TMI Blog2017 (12) TMI 1677X X X X Extracts X X X X X X X X Extracts X X X X ..... provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset. We are of the considered view that the profits or gains arising from the transfer of a capital asset by a partner to a firm in which he is or becomes a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be full value of consideration received or accruing as a result of transfer of a capital asset. The AO cannot import another deeming fiction created for the purpose of determination of full value of consideration as a result of transfer of a capital asset by importing the provisions of section 50C of the Act. Therefore, we reverse the finding of the CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 ₹ 5.60 crores and the same was recorded in the books of the partnership firm. The aforesaid supplementary agreement was registered on April 24, 2012 and the stamp duty authority has determined the market value of the property for the purpose of payment of stamp duty at ₹ 9,41,78,500. The assessee, while computing capital gain on transfer of land into partnership firm in accordance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate 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 the case of Carton Hotels Pvt Ltd (supra), confirmed the addition made by the AO towards re-computation of long term capital gain. Relevant portion of the order is extracted below:- 6.2.3. I have considered the submissions made by appellant and the material available on record. The Hon 'able Lucknow Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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(A) was erred in confirming addition made by the AO towards recomputation of capital gain without appreciating the facts in a proper perspective which is evident from the fact that the CIT(A) has simply followed Lucknow Bench of the Tribunal decision which was rendered under different facts. The Ld.AR ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 u/s 45(3) of the Income-tax Act , 1961 by applying deeming provisions of section 50C for the purpose of determination of full value of consideration received or accrued as a result of transfer of capital asset. According to the AO, the provisions of section 50C overrides the provisions of section 45( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accruing as a result of transfer. A plain reading of provisions of section 45(3) makes it clear that it comes into operation only in special cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 ₹ 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 not disallowed expenditure incurred in relation to earn exempt income and hence, issued a show cause notice and asked as to why disallowance shall not be worked out by invoking Rule 8D(2)(ii). In response to show cause notice, the assessee submitted that it has not incurred any expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 deleting disallowance u/s 14A without appreciating that Rule 8D starts with heading Formula for determination of expenditure and the 3 steps prescribed under this Rule to compute the expenditure in relation to exempt income shall be applied collectively. The Ld.DR submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 for the reason that the Hon ble Delhi High Court in the case of CIT vs Cheminvest Ltd (supra) has held that where there is no exempt income, disallowance contemplated u/s 14A shall not be worked out. The Hon ble jurisdictional High Court in the case of CIT vs Deloitte Enter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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