TMI Blog1995 (7) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts was Rs. 90,640. During the year under consideration the assessee revalued the aforesaid property at Rs. 7 lakhs and contributed the same as his capital contribution in a partnership firm styled as M/s. Parul Developers. A partnership deed was executed on 3-9-1985 effective from 1-9-1985. In the preamble of the said partnership deed it has been clearly stated that Shri Yogeshchandra V. Shah (respondent-assessee) purchased land admeasuring 660-69 sq.mtrs. being immovable property known as " Sayla's (Old) Rest House' along with adjoining land admeasuring 175-94 sq.mtrs. both totalling land 836.63 sq.mtrs. situated in Rajkot Municipal Corportion Limit Ward No. 14. The property was purchased from Shri Jashwantkunvarba Madarsingh Zala on 16-1-1978 and registered at No. 170. Over and above 175.94 sq. mtrs. of land was purchased from Rajkot Municipal Coporation vide sale deed registration No. 6688 dated 13-11-1980. The said land was intended to be used for construction of residential flats/houses but such idea could not be materialised by Shri Yogeshchandra V. Shah. He therefore admitted 14 other persons as his partners and formed partnership firm with them under the name and st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum of Rs. 7 lakhs was credited in his capital account appearing in the books of accounts of the firm. The assessee also placed reliance on the judgment of the Supreme Court in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 in which case the effect of revaluation of the assets and contribution of the capital assets in the partnership firm has been considered and it was held that no tax on such surplus credited as a result of revaluation at the time of contribution of assets in the firm can be subjected to tax. It was also mentioned that the provisions section 45(3) have been inserted w.e.f. asst. year 1988-89 to nullify the effect of the judgment of the Supreme Court in the case of Sunil Siddharthbhai. These amended provisions are applicable from asst. year 1988-89 and cannot be applied with retrospective effect in the year under consideration i.e. AY 1986-87. It was therefore prayed before the CIT that the ITO be directed to accept the return of income for AY 1986-87 under section 143(1). 2.3. The assessee again sent a letter dated 29-3-1989 to the ITO Ward 2, Junagadh, during the course of assessment proceedings for AY 1986-87. In para-4 of said letter it was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale price of Rs. 7 lakhs and deducting therefrom the cost price and other deductions allowable under section 80T. 4. The assessee preferred an appeal against the said assessment order and challenged the levy of tax on capital gains. The CIT (A) relying on the judgment of the Supreme Court in the case of Sunil Siddharthbhai held that the amended provisions of section 45(3) read with section 2(47) were not applicable in AY 1986-87. He therefore held that the ITO was not justified in computing the capital gains liable to tax by applying the amended provisions of section 45(2). The Revenue is in appeal against the said order passed by the CIT(A). 5. The learned DR submitted that the facts and circumstances of the present case clearly attract the provisions of section 45(2) which were inserted w.e.f. 1-4-1985. The view taken by the Assessing Officer is further fortified by the amended definition of 'transfer' given in section 2(47) w.e.f. 1-4-1985. The assessee by making revaluation of the immovable property converted his capital assets into stock-in-trade. Once the capital assets has been converted into stock-in-trade, that act of conversion results in transfer as per the ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 230A are not charging section. It is a provision which appears under the Chapter relating to collection and recovery. The mere fact that an application for grant of certificate under section 230A was furnished, cannot amount to acceptance by the assessee that the act of contributing immovable property as capital contribution in the firm will amount to transfer as contemplated in section 2(47). He submitted that such an application under section 230A in the prescribed form No. 34A was furnished because the prescribed contents of the said form inter alia include cases where the right, title or interest of the applicant is inter alia limited. The expression " limited " does not appear in section 2(47) defining the transfer in relation to capital assets. The assessee had furnished the said application by way of abundant caution with a view to ensure voluntary compliance of the relevant provisions of law. That should not result in fastening an illegal liability on the assessee. He thus strongly supported the order of the CIT(A). 7. We have carefully considered the rival submissions made by the learned representatives of the parties. We have also gone through the order of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in relation to this vital fact, which is clinching and conclusive test for deciding as to whether the provisions of section 45(2) read with section 2(47) defining " transfer " as amended w.e.f. 1-4-1985 would be applicable or not in the present case. The burden clearly lies on the Revenue to establish that the capital assets in question was converted into stock-in-trade of a business carried on by him. The Assessing Officer miserably failed in discharging such burden. We are therefore of the considered opinion that the provisions of section 45(2) will not at all be applicable on the facts and circumstances of the present case. 9. The only provisions which can be applied in such facts and circumstances is section 45(3) which came into force w.e.f. AY 1988-89. Newly inserted section 45(3) by the Finance Act, 1987 has been made effective from 1-4-1988 which will be applicable for AY 1988-89 and onwards. Those provisions cannot be made applicable with retrospective effect in relation to assessments for prior years. We are dealing with the assessee's case for AY 1986-87. Hence newly inserted section 45(3) will not at all be applicable in the present case of the assessee. The afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at present and the firm has declared substantial income for A.Y. 1989-90. The statement of income of the firm for AY 1989-90 has also been placed at page 54 of the compilation which shows that the firm derived total income of Rs. 8,32,000. The firm has been treated as genuine by the department. 10. The ground taken by the Revenue that the assessee has himself submitted application for grant of certificate under section 230A which necessarily implies that the assessee had accepted such a transaction as transfer within the meaning of section 2(47), is not valid and acceptable in law. The provisions of section 230A appear in the Chapter relating to collection and recovery and the provision has been inserted with a view to ensure recovery of existing tax liability. It does not in any manner support the revenue's contention. The assessee has disclosed all relevant facts even at the time of furnishing the application in the prescribed form No. 34A under section 230A. The facts so clearly stated in the said application also support the assessee's contention that it was not a sale but the asset was transferred to partnership firm as his capital contribution. Such an argument advanced on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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