TMI Blog2017 (11) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 are attracted so as to invoke the said sections. Ld.CIT(A) taking note of the fact that the assessee received amount from the partnership firm as a beneficial owner to the Estate of her grandfather who was a partner of the partnership firm and also taking note of the fact that even the amount received by the assessee from the Firm is exempted u/s. 10(2A) as business income and further taking note of the fact that assessee has not received these amounts during the current Assessment Year, he rightly held that the provisions of section 68 and 69 have no application to the facts of the case. We also find force in the contentions of the Ld.CIT(A) if at all if any proceedings are to be instituted under the Act it is in the case of the partnership firms but not in the case of the assessee. Thus we hold that the Assessing Officer is not justified in making addition u/s. 68 of the Act in respect of the amounts received by her from the Firm as a beneficiary. We further find that the assessee explained the source of investments made in the residential flats and therefore the investments made in such residential flats cannot be treated as unexplained investment u/s. 69 of the Act. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce assessee could not offer any explanation about the nature and source of investments, why it should not be treated as unexplained investment u/s. 69 of the Act. Assessee furnished her reply by letter dated 24.02.2014 explaining that assessee is a beneficiary in the profits of the partnership firm M/s. Mira Salt Works a firm in which her grandfather was a partner and after the demise of her grandfather as per the Will the Executors of the Estate of her grandfather late Shri M.S.Kotwal acted as partner in the capacity of Executors in the partnership. It was explained that in the year 2008 new partners were introduced and the new partners agreed to introduce capital in the firm amounting of ₹ 105 crores and accordingly introduced capital into the firm. It was explained that since the assessee requested the Executors of Estate of late Shri M.S. Kotwal opted to withdrew the amount lying to the credit of the capital account and give it to the beneficiary as per the Will of late Shri M.S. Kotwal. It was explained that assessee got her share of ₹ 8.75 crores as a beneficiary out of which assessee received ₹ 7,91,65,329/- in installments between 21.05.2008 to 15.03.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory and the conditions for applicability of sections 68 of the Act are satisfied. Alternatively Assessing Officer considered ₹ 7 Crores i.e. ₹ 4.95 Crores and ₹ 2.05 Crores which was invested in the purchase of two residential flats out of the impugned receipts as unexplained investment u/s. 69 of the Act. 5. The assessee carried the matter before the Ld.CIT(A) and the Ld.CIT(A) considering the submissions, facts of the case concluded that none of the conditions of section 68 are satisfied in the present case and therefore invoking the provisions of section 68 are not warranted at all. He also observed that the Assessing Officer required the assessee to show cause as to why share of goodwill credited to the assessee s account in the FY 2007-08 and FY 2008-09 should not be considered as unexplained income u/s 68 of the Act for the Assessment Year 2011-12 under consideration. Therefore Ld.CIT(A) observed that the Assessing Officer noticed that the said amounts were credited in Financial Year 2007-08 and Financial Year 2008-09 and therefore it cannot be taxed in the Assessment Year 2011-12. Further Ld.CIT(A) held that even if the stand of the Assessing Officer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners bequeathing equally their deceased father s 1/3 share in the Firm. Mr. M.S. Kotwal died on June 14, 1983 and as per his Will dated 08th May 1979 he had appointed his two daughters and their husbands as the Executors of his Will. The beneficiaries of his Will are his grand daughters. As per late Shri M.S. Kotwal s Will, his 1/3 share in the Firm would be bequeathed by his grand-daughters (Beneficiaries) and such share would be given to the beneficiaries by the Executors of late Mr. M.S. Kotwal (comprising of 2 daughters and their husband) appointed as per the Will. Based on the Will of late Mr. M.S. Kotwal, the profit sharing ratios of the partners of the Firm were changed and the new profit sharing ratios are as under: S. No. Name of the Partner Profit sharing ratio 1. Executors of the Will of late Mr Manech.Shapurji.Kotwal 1/3 or 33.33% 2. Mr. B.S. Kotwal 1/3 or 33.33% 3 Mr. Keki Kotwal 1/6 or 16.66% 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast) Mumbai Rs.2,50,02,054 Rs.2,05,00,000 from amount received from M/s Mira Salt Works and ₹ 45,02,054/- from Mother, Mrs Perviz Madan having Pan ABCPM 1302 N 10. Learned Senior Advocate submitted that the assessee submitted the following documents to prove the source of amount received and also the source of investments made during the year under consideration: - (a) Copy of the Will of late Mr M.S. Kotwal. (b) Partnership deed dated November 1983 where Executors became partner in Firm. (c) Balance sheet and capital account of partner (Executor) as on March 31, 2008 and December 31, 2008. (d) Bank account statements of the Executors of the Estate of late Mr. M.S. Kotwal. (e) Bank account statements of the firm M/s Mira Salt Works. (f) Copy of the Capital Gains Tax Account. (g) Sample copy of the return of income of the Firm for the year 1991. (h) Sale deeds for the investments made in two residential houses. 11. Further, the Assessing Officer has also summoned the Firm M/s.Mira Salt Works and have requested the firm to submit information including the balance sheets etc., of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d senior counsel submits that as the source of investments stands fully explained the addition made u/s. 69 of the Act cannot stand. 