TMI Blog2023 (8) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... the undertaking of the transferor companies shall be transferred to and vested in the transferee company as a going concern and undertaking was to include all assets and interest of the transferee companies further all debts, liabilities, contingent liabilities and obligations of every kind of the transferor companies were now to be discharged by the transferee company. Based on the above facts the Ld CIT (Appeals) correctly deleted the additions on account of capital gain made in the hands of the Partners as he was of the opinion that the applicability of section 47(xiii)(b) at the time of conversion of the Partnership Firms into Companies can be considered only in the hands of the Partnership Firms to which the land belongs. CIT[A] order that has referred to case of ITO -Vs- Orchid Gruh Nirman Pvt. Ltd. [ 2016 (11) TMI 247 - ITAT KOLKATA] - Revenue s Appeal is also dismissed in the case of PCIT -Vs- Orchid Gruh Nirman Pvt. Ltd. [ 2022 (2) TMI 186 - CALCUTTA HIGH COURT] observing that Section 45(3) would be applicable only in respect of a capital asset; thus, where a land was brought in a firm at its cost as current asset and said firm upon receipt of said land also accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited into the Fixed and Current capital accounts of the Partners in their respective profit sharing ratio of the Partnership firm. Thereafter the Partnership Firm was converted into a Private Limited company on 24-09-2008 under Part-IX of the Companies Act, 1956 under the name and style Ms.Chanakya Buildcon Pvt. Ltd. The fixed capital was converted into equity shares in the ratio of the erstwhile Partner s share of profit in the company. Later this company M/s. Chanakya Buildcon Pvt. Ltd. merged with present company namely M/s. Takshashila Gruh Nirman Pvt. Ltd. w.e.f. 01.04.2010 pursuant to the Scheme of Arrangement approved by the Hon ble High Court of Gujarat on 10.05.2012 with effect from Appointed Date namely 01.04.2010. Thereafter the assessee company was planning to enter into Stock market through Initial Public Offer (IPO). In order to make the Balance Sheet strengthen with the market value of land, the assessee company got the revaluation report from recognized Govt. Approved Valuer. 3.1. In the mean time, the erstwhile Firm filed its Return of Income on 26.09.2009 declaring total income of Rs. 2,29,378/-. Regular assessment u/s. 143(3) was completed on 23.11.2011 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt. We agree with these findings. The machinery that fell to the share of the assessee was never sold. Therefore, there was no question of the assessee making any profit out of them. No one can sell his goods to himself. A sale contemplates a seller and a purchaser. If a person revalues his goods and shows a higher value for them in his books, he cannot be considered as having sold these goods and made profits therefrom. Nor can a person by handing over his goods to a partnership of which he is a partner and that as his share of capital be considered as having sold the goods to the partnership. It difficult to appreciate the arguments advanced on behalf of the department that there was a sale either at the time when the assessee showed an inflated price of the machinery that fell to its share at the division or when that machinery was used as the capital of the new firm of which he was a partner. We see no substance in Appeal No. 1287 (NT) of 1971. This appeal is accordingly dismissed with costs. 8.4. The Hon'ble ITAT Kolkata in the case of ITO v. Orchid Gruh Nirman P. Ltd. reported in (2016) 74 Taxmann.com 187 (Kol-Trib.) examined the issue of taxability of land brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and the land properly acquired by the partnership firm continued to be owned by the by the said firm even after reconstitution without any extinguishment of rights in favour of the retiring partners. The retiring partners did not acquire any right in the said property and what they got on retirement was only the money equivalent to their share of revaluation surplus (enhanced portion of the asset revalued) which was credited to their capital accounts. There was thus no transfer of capital asset by way of distribution of capital asset either on dissolution or otherwise within the meaning of section 45(4) read with section 2(14) of the Act. I also hold that the money equivalent to enhanced portion of the assests re-valued does not constitute capital asset within the meaning of section 2(14) and the payment of the said money by the assessee firm to the retiring partners cannot give rise to capital gain under section 45(4) read with section 2(14) of the Income Tax Act, 1961. I accordingly agree with the view taken by the ld. Judicial Member and answer both the question referred under section 254(4) of the Act in the negative and in favour of the assessee. 8.6. Furthermore, app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, AO is directed to verify the records and in case, subsequently, appellant has claimed the re-valued amount as the cost of land in its accounts the same is to be restricted to the sum of Rs. 51,33,357/- i.e. the value at which the partners have introduced the land in the firm. 8.8 In addition to the contention that provisions of section 47(xiii) of the Act do not cover within their ambit the stock in trade upon conversion of the firm into a company, appellant has also asserted that all the conditions stipulated in section 47(xiii) are fulfilled. As per the appellant the entire fixed Capital of the partner was converted into equity shares of the company vis. Chanakya Buildcon Pvt. Ltd.; upon amalgamation the same equity was converted into the equity shares of M/s. Takshashila Gruh- Nirman Pvt. Ltd. the total liability of all four firms succeeded by four amalgamating companies qua the partners is maintained in M/s. Takshashila Gruh Nirman Pvt. Ltd. However, since for the reasons elaborated herein above I have held that the provisions of section 45 and 47(xii) are not applicable to the stock in trade this assertion of the appellant becomes infructuous. 8.9 Appellant furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gulabdas Printers reported in 4 ITR(T) 264 (Ahd), Well Pack Packaging reported in 130 Taxman 215 (Ahd). All these judgments laid down the ratio in favour of the assessee on the point of law and therefore relied upon the order passed by the Learned CIT(A). 