A.r.srinivasan By Hislegal Representativesmrs.geetha Shivakumarandmrs.uma Shankarno v. Assistant Commissioner Of Income Taxcity Circle V (Inv)

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 27.09.2011 Coram The Honourable Mrs.Justice CHITRA VENKATARAMANandThe Honourable Mr.Justice M.JAICHANDREN M/s.Midland TheatresNo.12, Rutland Gate V StreetChennai-600 006...Appellant in TC(A)166 & 167/2004 A.R.Srinivasan by hisLegal RepresentativesMrs.Geetha ShivakumarandMrs.Uma ShankarNo.12, Rutland Gate V Street,Chennai-600 006 ..Appellant in TC(A).168 & 169/2004 -vs- Assistant Commissioner of Income TaxCity Circle V (Inv)121, Nungambakkam High RoadChennai-600 034 ...Respondent in all the above TC(Appeals) Tax Case (Appeal) Nos.166 and 167 of 2004 are filed underSection 260 A of the Income Tax Act, 1961 against the order of theIncome Tax Appellate Tribunal, "C" Bench dated 20[th] October 2003 inITA.Nos.747 and 748/Mds/(1991) for the assessment year 1985-86. Tax Case (Appeal) Nos.168 and 169 of 2004 are filed underSection 260 A of the Income Tax Act, 1961 against the order of theIncome Tax Appellate Tribunal, "C" Bench dated 20[th] October 2003 inITA.Nos.650 and 651/Mds/(1991) for the assessment year 1986-87.TCA Nos.166 to 169/04: against the Order of the Commissioner of Income Tax (Appeals)IX Madras-34 dated 18.2.1991 in ITA.No.34/88-89/C.C.V(Inv) &IT/WT/GT/Appeal No.52/89-90/C.C.V(Inv)IT/WT/GT/Appeal No.50/89-90. C.C.V(Inv)IT/WT/GT/Appeal No.51/89-90. https://hcservices.ecourts.gov.in/hcservices/ against the Order of the Income -Tax Officer(Inv) City Circle VMadras 34 dated 25.3.88 in GIR.No.2303-M/85-86(in TCA No.166/04) against the Order of the Asst.Commissioner of Income-Tax, CityCircle (Inv) V-Madras-34 dated 31.3.89 in G.I.No.2303-K/198687P.A.No. --(in TCA.No.167/04) GI.No.2708-S, PA.No.47-067 PX.7412(inTCA.No.168/04)/1986-87G.I.No.2201-R/1986-87P.A.No.57(inTCA.No.169/04) respectively. For respondent : Mr.J.Narayanaswamy Standing counsel for Income Tax Dept.J U D G M E N T (The Judgment of the Court was made byCHITRA VENKATARAMAN, J. ) The assessee is on appeal as against the order of the IncomeTax Appellate Tribunal, "C" Bench dated 20[th] October 2003 inITA.Nos.747,748, 650 and 651/Mds/(1991) relating to the assessmentyears 1985-86 in TC(A).No.166 and 167/2004 and 1986-87 in TC(A).No.168 and 169/2004, raising the following questions of law:-T.C.(A).No.166/2004:- "1. Whether in law the Income Tax AppellateTribunal is justified in not granting registrationto the appellant firm for the assessment year, notwithstanding the fact that the appellant hadcomplied with the provisions of Section 184(4) and184(5) as applicable for the assessment year 1985-86 and when the assessing officer had not evendoubted the genuineness of the firm in hisassessment order? 2. Whether in law the Income Tax AppellateTribunal is justified in treating the appellant asan Association of persons applying the provisionsof Section 184(5) of the Income Tax Act, 1961 asit stood with effect from 01.04.1993 for theassessment year 1985-86?" T.C.(A).No.167/2004:- "1. Whether in law for the purpose of grantof registration of a firm, it is enough if thepartnership is evidenced by an instrument executedand operational in the previous year? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether in law mere fact that the date ofexecution of the partnership was wrongly given ina deed would not invalidate the deed? 3. Whether for determining the status of theappellant as a partnership firm the provisions ofthe Income Tax Act, 1961 as it stood on 01.04.1985and 01.04.1986 are alone applicable and not theprovisions of Income Tax Act as it stood on01.04.1993 as assumed by the Honourable Income TaxAppellate Tribunal?" T.C.(A).No.168 and 169/2004:- T.C.(A).No.167/2004:- "1. Whether in law for the purpose of grantof registration of a firm, it is enough if thepartnership is evidenced by an instrument executedand operational in the previous year? