 i.e. on or after 1.4.2008 pertaining to A.Y 2009-10. The ld. DR drew our attention towards letter of the assessee dated 4.12.2012, available at pages 37 38 of the assessee s paper book [APB for short] and vehemently contended that the assessee fairly admitted that ITR for A.Y 2008-09 does not have any inclusion of capital gain in the computation of income. The ld. DR further contended that the assessee neither offered capital gain for A.Y 2008-09 in its return of income nor ready to include capital gains in A.Y 2009-10, then the object of varying upto the Tribunal level is very clear that the assessee is not willing to pay any tax on the capital gain accrued to it on transfer of assets to the outgoing partners. The ld. DR also pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be given/assigned to them within a period of four months from the date of dissolution and these obligations and accounting entries and transfer of immovable assets took place during F.Y. 2008-09 starting w.e.f 1.4.2008. Therefore, capital gains were rightly treated as income of the firm for A.Y 2009-10. Therefore, the appeal of the assessee being devoid of merits may be dismissed. 10. In rejoinder to the above submissions, the ld. AR also placed reliance on the decision of the Hon'ble Kerala High Court in the case of CIT Vs. Southern Tubes [supra] and submitted that when the firm was dissolves on 31.3.2008 during the F.Y. 2007-08 pertaining to A.Y 2008-08, then the capital gains cannot be taxed in A.Y 2009-10. The ld. AR vehemently contended that as per the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. R.M. Am [1971] 82 ITR 194 wherein it was held that the transaction, in order to attract the charge of tax as capital gains, must be such that consideration is received by the assessee or accrues to the assessee as a result of the extinguishment of the rights in the capital asset. In the present case, the assessee firm extinguished its rights from c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket value of the asset on the date of such transfer shall be deemed to be the ful l value of the consideration received or accruing as a result of the transfer. 13. The main thrust of the assessee appellant, in the present case, is that as per the dissolution deed, the firm was dissolved on 31.3.2008 within F.Y. 2007-08 pertaining to A.Y 2008-09. Therefore, capital gain arose to the assessee firm on transfer of assets to the outgoing partners cannot be taxed in A.Y 2009-10. First of all, we may point out that as per the assessee s reply to the CIT(A) dated 4.12.2012, the assessee, in para 2 submitted as follows: It is further stated that at the time of filing the ITR for the AY 2008-09, the applicability of section 45(4) of the Act when there is dissolution, reconstitution and continuity in business as a going concern, was not clear. It was only in the course of Assessment Proceedings u/s 143)(3) of the Act before the A.O for the AY 2009-10, an extensive study of the Capital Gain provisions was undertaken which suggested that Capital Gains do accrue at the time when Dissolution takes place although the business is continued as a going concern. In view of the above factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , their Lordships have accepted the stand of the Revenue by observing that the assessee firm, having two partners, were dissolved under the deed of dissolution, one partner took over the land and factory building of the assessee after dissolution of firm while the second partner continued business as proprietorship, therefore, the transaction which resulted on the occasion of dissolution of the partnership firm was transferred within the meaning of section 2(47)(vi) of the Act. We respectfully agree with this proposition and in the present case, from the facts emerging from the documentary evidence and material available on record, it is amply clear that the transfer of capital assets on dissolution of firm took place within F.Y. 2008-09 relevant to A.Y 2009-10. From a vigilant reading of the Hon'ble Gujarat High Court judgment in the case of R.M. AM [supra] we observe that it is a case of liquidation of a company and the ratio of this judgment cannot be applied to the case of a partnership firm where capital gains arose to the assessee from transfer of assets to the outgoing partners. In view of the above, we are of the humble opinion that in these decisions, as relied by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revailing market rates as certified by the Collector Karnal. We may point out that in this letter also, the assessee did not raise any objection taxing capital gains in A.Y 2009-10. However, he objected to the applicability of Col lector market rate prevailing upto 31.3.2009 and requesting to apply t market rate prevailing on or before 31..32008. There was no request from the assessee to refer the matter to the valuation officer u/s 55A of the Act. Therefore, the contention and allegation contained in Ground No. 4 of the assessee cannot be held as sustainable and accepted. 19. At this juncture, we may point out that the AO, by way of issuing show cause notice to the assessee showed his intention to calculate capital gains for A.Y 2009-10 and the assessee did not object to the applicability of the Collector rate in calculation of capital gains and the assessee only stressed upon to take collector prevailing market rate on or before 31.3.2008 which could have been applied to the case of A.Y 2008-09 and this action of the AO was correct and as per provisions of the Act. There was no need to refer the matter to the valuation officer u/s 55A of the assessee Act, as such. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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