14. We have heard the rival submissions, perused the orders of the authorities below. The fact that the assessee is one of the beneficiaries in the Estate of late Shri M.S. Kotwal who is partner in the partnership firm of M/s. Mira Salt Works is not in dispute. The reason for bringing to tax the amount received by the assessee is, according to the Assessing Officer there was a revaluation of the assets in the partnership firm, the new partners introduced capital in the partnership firm, the assessee was paid from the capital introduced by the new partners and this transaction is nothing but transfer of property by the firm and there was no capital gains tax paid by the firm nor the assessee who has received the beneficial share from the partnership firm. Thus the Assessing Officer invoked the provisions of section 68/69 of the Act and held that the amount received by the assessee is from the firm which has not paid any taxes on the transaction of introduction of capital by new partners and transferred property there off relating to the firm and sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare in the estate of (late) Shri M. S. Kotwal. In other words, the amount is question cannot said as unexplained. 6.4. It appears to me that the Assessing Officer decided the issue on the basis of shock to his conscientious and perceived principles of fairness etc. But, in the process, provisions of Section 68 of the I.T. Act were given go by. The firm M/s Mira Salt Works, Executor and Appellant are three different assessee and their cases have to be examined on the basis of applicable provisions and not to juxtapose facts and law. The scheme devised by M/s Mira Salt Works to avoid paying capital gains is quite patent and the Assessing Officer assessing M/s Mira Salt Works can pierce the veil. 6.5. In the case of Nayantara G. Agrawal Vs. CIT (1994) 207 ITR 639 (Bom.), the assessee entered into partnership with a company. The assessee brought her land valued at ₹ 10 lakhs as her share of capital contribution in partnership. The company did not bring in any capital. No business of sale and purchase of land were conducted by the firm. Assessee retired from the firm within three months of its formation. Firm was dissolved. Land was retained by the company and assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consider whether the taxation created by the devices could be related to the existing legislation with the aid of emerging techniques of interpretation to expose the devices for what they really are and to refuse to give judicial benediction. The courts in such a case should not lay undue emphasis on the language of each individual document as that is not determinative of the controversy. What is really necessary to be considered in such cases is the true nature and effect of the transaction. If on such a consideration, the court arrives at a finding that the true nature is transfer of land and the various steps originating from the affidavit and formation of partnership and culminating into dissolution of the same, in the process leaving the land with the company, are nothing but a device to avoid capital gains tax leviable under section 45 of the Act on transfer of the land to the company, such a device cannot get the seal of approval of this court. 6.6. Similarly, Special Bench in the case of ITO v. Ramkrishna Bajaj [1992] 198 ITR 1 (Bom.)(AT)(SB) and in Rahul Kumar Bajaj v. First ITO [1998] 64 ITD 73 (Nag.) have held that if the transfer of a personal asset by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of the Gujarat High Court in CIT vs. Mohanbhai Pamabhai (1973) 91 ITR 393 (GuJ); TC 20R 866 wherein it has been held that where a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts in the manner prescribed by the relevant provisions of the partnership law there is no element of transfer of interest in the partnership assets by the retired partner to the continuing partners. The said judgment of the Gujarat High Court has been affirmed by this Court in Addl. CIT vs. Mohanbhai Pamabhai (1987) 165 ITR 166 TC 20R.865. In view of the said judgment we find no merit in this appeal and the same is, therefore, dismissed. No order as to costs. 6.9. Supreme Court in the case of ITO V/s Mohanbhai Pamabhai reported in 165 ITR 0166 has also observed that Amount received by partner on his retirement in respect of his share in partnership including goodwill does not involve transfer giving rise to capital gains. The apex court followed its own decision in the case of Sunil Siddharthbhai reported in 156 ITR 509 (SC) and its confirmed Gujrat High court order of Moh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of this court in the case of Prashant S. Joshi (supra) placed reliance upon the decision of the Supreme Court in the case of CIT V/s R. Lingamallu Rajkumar reported in (2001) 247 ITR 801 wherein it has been held that amounts received on retirement by a partner is not subject to capital gains tax. In the above circumstances, we see no reason to entertain the propose question of law. 6.12. The above decisions seals the matter of taxability of amount received from the partnership firm in the hands of the partner entirely in favour of the partner and I am of the view that the said amount received from the opening balance of the partnership firm in the hands of the beneficiaries in the estate of the partner is not taxable. 6.13. In the present case, in my opinion, none of the conditions are satisfied so as to invoke the provisions of section 68. The amount of ₹ 8.75 crores was received from a partnership firm namely M/s Mira Salt works, wherein the appellant is a beneficiary partner as legal heir of (late) Shri M. L. Kotwal since 1983. The said firm is assessed to tax. In other words, the source of the money into the hands of the appellant is fully explained and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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