TMI Blog2018 (7) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... gains and answer the questions against the assessee and in favour of the Revenue, upholding the order of the lower authorities. We desist from speaking on the actual computation of tax due for the reason of there being an appeal pending from the fixation of fair market value of the land at the time of sale; made on remand by the Tribunal. - I.T.A. No. 60 of 2015 - - - Dated:- 19-12-2017 - K. VINOD CHANDRAN and ASHOK MENON JJ. Dr. K. B. Muhamed Kutty, (Senior), K. M. Firoz, Smt. M. Shajna, S. Kannan and Smt. Haritha V. A. For the Appellant. Christopher Abraham, Standing Counsel and K. M. V. Pandalai, Advocate, Income-tax Department, For the Respondent. JUDGMENT The judgment of the court was delivered by 1. Vinod Chandran J.-The questions of law arising from the impugned order are reframed as follows : (i) Whether the Tribunal was justified in affirming the finding of the Assessing Officer that the sale of property owned exclusively by one of the partners, is liable to short-term capital gains in the hands of the partnership firm as per the provisions of section 45(4) of the Income-tax Act, 1961 ? (ii) Whether the Tribunal was correct in finding a tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, the decisions of the hon'ble Supreme Court reported in Maturi Pullaiah v. Maturi Narasimham [1966] AIR 1966 SC 1836 and Kale v. Deputy Director of Consolidation [1976] AIR 1976 SC 807 are relied on. It is argued that there was no conveyance of the land and building, to the firm and hence there was no accrued income to the firm on its sale or when the property was released in the name of one of the partners, who owned it all along. To buttress the above contention, reliance is placed on CIT v. Balbir Singh Maini [2017] 398 ITR 531 (SC); [2017] 12 Scale 287; [2017] 12 KHC 287. 5. The learned counsel appearing for the Department relies on Sunil Siddharathbhai v. CIT [1985] 156 ITR 509 (SC) to urge that when a partner brings in a capital asset, as his share contribution to a partnership firm, it results in transfer of that asset in favour of the firm within the meaning of section 45 of the Income-tax Act. CIT v. Southern Tubes [2008] 306 ITR 216 (Ker) is relied on to establish the liability of a dissolved partnership firm to be assessed for capital gains under section 45(4) in respect of transfer of capital assets to a partner. CIT v. A. N. Naik Associates [2004] 265 ITR 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence for that. Another contention raised was of ₹ 31,37,093 as per the argument notes, which was not properly put forth within the terms of section 139(5) of the Income-tax Act, by filing a revised return of income. In such circumstance, the cost of acquisition as returned by the assessee of ₹ 18,49,677 was adopted. As to the fair market value the Assessing Officer determined it at ₹ 56,73,300 and calculated the short-term capital gains accordingly. We would not say anything about the determination of short-term capital gains and the computation of fair market value since the same is subject matter of an appeal. We are only concerned with whether the short-term capital gains can be assessed or not. 9. The first appellate authority concurred with the findings of the Assessing Officer and so did the Tribunal. We notice that the Tribunal had remanded the issue of fixation of fair market value of the building, as is seen from page 25 paragraph 44 of annexure-E order. It is the order on such remand that is pending in appeal. As to the assessment of short-term capital gains, the Tribunal elaborately considered the issue. It is seen that the Tribunal found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int development agreement (JDA) for development of this land with a builder and a housing development company. The members of the society were entitled to a number of flats and also amounts in lieu of the development made; the balance apartments being agreed to be sold to third parties, the benefit of which would enure to the Developers. The Developers were to make the payments in four instalments; with respect to clearly demarcated properties having different extents. After the 2nd instalment was paid and the land to that extent conveyed, there was a litigation in so far as the development permits and the JDA did not take off the ground. While the assessee-society offered capital gains tax for the two instalments received, the Assessing Officer found that physical and vacant possession had been handed over under the JDA and since it amounts to a transfer within the meaning of section 2(47)(ii), (v) and (vi) of the Income-tax Act, 1961, long-term capital gains were to be paid for the full amount of consideration as per the JDA. 12. The hon'ble Supreme Court found that any document containing contracts to transfer for consideration any immovable property, shall have no effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a land being brought into the capital of the firm. The firm but, claimed depreciation on the building in the earlier years. The Tribunal has cate gorically found that the building was constructed by the partnership and there is no contrary evidence produced, nor would it be of any relevance to decide the capital gains accrued, which is by transfer or sale of the land and building after it came into the common stock. Even otherwise, if there was a building existing in the property, the land along with the building has been brought into the capital of the firm. The land and building being included in the common stock, none of the partners could have claimed an exclusive right over the property or the building, when the partnership subsists. When the firm is dissolved the partners can only claim to the extent of their shares, that too after the liabilities are settled and only on the monetary component of the assets. 15. Admittedly, the main business carried on, was letting out of the auditorium, which auditorium was situated in the building constructed in the property, which is the asset put to use for the business. There is nothing indicated as to a licence or a lease having b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons or with transfer of capital assets . It was held otherwise had to be read as transfer of assets by dissolution or otherwise . The Division Bench of the Bombay High Court noticed the amendment brought in 1987 to find that sub-sections (3) and (4) of section 45 was specifically brought in to overcome the law declared in Malabar Fisheries Co. v. CIT [1985] 120 ITR 49 (SC). The amendment took care of the legal effect of a partnership having no independent existence separate from that of the partners and any apportionment of the immovable assets on dissolution, retirement, etc., partaking the character of the individual partners asserting their rights over the ownership of the assets held in common, to the extent of their shares. Earlier this would not have led to any liability on capital gains. The amendment remedied the situation in so far as any transfer of capital assets by dissolution or otherwise; and so transferred, being assessable to capital gains. We respectfully agree with the High Court of Bombay. 18. Apposite would be reference to the extract from B. T. Patil and Sons v. CGT [2001] 247 ITR 588 (SC) relied on by the Bombay High Court (page 591): In our vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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