9911796707
TMI Blog2017 (3) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Sonata Investment Limited. Subsequently, by a deed dated 21.4.2006, M/s. Sonata Investment Ltd. retired from the partnership firm and Mr. Surendra Pipara was inducted as a partner. The object of the partnership firm shall be that of trading in various commodities and articles other than shares, securities, life insurance and/or such other business or businesses as the parties mutually agreed upon. As per clause 6 of the partnership deed, profit and loss shall be divided in the ratio of weighted average capital of the partners. 4. According to the assessee, the return of income filed for A.Y. 2007-08 has been accepted by the Assessing Officer treating the status of the assessee as partnership firm. Return of income for the year under consideration was filed on 30.7.2008 wherein the assessee declared long term capital gain arising on sale of shares of M/s. Assam Company Ltd. amounting to Rs. 26.87 crores. These shares were purchased immediately preceding year and were duly declared as "investment" in the books of account. 5. Subsequently, the Assessing Officer reopened the assessment by issuing notice u/s. 148 on 16.5.2012 i.e. within the four years from the end of the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to decide about the nature of transactions. Accordingly the Assessing Officer took the view that the profit arising on sale of shares of M/s. Assam Company Ltd. should be assessed as business income and completed assessment accordingly. 7. Before Ld CIT(A), the assessee contested the validity of reopening of assessment as well as the assessment of profits arising on sale of shares as its business income. The Ld CIT(A) upheld the validity of reopening, but agreed with the assessee's contention that the profits arising on sale of shares of M/s Assam company Ltd should be assessed as Long term capital gains only. Both the parties are aggrieved on the points decided against each of them. 8. We shall first take up the appeal filed by the revenue, wherein the revenue is contesting the decision of Ld CIT(A) in holding that the gain arising on sale of shares of M/s Assam Company Ltd should be assessed as Long term capital gain. The Ld CIT(A) has decided this issue in favour of the assessee by observing as under:- 6.1 I have duly considered the discussion made in the assessment order and submissions of the appellant. The reasons recorded by the AO for reopening of the assessment h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the firm has been introduced by Reliance Capital Ltd. and other partners have not contributed to the capital. 6.3 The first two propositions made by the AO that constitution of the partnership firm is not fair, as entire profit has been shared by only one partner and, in the preceding asst. year i.e. 2007-08, there was no partnership in existence, because the other two partners had no share in the holding of the partnership firm hence, the holding period of the shares during the year is less than 12 months, has been countered by the appellant by stating that its return of income for A.Y. 2007-08 has been accepted and therefore, the existence of the partnership as well as the holding period of shares being more than one year, cannot be doubted. 6.4 The basic issue, therefore, which will determine the character or the partnership firm as well as nature of transaction of sale of shares carried out during the year, directly relate to the assessment made in asst. year 2007-08, which is the first year of the filing of return of income, and assessment. A copy of the assessment order dated 11.09.09 u/s. 143(3) of the Act has been filed by the appellant, wherein the nature of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it control in the company, which could have enabled it to participate in the business or carry on the business of the company. It has, therefore, been stated that there was never any intention to trade and increase the profit of the above company. It has also been argued that the shares of M/s. Assam Co. Ltd. have been held for more than 15 months and, from the time the appellant firm has been formed, sale of equity shares of Assam Co. Ltd., was the solitary transaction, as such, gain arising therefrom was declared under the head 'capital gains'. 6.6 Another contention of the appellant is that the profit on sale of shares has always been treated as 'capital gains' in the hands of Reliance Capital Ltd. and there was no question of tax avoidance, and, in so far as the AO's observation that the appellant was single largest share-holder and over-all largest shareholder in M/s. Assam Co. Ltd. was concerned, M/s. Assam Co. Ltd. is very closely held company and only four persons are having shares from promoters' quota and it was dealing in production of commodities as trading in commodity is one of the areas of operations, and, the firm had no right of manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the ratio of average working capital brought in by the partners. In both the years, the major partner M/s Reliance Capital Ltd has brought in entire funds and hence as per the profit/loss sharing ratio provided for in Partnership deed, the entire profit was allocated to the above said partner. We notice that the AO has not examined the provisions of Partnership Deed before coming to the conclusion that the status of the assessee cannot be taken as partnership firm in AY 2007-08. Hence the view taken by the AO is against the Partnership Deed as well as the assessment record relating to AY 2007- 08. In any case, the AO has not disturbed the assessment relating to AY 2007-08, i.e., the status of the assessee has been accepted as Partnership firm in AY 2007-08. In that case, it would not be proper for the AO to take the view that the holding period of the shares of M/s Assam Company Ltd can be recognized from 1.4.2007 only. 10. The AO has taken the view that M/s Reliance Capital Ltd has formed this assessee firm only to generate long term capital gains and he has further observed that the same income would have been assessed as business profits, had it purchased the shares of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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