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ACIT 19 (2) , Mumbai Versus M/s. Jeannie Jamshed Madan

2017 (11) TMI 674 - ITAT MUMBAI

Amount received as beneficiary of firm - addition u/s 68 - assessee is one of the beneficiaries in the Estate of late Shri M.S. Kotwal who is partner in the partnership firm - addition on the ground as 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 since the assessee did not pay the taxes it is the income and it should be treated as the inco .....

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in purchase of properties and therefore none of the conditions laid down in the provisions of section 68/69 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 furthe .....

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f 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 view of what is stated above we uphold the order of the Ld.CIT(A) in deleting the addition made u/s. 68 of the Act. - Decided in favour of assessee. - ITA No. 5396/MUM/2015 - Dated:- 10-11 .....

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2. Briefly stated the facts are that, the assessee filed her return of income for the Assessment Year 2011-12 on 19.03.2013 declaring income of ₹ 42,38,628/-. The assessment was taken up for scrutiny and in the course of Assessment Proceedings based on the AIR information received by the Assessing Officer that assessee had purchased two immovable properties for ₹ 2,50,02,054/- and ₹ 6,95,00,000/- on 07.04.2010 and 12.07.2010 respectively, the assessee was asked to explain the s .....

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,05,00,000/- and ₹ 4,95,00,000/- were invested in purchases of two properties. 3. Subsequently, show cause notice dated 07.02.2014 was issued by the Assessing Officer stating that assessee received money in her bank account from different accounts and no explanation was provided regarding the source of such receipts, purpose for which such amounts were transferred to assessee account and whether due tax had been paid on said amounts. Therefore, Assessing Officer required the assessee to sh .....

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rm 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 Ex .....

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re show cause notice dated 10.03.2014 stating that the firm M/s. Mira Salt Works not engaged in any business and it was holding the ancestral property in respect of profit sharing ratio of partners/beneficiary and in the case of the assessee it is not distribution of any income from property held by the firm but it is a case where the property of the firm has been effectively transferred in favour of the new partners. The Assessing Officer further observing that the sole basis of valuation of fi .....

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y, the Assessing Officer proposed to treat the investment in two residential properties as unexplained investment u/s. 69 of the Act because the source of such funds are not subjected to tax. Assessee filed detailed explanation submitting that the provisions of section 68 and 69 of the Act, have no application to the transaction in question. The conditions laid down in the provisions of section 68 and 69 are not fulfilled so as to apply the said sections to the transactions. However, the Assessi .....

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eficial owner to the tune of ₹ 8.75 Crores out of such consideration and the legitimate taxes are not paid and since the amount has been credited in the books of assessee by way of receipts in installments, he rejected the explanation of the assessee as not satisfactory 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 o .....

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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 that goodwill estimation by the f .....

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ital gains or goodwill falls under business income and is exempted u/s. 10(2A) of the I.T. Act, therefore Ld.CIT(A) held that the reason given by the Assessing Officer that the funds were received by the assessee out of untaxed money does not survive. 6. In so far as the alternative stand of the Assessing Officer that the investment of ₹ 7 Crores made in the residential flats as unexplained investment invoking provisions of section 69 of the Act is concerned the Ld.CIT(A) held that the ass .....

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rders of the Assessing Officer in invoking provisions of section 68 and 69 of the Act and bringing to tax the amount of ₹ 8.75 crores as income of the assessee u/s. 68 of the Act. 8. Learned Senior Advocate Shri Firoze B. Andhyarujina appearing on behalf of the assessee, submitted that the assessee is a beneficiary of the Estate of late Shri M.S. Kotwal, through the deceased s Will. The Executors of the Estate of late Shri M.S. Kotwal acted as partner (in capacity of Executors) in the part .....

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nted 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 o .....

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lue of the Firm, new partners were introduced in the Firm and such new incoming partners agreed to introduce capital in the Firm amounting to ₹ 105 crores. The capital introduced by the new incoming partners was based on the mutual negotiations between the Firm and the incoming partners. The said proportionate value of each partner s capital account was duly credited which amount to ₹ 35 crores being capital account of Executors of Estate of late M.S. Kotwal. The share of the assesse .....

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she also received her share. This money received by the assessee (as a beneficiary) was invested, during the year under consideration, for the purchase of immovable property by the assessee. Such amount was deposited in the Capital Gains Tax Account and is utilized for purchase of immovable property in the year under consideration. The investments made by the assessee in two residential properties were vide agreements dated March 30, 2010 of ₹ 6,95,00,000/- and ₹ 2,50,02,054/- and th .....

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om 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 a .....

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were informed that such summons were duly complied with and all the relevant information requested by the Assessing Officer was furnished to the Assessing Officer. Based on the above facts and documentary evidences, it was submitted to the Assessing Officer that the amount received by the assessee is in pursuance of the Will of her grandfather and arising out of the bequeath of property (share in firm M/s Mira Salt Works) and hence not an unexplained cash credit and the investments made in flat .....