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether in law mere fact that the date ofexecution of the partnership was wrongly given ina deed would not invalidate the deed? 3. Whether for determining the status of theappellant as a partnership firm the provisions ofthe Income Tax Act, 1961 as it stood on 01.04.1985and 01.04.1986 are alone applicable and not theprovisions of Income Tax Act as it stood on01.04.1993 as assumed by the Honourable Income TaxAppellate Tribunal?" T.C.(A).No.168 and 169/2004:- "1. Whether in law the appellant is liablefor Capital Gains for the assessment year 1986-87in the admitted absence of any document oftransfer as provided under the provisions of theTransfer of Property Act followed by theregistration of documents under the provisions ofthe Indian Registration Act? 2. Whether in law mere availability of costof acquisition and alleged sale considerationwould be enough for fastening Capital Gainsliability particularly in view of the decision ofTheir Lordships of the Supreme Court rendered inCIT Vs. Alapati Venkatamiah (57 ITR 185)? 3. Whether the Capital Gains even assumingthat it is exigible is exempt in view of theprovisions of Section 47(ii) as applicable for theassessment year 1986-87, since the appellant'sdaughters were not strangers to the concept ofpartnership? T.C.(A).No.168/2004:- "4. Whether in law that the Hon. Tribunal isright in not adjudicating the grounds relating toassessability of cash credits particularly in viewof the exposition of law in CIT Vs. Noorjahan (237ITR 570 SC) and right not diluting the additionsin the light of the facts found by the AssessingOfficer in the appellant's case?" 2. T.C.(A).Nos.166 and 167 of 2004, relating to the assessmentyear 1985-86, are by the firm viz., M/s.Midland Theatres, treated asAssociation of Persons. T.C.(A).No.168 of 2004, relating to https://hcservices.ecourts.gov.in/hcservices/ assessment year 1986-87, is by A.R.Srinivasan (individual) and TC(A).No.169 of 2004 is by A.R.Srinivasan (HUF). 3. The assessee in T.C.(A).Nos.166 and 167 of 2004 is stated tobe a partnership firm constituted under the Partnership Deed dated01.04.1984 with A.R.Srinivasan (individual), A.R.Srinivasan (HUF),Mrs.Geetha Shivakumar and Mrs.Uma Shankar, daughters ofA.R.Srinivasan, as partners and later on constituted with three morepersons namely, Jayapradha and her two brothers Rajbabu and Ramkumarunder the partnership deed dated 24.4.1985. On 23.10.1985, there wasa dissolution deed executed by the above seven partners. In thebackground of the above-said facts, questions arose as regards thestatus of the firm assessed as Association of Persons and capitalgains arising at the hands of the firm on the allotment of theproperty viz., Midland Theatre, situate in an extent of 10.92grounds, to the partners falling under Jaypradha Group. There wasalso a protective assessment at the hands of A.R.Srinivasan(individual) and A.R.Srinivasan (HUF), who were partners in the firmwho had contributed their respective equal shares in the propertyMidland theatre towards their capital contribution in the firm. Onthe allotment of the lands to Jayapradha, A.R.Srinivasan (individual)and A.R.Srinivasan (HUF) were protectively assessed on long termcapital gains for the assessment year 1986-87. 4. Before going into the various issues arising in theseappeals, few facts relevant need to be noted. 4. Before going into the various issues arising in theseappeals, few facts relevant need to be noted. 5. Originally, as early as 1929, A.K.Ramachandran, father ofA.R.Srinivasan, purchased an extent of 14.73 grounds situate atGeneral Patters Road. He constructed the theatre building viz.,Midland Theatre, in the year 1931 with the funds of HUF. The Theatrewas run by the said A.K.Ramachandran along with A.R.Srinivasan (HUF)as a partnership concern. It was later on dissolved. In the year1972, A.R.Srinivasan (individual) along with his two daughters viz.,Mrs.Geetha Shivakumar and Mrs.Uma Shankar, formed a partnership firmin the name of "Midland Picture Circuit" to carry on the business inhiring cine equipments furniture and air-conditioners. It constructeda mini theatre called "Leo" in the vacant portion of