9911796707
TMI Blog2022 (6) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... h revealed that the assessee had purchased agricultural land at Survey No.86 from one Princes Gaekwad vide conveyance deed executed on 18.03.2010 for a consideration of Rs.17,76,06,000/-. It was also revealed that the assessee on 18.03.2010 itself had entered into a partnership firm in the name and style of M/s. Vallabh Developers with M/s Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. and the land at Survey No. 86 was introduced by the assessee in the partnership firm as stock-in-trade for a value of Rs.22,41,00,000/-. The return of income filed by the assessee for the year under consideration was selected under compulsory scrutiny and when the assessee was called upon by the Assessing Officer to offer his explanation as regards the chargeability of capital gains in relation to land at Survey No. 86, he explained that the land in question was sold to Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. on 13.05.2011 for a total consideration of Rs.21,11,00,000/- and his share in the said land was only 30%. The assessee accordingly agreed to offer the capital gain arising from the said transaction in his return of income for the AY 2012-13. It was also submitted by the assessee tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. * On 18/03/2010 itself, a Partnership firm between the assessee and one Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. being represented by its Directors S/Shri Bhogilal Odhavji Amlani, Vinod Bhogilal Amlani and Bhupesh Bhogilal Amlani was formed and Partnership Deed was executed accordingly. * On 18/03/2010 itself, as per the Partnership Deed Clause 10, the assessee agreed that at the time of creation of this Partnership firm, the land in question i.e. Survey No.86 has been accepted as introduced by him as stock in trade for a total consideration of Rs.22,41,00,000/-. In this clause itself, it has also been accepted that the Partner Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. has given loan of Rs.1,05,00,000/- to the assessee and this loan amount will not be repaid by the assessee but the same will be treated as capital of the loanee namely; Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. and his capital account will be credited accordingly by Rs.1,05,00,000/-. Thus, the net effect of this agreement was that the assessee's capital account stands credited by Rs.22,41,00,000/- and stands debited by Rs.1,05,00,000/- and corresponding credit of Rs.1,05,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Odhavji Industrial Enterprises Pvt. Ltd. was debited to the capital account of the assessee and corresponding credit as capital of Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. was to be made in their account. In light of these facts, the firm of M/s.Vallabh Developers was dissolved and dissolution deed was executed on 13/05/2011. Accordingly, the corresponding entries have been agreed to be passed as on 13/05/2011. It is pertinent to note here that in this dissolution deed also, there is no mention of any MOU, etc. with regards to Shri Mukesh Gupta." 4. In the light of the factual position as summarized above emerging from the relevant material available on record, the Assessing Officer proceeded to consider the contentions raised by the assessee and recorded his observations/findings in paragraph Nos. 4.8.1 to 4.8.9 of his order as under: "4.8.1 Thus, in light of facts of the case of the assessee and provisions of Sec.2(14), Sec.2(47) and Sec.45 of the Income tax Act, the issue of chargeability of income arising out of short term capital gain came up for consideration. Sec. 2(14) of the Act defines the term "Capital Asset". Undisputedly, the land at Survey No.86 was a Cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the value of Rs.2,000/- can be made only by a registered Conveyance deed as per the Transfer of Property Act. This contention is also not well founded. The Transfer of Property Act has defined the term "Transfer" and has made it mandatory to recognize the term "Transfer" only if it is through a registered Deed. If this contention of the assessee is considered as true and correct and without prejudice to the provisions of the Income-tax Act, then in that case, the registered deed of purchase of property was executed between the Princess Gaekwad as seller and the assessee as absolute sole purchaser. Thus, the assessee at the first instance becomes the sole owner of the property as per Transfer of Property Act. 4.8.4 Now coming back to the provisions of the Income tax Act, it is pertinent to note here that contribution of the capital asset or transfer of capital asset is to be considered and evaluated in terms of definition of "transfer" as given in the Income tax Act and not in any other Act including the Transfer of Property Act. In this connection, it is pertinent to note here that even prior to amendment in Sec.2(47) / 45 i.e. term "Transfer" / chargeability of capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. 4.8.5 Thus, the contention of the assessee with reference to the provisions of Transfer of Property Act and not having any transfer of the asset, etc. are not correct, valid or maintainable under the Income tax Act. This view gets support from the decision of the Hon'ble Bombay High Court in the case of CIT V/s. Tata Iron & Steel Co. Ltd. (206 ITR 196, 204). It has been held that, the definition of expression "Transfer", as contained in Sec.2(47), has a very wide meaning and it cannot be narrowed down by referring to the provisions of other statutes which are quite different and applicable in different context. In nutshell, in the Income tax Act, the term "transfer" in the context of changeability of the capital gains tax has been given wider meaning than the Transfer of Property Act. 4.8.6 The third contention of the assessee with regards to the agricultural land can be transferred only to an Agriculturist and as on 18/03/2010, the land was agricultural land and was converted into non-agricultural land only on 11/01/2011, etc. I found no force therein. As regards the agricultural land also, there is specific definition under the Income tax Act. Sec.2(14) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer is rejected both in terms of facts as well as speaking provisions of the Income tax Act in respect of the nature of land. 4.8.9 Lastly, it is the contention of the assessee that the land in question was ultimately sold by him through a registered conveyance deed dated 12/05/2011 to Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. for a total consideration of Rs.21,11,00,000/-. By contending this, the assessee has raised the question as to how land which was transferred by him to the partnership firm of Vallabh Developers on 18/03/2010 could again be sold by a registered sale deed on 