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re: - (a) There is any sum in the credit of Books of Accounts maintaining for any previous year. (b) There is no explanation about the source and nature of the source there of. (c) Explanation is not satisfactory to the Assessing Officer the amount shall be treated as income of the assessee. Learned Senior Advocate submits that none of the above conditions of section 68 are fulfilled so as to enable the Assessing Officer to invoke the provisions of section 68 of the Act as the assessee has fully .....

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nt documents and the same has not been disputed by the Assessing Officer there cannot be any addition u/s. 68 of the Act. Referring to the Ld.CIT(A) order he submits that the fact that these transactions held during the financial years 2007-08 and 2008-09 also suggest that the addition cannot be made in the Assessment Year under consideration. Therefore, the learned senior counsel submits that as the source of investments stands fully explained the addition made u/s. 69 of the Act cannot stand. .....

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ssee 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 .....

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the Firm appropriate action should be taken in the hands of the Firm. The assessee has fully explained the sources of the amounts received by her which were invested by her in purchase of properties and therefore none of the conditions laid down in the provisions of section 68/69 are attracted so as to invoke the said sections. 15. The 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 par .....

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Act it is in the case of the partnership firms but not in the case of the assessee. In coming to such above conclusion the Ld.CIT(A) elaborately dealt with the issue as under: 6.3. I have carefully considered the assessment order, submissions and other material on record. It is quite clear fact that the assessee has received the said amount out of the capital account balance lying to her credit in the books of the firm where she is a beneficial partner. It is also a fact that the said amount was .....

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al. 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 s .....

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the firm. Assessee retired from the firm within three months of its formation. Firm was dissolved. Land was retained by the company and assessee received ₹ 10 lakh worth of shares. Hon ble Bombay High Court after considering both CIT Vs. B.M. Rharwar, 72 ITR 603(SC) and McDowell & Co. Ltd. [1985] 154 ITR 148 held that formation of partnership and dissolution of the firm were nothing but a device to avoid capital gains leviable u/s 45 and the Tribunal was right in holding that there wa .....

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tion by the assessee to the limited company. A careful perusal of the above transactions culminating in the transfer of land from the assessee to the company clearly goes to show that the real nature of the transaction is transfer of land. The principles of construction of such transactions are well-settled and it is too late in the day to say that the court should go strictly by the language of the documents prepared by the parties or the facts put forward by the parties and refuse to remove th .....

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le considering device to avoid tax, as observed by the Supreme Court in McDowell and Co.'s case [1985] 154 ITR 148, at page 160, is not to ask whether the provision should be construed literally or liberally, nor ether the transaction is not unreal and not prohibited by the statute but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. It is up to the court to take stock to determine the nature of the .....

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ases 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 t .....

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t will be open to the Income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or refuse to convert the personal asset .....

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filled. As far as the source is concerned, funds have been admittedly received from Executor who in turn has withdrawn their capital from M/s Mira Salt Works. The source of fund for M/S Mira Salt Works is capital introduced by new partners. The Assessing Officer, as detailed in Para 4.5 of assessment order, has called for and examined documents, deeds, books etc in details and there is nothing on record that sources of fund are unexplained. Thus, even source of the source is established and in t .....

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was no transfer of any assets as contemplated by the expression "transfer' as defined in s. 2(47) of the IT Act. The High Court had placed reliance on the judgment 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 prescrib .....

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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 Mohanbhai Pamabhai reported in 91 ITR 393. 6.10 It is observed by Mumbai High Court in the case of Prakash Joshi V/s ITO reported in 324 ITR 01 .....

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ter taking accounts and upon deduction of liabilities does not involve an element of transfer within the meaning of section 2(47). Ex facie sub-section (4) of section 45 deals with a situation where there is a transfer of a capital asset by way of a distribution of capital assets on the dissolution of a firm or otherwise. Evidently, on the admitted position there is no transfer of a capital asset by way of a distribution of the capital assets, on a dissolution of the firm or otherwise in the fac .....

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sment. Ex facie, section 28(iv) does not apply to benefits which are paid in cash or money. Similarly, clause (v) of section 28 refers to any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm. A payment made to a partner in realisation of his share in the net value of the assets upon his retirement from a firm, does not fall under clause (v) of section 28." In other words, it is clear that any amount rece .....

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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 p .....

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all disputed by the Assessing Officer at all. The assessing officer had also summoned M/s Mira Salt Works u/s 131 which was fully complied with and all the necessary and required information asked was duly provided by the said firm, M/s Mira Salt works. The said facts suggest that the appellant received money from the known source, (The partnership in which she was one of the beneficiary) which was fully explained by way of confirmation from the firm and that too was doubly confirmed by the sum .....

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d F.Y. 2008-09 should not be considered as her unexplained income u/s 68 of the Act for A.Y. 2011-12. Therefore, the Assessing Officer noticed that the said sums were credited in F.Y.2007-08 and F.Y.2008-09 and therefore it cannot be taxed in the Assessment Year 2011-12. 6.15. Even if the stand of the Assessing Officer is that goodwill estimation by M/s Mira Salt Works is incorrect and it should be treated as sale proceeds of land is accepted, there would be no change as far as appellant is conc .....

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