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TMI Blog2017 (12) TMI 1677X X X X Extracts X X X X X X X X Extracts X X X X ..... Gain on the transfer of land as capital contribution to a Limited Liability Partnership by invoking section 50C of the Income Tax Act, 1961 ("the Act") by ignoring the specific provisions of section 45(3) of the Act." 3. The brief facts of the case are that the assessee company, has during the year under consideration entered into limited liability partnership vide an agreement dated December 28, 2011 with an object of developing, constructing and operating resorts, hotels and apartment hotels and / or for carrying out such other hospitality business. Thereafter, the parties to the said agreement entered into a supplementary agreement dated December 29, 2011, in order to incorporate certain amendments to the earlier agreement. Vide the said supplementary agreement, the assessee transferred an immovable property being a plot of land admeasuring 6869.959 mts situated at Village Passpoli, Powai, Mumbai as its capital contribution into ATL Hospitality, LLP (firm). The assessee at the time of contribution to the firm, as per the valuation report obtained in respect of the said plot of land, taken value at Rs. 5.60 crores and the same was recorded in the books of the partnership firm. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by adopting fair market value determined by the stamp duty authority and recomputed long term capital gain of Rs. 8,74,96,093 as against Rs. 4,93,17,593 declared by the assessee. 5. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions which were reproduced by CIT(A) in his order on pages 17 to 25. The sum and substance of the arguments of the assessee before the CIT(A) is that the provisions of section 45(3) itself is a deeming fiction created for taxing transfer of capital asset between partnership firm and partners wherein it was categorically mentioned that for the purpose of section 48, the full value of consideration deemed to be the value recorded in the books of account of the partnership firm. Therefore, the AO was incorrect in going to another deeming fiction created by way of section 50C which is applicable for general transfers, therefore, the question of applying section 50C value for the purpose of computation of capital gain does not arise. The CIT(A), after considering relevant submissions of the assessee and also relying upon the decision of ITAT, Lucknow Bench in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is only section soc which alone can be invoked as there is a registrat ion of sale deed under Registrat ion Act . Thus where a sale transact ion is registered by paying stamp duty then i t is only sect ion 50C which can operate. In that si tuat ion sect ion 50C would override section 45(3) if the sale deed is sought to be registered by paying stamp duty. But where such registration does not take place by paying stamp duty that case would only be covered under section 45(3) and therefore, value recorded by the firm in its books would only be the full value of consideration for the purposes of com putting capital gains." 6.2.4. The Hon'ble Tribual has accordingly held that section 45, sub section (3) as a general provision and section 50C is a special provision which would over-ride section 45(3. The appellant could not produce any other judgement which could support the argument taken by the appel lant . Therefore, respectfully following the judgement of the Hon'ble Tribunal in the case of Carlton Hotels Pvt Ltd vs ACIT(16), the addit ion made by the AO is confirmed and appeal of the assessee on this ground is dismissed". 6. The Ld.AR for the assessee submitted that the Ld.CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Therefore, the lower authorities were erred in following the decision of ITAT, Lucknow Bench to hold that section 50C is applicable for the purpose of determination of full value of consideration when asset is transferred into capital contribution of partnership firm for the purpose of section 45(3) of the Act. 7. The Ld.DR, on the other hand, strongly supported the order of the CIT(A). The Ld.DR submitted that the CIT(A) has brought out clear facts in the light of ITAT, Lucknow Bench decision wherein it was clearly held that section 50C overrides provisions of section 45(3) when document of transfer is registered as per the provisions of Registration Act, 1908 and the stamp duty paid for registration of such document, the value determined by the stamp duty authority shall be replaced as full value of consideration as per the provisions of section 50C of the Act. Therefore, the orders of CIT(A) should be upheld. 8. We have heard both the parties, perused the materials available on rcord and gone through the orders of authorities below. The AO has recomputed long term capital gain from transfer of capital asset being plot of land into partnership firm as capital contribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, section 45(3) itself is a specific provision dealing with special cases of transfer of capital asset and hence, provisions of section 50C cannot be brought in the case of transfer of capital asset between partners and partnership firm. Therefore, it can be rightly said that section 45(3)| of the Act itself is a code for computing capital gains in respect of transfer made by a partner to a firm. In the absence of section 45(3) of the Act, taxing any amount is not possible. Since the consideration cannot be determined in absence of section 45(3) of the Act as the consideration lies within womb of the law in the case of transfer of such nature. 9. Having heard both the sides, we find merit in the argument of the assessee for the reason that the provisions of section 45(3) deals with special cases of transfer of capital asset where the profits or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall be chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly observed that the provisions of section 50C overrides the provisions of section 45(3) but not given a categorical finding. The ITAT has give its findigs under different facts considering the fact that when a document is registered under the Provisions of Registration Act, 1908, the value determined by the stamp duty authority shall be replaced to determine full value of consideration. Therefore, we reverse the finding of the CIT(A) and delete the addition made towards recomputation of long term capital gain on account of transfer of capital asset into partnership firm. 10. In the result, appeal filed by the assessee is allowed. ITA No. 6050/Mum/2016 11. The only issue came up for our consideration from revenue appeal is disallowance of expenses incurred in relation to exempt income u/s 14A of the Act r.w.s. Rule 8D of I.T. Rules, 1962. The AO has disallowed a sum of Rs. 42,85,198 u/s 14A by invoking Rule 8D(2)(ii) and 8D(2)(iii) of I.T. Rules, 1962. According to the AO, the assessee has made huge investments in share of domestic companies and capital contribution to partnership firms, income from which does not or shall not form part of total income. However, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l observations, applied Rule 8D and made disallowance u/s 14A of the Act without any nexus between expenditure incurred by the assessee to the exempt income. The assessee further submitted that in the absence of any exempt income disallowance contemplated u/s 14A shall not be disallowed by invoking Rule 8D(2). The CIT(A), after considering relevant submissions of the assessee and also relying upon certain judicial precedents including the decision of Hon'ble Delhi High Court in the case of CIT vs Cheminvest Ltd (supra) and also theHon'ble Bombay High Court in the case of CIT vs Deloitte Enterprises (supra) held that where the investments have not generated any exempt income, the deduction on account of the interest component on borrowed funds which were utilised for making investments cannot be made. The CIT(A) further observed that since the assessee has not earned any exempt income during the year under consideration, the question of disallowance contemplated u/s 14A shall not be disallowed. With these observations, the CIT(A) deleted addition made by the AO. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 13. The Ld.DR submitted that the Ld.CIT(A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r determination of disallowance for interest and expenses. According to the AO, the Board has clarified the term 'includible' in section 14A as per which there is no requirement of any exempt income to invoke the provisions of Rule 8D. If the assessee has investments in shares, income from which shall not form part of total income, then the expenditure incurred by the assessee by way of interest and other expenses shall be worked out. It is the contention of the assessee that when there is no exempt income for the year under consideration, disallowance contemplated u/s 14A shall not be made as earning exempt income is a pre-condition for disallowance of expenditure u/s 14A of the Act. The assessee further contended that the fact that the assessee has not earned any exempt income has not been disputed by the lower authorities. The assessee further contended that in the absence of any nexus between expenditure incurred and exempt income merely on the basis of general observations, Rule 8D cannot be applied for disallowance of interest and expenditure u/s 14A. 16. Having heard both the sides and considered material available on record, we find force in the arguments of the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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