12/05/2011. This contention of the assessee is devoid of merits and without appreciating the provisions of the income tax Act. The Act provides that, when the asset is converted into stock in trade, it amounts to transfer exigible to the capital gains tax in the relevant previous year. In the instant case of the assessee, such transfer within the meaning of Sec.2(47) r.w.s. 45 arose and the assessee was liable to capital gains tax irrespective of any subsequent transactions assessee might have entered into. Thus, there is no force in this contention of the assessee also and the same is according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment/arrangement for transfer of agricultural land to a non-agriculturist was a void agreement and the same could not be recognized or given effect to being not permitted by law. 7. The submissions made on behalf of the assessee found favour with the learned CIT(A) who deleted the addition of Rs.3,60,86,930/- made by the Assessing Officer on account of short term capital gain for the following reasons given in paragraph Nos. 6.1 to 6.8 of his impugned order. "6.1 When the facts of this transactions are examined it would be seen that the part consideration on the part of the appellant is transfer of agricultural land in the state of Gujarat to the firm Vallabh Developers who is not an agriculturist. Transfer of agricultural land to a non-agriculturist in Gujarat is unlawful. Apart from the transfer of land to the appellant and the firm Vallabh Developers, this agreement does not have any other object. In view of the above, the entire agreement for the transfer of land by the appellant to the firm Vallabh Developers was a void contract. 6.2 It is seen that the said firm did not carry out any activities at all and the firm was dissolved on 13-05-2011. Further there is no register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remained to be agricultural land. 6.5 It is true that if a person converts his personal property into stock in trade and introduces the same in the business, the transaction would constitute transfer within the meaning of section 2(47) of the IT Act and capital gain arising therefrom would be chargeable to tax in the year in which such property has been sold as per section 45(2) of the IT Act. Similarly when a person converts his personal property into stock in trade and introduces the same as capital in the firm in which he is a partner or becomes a partner also constitute transfer within the meaning of 2(47) of the IT Act and the capital gain arising from such transaction is chargeable to tax under 45(3) of the IT Act. In the present case, as is evident from the facts and submission on records, though it was mentioned in the partnership deed that the assessee had converted the land in question into stock in trade and introduced the same into the partnership firm of M/s Vallabh Developers, in reality no legal effect to such transaction has been given, because the firm could not have legally acquired agricultural land and consequently since the land in question was not vested in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain on transfer of the land in question arises only in the Asst. Year 2012-13 when the actual sale took place. The appellant has already offered the income from Short Term Capital Gain in respect of such sale of land, while filing the I T Return for the Asst. Year 2012-13. A copy of the computation of total income and the acknowledgement of IT Return filed for AY 2012-13 is placed on record. The other issues raised by the appellant and not required to be adjudicated here since it has been held that no transfer took place in this year in respect of the land in question. The AO may examine the computation of income of Capital Gains offered on the sale of this land for its correctness or otherwise in A.Y. 2012-13 light of the observations in this order. The AO is therefore is not justified in computing short term capital gain at Rs. 3,60,86,930/- in the current assessment year since there was no transfer of any capital asset in A.Y. 2010-11. The addition made by the AO on account of short term capital gain in A.Y. 2010-11 is not justified. The addition made is deleted." Aggrieved by the order of learned CIT(A), the Revenue has preferred this appeal before the Tribunal. 8. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to the said partnership firm as per partnership deed was null and void ab initio. By relying on the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Vithalbhai P. Patel , [1999] 236 ITR 1001 (Guj.), he contended that when there was no sale transaction in the eye of law, there could be no capital gain arising from the null and void transfer of land. He submitted that the transfer of land by the assessee to the partnership firm as per partnership deed, therefore, was not given effect to and after the conversion of the said agricultural land into non-agricultural land on 11.01.2011, the same was transferred by the assessee to M/s Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. on 12.05.2011 by a registered conveyance deed. He contended that the provisions of Sections 45(2) and 45(3) of the Act thus were not applicable in the facts of the present case; and, since the land was finally transferred by the assessee to M/s Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. only on 12.05.2011, the capital gain arising from the said transfer was chargeable to tax in the hands of the assessee for AY 2012-13 and the same was duly declared by the assessee in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention that if both the persons of the partnership firm are agriculturists, then the partnership firm is regarded as agriculturist. He has contended that the assessee being one of the two partners is an agriculturist while the position as regards the other partner is not clear. However, as clarified by the learned Counsel for the assessee, the other partner M/s. Vallabh Developers was a private limited company and therefore the same cannot be an agriculturist. 11. In the case of CIT Vs. Vithalbhai P. Patel (supra) cited by the learned Counsel for the assessee, the transfer of land by the assessee was declared as null and void by the Collector in view of the provisions of Section (4) of the Gujarat Vacant Lands In Urban Areas (Prohibition of Alienation) Act, 1972, and taking note of the same, it was held by the Hon'ble Gujarat High Court that as there was no sale transaction in the eye of law, there could be no capital gain arising out of a null and void transfer of land. In our opinion, the ratio of this decision of Hon'ble Gujarat High court is squarely applicable in the facts of the present case; and, respectfully following the same, we uphold the impugned order of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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