TMI Blog2018 (6) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid view stands fortified by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. A.N Naik Associates (2003 (7) TMI 46 - BOMBAY HIGH COURT). The High Court in its aforesaid judgment had observed that the result of the amendment carried out by the Finance Act, 1987 by omitting Sec. 47(ii), was that distribution of capital assets on dissolution of a firm would be regarded as a “transfer”. As the case of the assessee before us pertains to A.Y 2005-06 and the firm, viz. M/s Printpals stood dissolved on 16.05.2003 on the death of the other partners, thus the judgment of the High Court of Madras in the case of CIT Vs. M.K Chandrakanth & Ors (2002 (7) TMI 57 - MADRAS HIGH COURT ) relied upon by the ld. A.R would not be of any assistance in the present case Entitlement towards exemption under Sec. 54EC - Held that:- Continuing of the business by the assessee after the dissolution can safely or rather inescapably be taken as the distribution of the assets to him. Thus, in the backdrop of the aforesaid state of affairs, we are persuaded to subscribe to the claim of assessee that the ‘transfer’ of the assets in terms of Sec. 45(4) had occasioned in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law the learned Commissioner of Income Tax (Appeals) erred in not allowing unabsorbed Depreciation and Business loss brought forward from earlier years. 5. The appellant hereby prays that the additions made by the Income Tax Officer may kindly be deleted. 6. Appellant craves to add, alter, amend or modify any of the above grounds of appeal till the final disposal of appeal. The assessee had further raised before us, vide an application dated 22.02.2013 the following additional grounds of appeal : ( i) The learned commissioner of income tax (Appeals) ought to have quashed the order of the A.O as the said order was against the principles of natural justice since no reasonable opportunity was given before passing the order and moreover the order was passed without considering the facts of the case in proper perspective. ( ii) The learned commissioner of income tax (Appeals) failed to consider the holding period of the asset from the date of dissolution and not from the original date of acquisition. In the income tax law a firm is treated as a separate assessable entity. However under the general law of partnership a firm name is a compendious mode o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT Vs. National Thermal Power Co. Ltd. (1998) 229 ITR 383 (SC), the same are admitted. 3. Briefly stated, the facts of the case are that the assessee had filed his return of income on 31.08.2005, declaring total loss at ₹ 1,61,829/-. Assessment under Sec. 143(3) of the act was completed on 11.07.2007, determining total loss at ₹ 1,51,829/-. Subsequently, proceedings under Sec. 263 were initiated by the CIT-19, Mumbai and the latter vide his order dated 25.11.2009 set aside the order of the A.O and directed him to finalize the assessment afresh. The A.O while framing the assessment in compliance to the directions of the CIT made the following additions/disallowances: (i) The A.O observed that the assessee was a partner in a registered partnership firm i.e. M/s Printpals. The said firm stood dissolved on the death of one of the two partners on 16.05.2003. The surviving partner, i.e the assessee, on the refusal of the legal heirs of the deceased partner to step into the shoes of the deceased partner, took over the assets of the firm and continued the business as a sole proprietor under the same name and style, viz. Printpals. In the backdrop of the aforesaid facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid assets resulted into STCG in the hands of the assessee, thus the A.O had rightly held that the assessee was not entitled for exemption under Sec. 54EC in respect of the said amount of STCG. The CIT(A) on the basis of his aforesaid deliberations dismissed the appeal. 4. The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The Ld. A.R. taking us through the facts of the case submitted that the assessee was a partner in the firm i.e. M/s Printpals since 01.04.1974. It was submitted by the Ld. A.R. that the firm as on 04.05.1984 had acquired the ownership of an Industrial unit No. 307, 3rd Floor of Wadala Udyog Bhawan, 8, Naigaum Cross Road, Wadala, Bombay. The aforesaid partnership firm due to certain retirements/deaths of some of the partners was finally left with two partners in the year 2001. On 16.05.2003 one of the partner expired and the firm stood dissolved due to operation of law. As the legal heirs of the deceased partner declined to be admitted as a partner in place of the deceased, therefore, the surviving partner i.e the assessee took over the business of the assessee firm with all its assets and liabilities and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly traversed beyond the directions given by the CIT in his order under Sec. 263 of the Act. The Ld. A.R. taking us through the Agreement dated 04.05.1984 on the basis of which the property under consideration was acquired by the firm i.e. M/s Printpals, submitted that as the assessee who at the relevant point of time was a partner of the firm, and as such a party to the said agreement, was thus duly entitled for claiming the period of holding of the said property from the date of the aforesaid agreement, viz. 04.05.1984. The Ld. A.R submitted that in the backdrop of the aforesaid facts, it could safely be concluded that the property which was held by the firm since 04.05.1984, was as a matter of fact held by the partners. In support of his aforesaid contention the ld. A.R relied on the judgment of High Court of Madras in the case of CIT Vs. M.K Chandrakanth Ors (2002) 258 ITR 14 (Mad). It was further submitted by the Ld. A.R that as the partnership firm finally stood dissolved on 16.05.2003, therefore, for the purpose of computing the capital gains the market value of the property under consideration has to be looked into in reference to the said date. The Ld. A.R in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the death of the other partner, was not to be construed from the said date, but rather from 04.05.1984 i.e. the date on which the said asset was acquired by the firm, viz. M/s Printpals in which the assessee at the relevant time was a partner. The assessee had tried to impress upon us that the date of holding of the aforesaid property in his hands was to be reckoned from 04.05.1984, as a result whereof on the sale of the same on 04.07.2004, it would clearly be in the nature of sale of a Long Term Capital asset by the assessee. 