7. We have given our thoughtful consideration and perused the materials available on record including the paper books and case laws filed by the assessee. It is undisputed fact that revaluation of lands had taken place during the financial year 2008-09 in the case of erstwhile Partnership firms. It is further noticed that the increased value of land was reflected as 'Current Capital' of the Partners on credit side of the balance sheet of the firms. Thereafter, the above Partnership firms had been converted to the Private Limited Companies with effect from 23-09-2008 and the capital account appearing in the Partnership Firms (revaluation reserve) has been transferred to 'Unsecured Loan' received from the shareholders. Thereafter, the above converted companies amalgamated with M/s. Takshashila Gruh Nirman Pvt. Ltd. with effect from 01-04-2010. 7.1. It is seen from records that when the Partnership Firms were c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including Jurisdictional High Court wherein SLP filed were dismissed by Hon ble Supreme Court as follows: 9.3. In CIT Vs. Vision Finstock Ltd. in TA No. 485/2017 (Guj) held as follows: 2. To put briefly, Revenue seeks to tax the consideration received by the respondent-assessee as partner of the two firms upon re-evaluation and distribution of the partnership assets as short term capital gain. CIT (Appeals) in a detailed judgment, reversed the order of the Assessing Officer holding that if at all the transaction was held to be sham, the additions can be made in the case of the firm and not the partners. The Commissioner (Appeals) also noted that in case of one of the partnership firms, the Assessing Officer had made such addition. In other words, now to tax the partner also would amount to double taxation. The Tribunal, while confirming the view of the CIT (Appeals), further noted that in case of other partners, the Assessing Officer had had not made the addition. CIT (Appeals) had exercised revisional powers under section 263 which order was set aside by the Tribunal. 3. Considering such facts, we do not find any question of law arising. Tax Appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate entity. Thereafter, proceedings under Section 148 of the Act for reassessment were initiated and thereafter a notice under Section 143(2) of the Act was issued. After considering the explanation of the respondent-assessee, the Assessing Officer determined the total income of the respondent assessee at Rs. 1,30,07,761/-. The respondent assessee disputed the impugned addition and filed an appeal before the CIT(A) which was dismissed and the addition was confirmed. .. . 6. Heard the learned advocates appearing for the parties and considered the submissions. Learned advocate Mr. Divatia submits that the same question came up for consideration before the Andhra Pradesh High Court in the case of Commissioner of Income Tax vs. United Fish Nets in Income Tax Tribunal Appeal No. 100 of 2002, wherein, interpretation of Sec. 45 was made and the questions of law formed raised herein were also the subject matter of decision in the said appeal. In para-14, the Andhra Pradesh High Court has held as under: 14. The underlined portion, in a way, signifies the basic tenets of transfer of assets. The distribution must result in some tangible act of the physical transfer of properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid up share capital does not amount to transfer liable to tax as capital gains as follows: The question that requires to be addressed is as to whether the provisions of section 45 are attracted in the facts of the present case. For the purpose of attracting sub-section (1) of section 45 profit or gain should have arisen from the transfer of a capital asset. Sub-section (2) of section 45 provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to tax as his income of the previous year in which such stock-in- trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital assets. Insofar as invocation of sub-section (2) of section 45 is concerned, while the Assessing Officer has briefly referred to the said provision in his order, no factual foundation has been laid down in that regard to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm Assessing Officer opined that it was a deviation stipulated under section 47(xiii) for exemption from capital gains and, therefore, made addition towards short term capital gains - Tribunal, however, deleted addition made by Assessing Officer - Whether in case of conversion of partnership firm into private company, unless and until first condition of transfer by way of distribution of assets is satisfied, section 45(4) will not be attracted Held, yes Whether, since, in instant case, there was no transfer by way of distribution of assets, Tribunal was justified in holding that there was no violation of conditions stipulated in section 47(xiii) and, thus, impugned addition was rightly deleted - Held, yes [Para 14] [In favour of assessee] 9.7. The Hon ble Madras High Court in the case of CADD Centre Vs. ACIT reported in [2016] 65 taxmann.com 291 (Madras) held as follows: Section 2(47), read with sections 45 and 47(xiii), of the Income-tax Act, 1961- Capital gains - Transfer (Conversion of partnership firm into company) - Whether when a partnership firm is transformed into a limited company with no change in the number of partners and extent of property, there is no transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicability of section 45(3) of the Act, the tribunal after considering the books of account of the firm recorded the following factual findings:- The books of account of the said firm for the financial year ended March 31, 2006 clearly reflected the receipt of the said land by it by way of capital contribution from three of its partners as also the value thereof with corresponding credit to the partners' capital accounts. The land upon purchase was shown by the said three companies as part of their current assets. The said firm upon receipt of the said land during the financial year ended March 31, 2006 also accounted for it as a current asset. The partners transferred the said land at cost. As such, there was no profit in the hands of the partners upon transfer of the said land to the said firm. Section 45(3) of the Act is applicable only in respect of a capital asset. The said provision has no application in the instant case since what was transferred by the partners was a current asset and not a capital asset. Section 45(3) of the Act did not come into operation for the assessment year 2008-09 by reason of conversion of the developed land and building into fixed ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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