7. We have given a thoughtful consideration to the aforesaid contention advanced by the assessee and are unable to persuade ourselves to accept the same. We find that Explanation 1 of Sec. 2(42A) contemplates the period for which any capital asset is held by an assessee. We find from a perusal of the aforesaid statutory provision, that it is nowhere provided that where an individual assessee takes over the business of a firm in which he was a partner, the period of holding of the assets so acquired by him is to be reckoned from the date on which the partnership firm had acquired the same. We may herein observe that Explanation 1(i)(b) of Sec. 2(42A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the statute, vide the Finance Act, 1987 w.e.f 01.04.1988. Before the introduction of Sec. 45(4), there was cl. (ii) of s. 47, which provided that the distribution of capital assets on the dissolution of a firm, etc. was not to be regarded as transfer . It was thus during the subsistence of Sec. 47(ii), as there would be no transfer of an asset on the dissolution of a firm, hence Sec. 2(42A) r.w Sec. 49(1)(iii)(b) contemplated that the period of holding of the asset in the hands of an erstwhile partner of a dissolved firm was to include the period for which the asset was held by the firm prior to dissolution. However, with the striking off of Sec. 47(ii) from the statute by the legislature, and making available Sec. 45(4) on the statute, which contemplates that distribution of assets on dissolution of a firm is to be construed as a transfer , the applicability of Sec. 2(42A) r.w Sec. 49(1)(iii)(b) having been rendered as unworkable, was restricted by the legislature till A.Y 1987-88. Thus, to be brief and explicit, with the striking off of Sec. 47(ii) and making available of Sec. 45(4) on the statute, vide the Finance Act, 1987, w.e.f A.Y 1988-89, the working of Sec. 2(42A) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re necessary for completing the title. We are afraid that the said judgment also having been rendered in context of an issue not relevant to the case of the assessee before us, thus, would not assist its case. The additional grounds of appeal No. (ii) (iii) raised by the assessee vide its application dated 22.02.2013 are dismissed in terms of our aforesaid observations. 7. We shall now advert to the contentions raised by the assessee before us on the basis of the original grounds of appeal. The Ld. A.R. had during the course of hearing of the appeal submitted that ground of appeal No. 4 was not being pressed. We thus dismiss the Ground of appeal No. 4 as not pressed. 8. We shall now advert to the ground of appeal No. 2 raised by the assessee before us. It is claimed by the assessee that the CIT(A) had upheld the additions made by the A.O without considering the facts of the case and ignoring the various documents produced and explanation offered by the assessee during the course of hearing of the appeal. However, the Ld. A.R had not drawn our attention to any such document which was produced by him before the CIT(A), but had remained omitted to be considered by him whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain tax liability on such transfer would arise in the hands of the firm, while for the continuing partner, i.e. the assessee would only be liable for payment of capital gain tax to the extent of the difference between the Fair Market Value of the property under Sec. 50C on 16.05.2003 and that on the date of actual sale i.e. 03.07.2004. Per contra, the Ld. D.R. relied on the order of the CIT(A). 11. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We may herein observe, that as held by us hereinabove while disposing off the additional ground of appeal No. 2, that in the absence of a specific provision to the effect that the period of holding of an asset acquired by a continuing partner on the dissolution of the firm occasioned by the death of a partner, is to be reckoned from the date of acquisition of the said asset by the firm, which as observed by us hereinabove is a separate entity under the Income Tax Act, 1961, the claim of the assessee seeking relating of the period of holding of the property under consideration to 04.05.1984, cannot be accepted. We thus are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on the declining by the legal heirs of the deceased partner to step into the shoes of the deceased, had continued the business as a sole proprietor. We are of the view that the continuing of the business by the assessee after the dissolution can safely or rather inescapably be taken as the distribution of the assets to him. Thus, in the backdrop of the aforesaid state of affairs, we are persuaded to subscribe to the claim of the ld. A.R that the transfer of the assets in terms of Sec. 45(4) had occasioned in the hands of the dissolved firm, viz M/s Printpals on 16.05.2003. As the Fair Market Value of the assets is to be deemed to be the full value of consideration received or accrued to the firm, hence the Cost of acquisition of the asset under consideration cannot be taken at a different figure, but as per our considered view, has to be adopted as the Fair Market Value of the same on the date of dissolution and distribution of the assets, i.e 16.05.2003. We thus, in terms of our aforesaid observations direct the A.O to recompute the Capital gain in the hands of the assessee by adopting the Fair Market Value of the property under consideration, viz. Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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