the land behindMidland Theatre in the year 1976 and conducted the business ofexhibition of cine pictures. On 01.04.1982, A.R.Srinivasan (HUF) wastaken in as partners, who brought in 50% of share in the land of anextent of 3 grounds, the balance 50% owned by A.R.Srinivasan(individual) as his capital contribution. The firm Midland Theatreconstituted between A.R.Srinivasan (individual) and AR.Srinivasan(HUF), carrying on business in film exhibition and running thetheatre Midland, inducted his daughters Mrs.Geetha Shivakumar andMrs.Uma Shankar, as partners. With effect from 1.4.1984,A.R.Srinivasan (individual) and AR.Srinivasan (HUF), brought into thebooks of accounts of the firm, 50% of the share held by each of theabove-said assessees in the property Midland theatre as by way of capital contribution valued at Rs.14,05,500/- and 15,00,000/-respectively. It is stated that the theatre was leased out to aPrivate Limited Company called Midland Theatre (P) Limited. Theseassets were revalued on 23.4.1985 and the difference in valuearising on the land and building on that account to the tune of Rs.9lakhs and Rs.5,22,750/- respectively, was credited to each of thecapital account of A.R.Srinivasan (individual) and A.R.Srinivasan(HUF) as appearing in the books of the firm Midland Theatre. In thecase of daughters of A.R.Srinivasan, no share in the revaluation wascredited to their account. On 31.03.1984, the firm Midland PictureCircuit was dissolved with effect from 01.04.1984, revaluing theassets viz., the theatre Leo, furniture and fixtures at Rs.25 lakhs.A.R.Srinivasan (individual) and A.R.Srinivasan (HUF) took overthe business of Leo Theatre. In October 1984, A.R.Srinivasan(individual) and A.R.Srinivasan (HUF) sold the fixtures toSmt.Jayapradha for Rs.10 Lakhs, and Leo Theatre with land andbuilding on 30.07.1985, for Rs.15 Lakhs. As far as the capital gainsarising on the sale of Leo Theatre is concerned, it was thecontention of A.R.Srinivasan that the fixtures and superstructurebelonged to the firm Midland Picture Circuit. The land belonged toA.R.Srinivasan (individual) and A.R.Srinivasan (HUF). On dissolutionon 31.3.2004, A.R.Srinivasan (individual) took over the assets andliabilities of the firm at the revalued figure at Rs.25 lakhs. Hewas running the Theatre till March, 1985 and the cost of acquisitionwas to be taken at Rs.25 lakhs and hence, there was no capital gains. 6. The firm Midland Theatre consisting of partnersA.R.Srinivasan (individual), A.R.Srinivasan (HUF), Mrs.GeethaShivakumar and Mrs.Uma Shankar, underwent a change in theconstitution on 24.04.1985, by which, Jayapradha and her brother RajBabu and Ramkumar were taken as partners therein, having thefollowing share:- The following are the capital contribution of the partners:- a) In respect of A.R.Srinivasan (individual) and A.R.Srinivasan(HUF), the amount standing to their credit viz., the value of the https://hcservices.ecourts.gov.in/hcservices/ 6. The firm Midland Theatre consisting of partnersA.R.Srinivasan (individual), A.R.Srinivasan (HUF), Mrs.GeethaShivakumar and Mrs.Uma Shankar, underwent a change in theconstitution on 24.04.1985, by which, Jayapradha and her brother RajBabu and Ramkumar were taken as partners therein, having thefollowing share:- The following are the capital contribution of the partners:- a) In respect of A.R.Srinivasan (individual) and A.R.Srinivasan(HUF), the amount standing to their credit viz., the value of the https://hcservices.ecourts.gov.in/hcservices/ land and building as described in the schedule annexed to thepartnership deed at Rs.60 lakhs. b) In respect of the Uma Shankar and Geetha Shivakumar, theamount standing to their credit in their respective accounts. c) In respect of Jayapradha, Rs.8,00,000/- (Rupees Eight Lakhsonly). d) In respect of Ram Babu, Rs.1,00,000/- (Rupees One Lakh only). e) In respect of Ramkumar, Rs.1,00,000/- (Rupees One Lakh only). The deed also stated that in the event of a dissolution of the firmat any time, Jayapradha Group would be entitled to take over theentire business by paying A.R.Srinivasan (individual) andA.R.Srinivasan (HUF) and his daughters, Rs.60 lakhs within a monthfrom the date of dissolution and in default, to carry interest at24%. The said partnership was dissolved on 23.10.1985. The firm didnot file any return since the assessment year 1979-80 and allassessments were computed under Section 144 of the Act. Ondissolution, Ms.Jayapradha took over the business of the firm, alongwith land and building and other assets. As per the dissolutiondeed, Ms.Jayapradha and her group took over the firm along withfixtures therein. The land and building titled "Midland Theatre",excluding the portion belonging to Leo Theatre and M/s.Savith SnacksBuildings, General Patters Road, was given to Jayapradha in terms ofthe dissolution deed. A.R.Srinivasan (individual), A.R.Srinivasan(HUF) and his two daughters viz., Mrs.Geetha Shivakumar and Mrs.UmaShankar, were to receive the share amount due, at Rs.50 Lakhsreferable to the capital credited as per the terms of the partnershipdeed. 7. During the previous year relevant to the assessment year1985-86, when the firm Midland Theatre had A.R.Srinivasan(individual) A.R.Srinivasan (HUF) and the daughters of A.R.Srinivasanas partners, the firm is stated to have applied for registration ofthe firm under Section 185 of the Income Tax Act. In the returnfiled on 31.12.1986, the firm Midland Theatre claimed its status asthat of a registered firm showing loss from business, which wassubsequently revised, enhancing the loss to Rs.13,66,146/-. Theassessee Midland Theatre did not file any application under Section185 of the Income Tax Act for registration of the firm before theclose of the accounting year. In the course of the assessmentproceedings, the assessee placed only a photocopy of the Partnershipdeed. The claim of the assessee that the deed in original with theform sent from Kumbakonam through ordinary post, was verified only tofind that there was no such entry in the tapal register. In theabsence of any proof on filing of the application, the Assessing Authority held that there was no valid partnership in the eye of lawand the question of treating it as a registered firm did not arise.Further, he viewed that A.R.Srinivasan (individual) could notrepresent in dual capacity for HUF also. He viewed that this wasobviously resisted to, so as to bring the land and building calledMidland Theatre into the firm and be transferred to Jayapradha Group,who were inducted on 23.4.1985 and from which firm, A.R.Srinivasan(individual) and A.R.Srinivasan (HUF) and the two daughters resignedon 24.10.1985. Thus the Assessing Officer held the status as that ofAssociation of Persons. Thus, the Assessing Officer held that therewas no partnership in the eye of law to consider the assessment underSection 184 of the Income Tax Act, 1961. Treating the status asAssociation of Persons, the assessment was completed, holding thetransactions on the distribution of assets on dissolution as acolourable device for avoiding capital gains. 8. As far as assessment year 1986-87 is concerned, the AssessingOfficer confirmed the view that there was no firm and that the statuswas to be held as Association of Persons. As far as the partnershipdeed executed with Jayapradha Group was concerned, the AssessingOfficer viewed that the partnership deed dated 24.04.1985 wasexecuted on a stamp paper purchased on 24.07.1985 and thus held thatthe genuineness of the constitution of the firm itself was doubtful.Further, the revaluation of the land and building done on 23.04.1985raised further doubts as to the genuineness of the firm, since therewas no need at all for the same. He further viewed that the firm wasfloated with the sole purpose of avoiding capital gains ontransferring it to Jayapradha Group as part of the dissolution. TheAssessing Officer thus viewed that the Association of Persons, whichcame into effect from 01.04.1984, was in existence upto 23.04.1985and the profit arising out of the transfer of Midland Theatreconsisting of land and building and other assets to Jayapradha andher Group was liable to be assessed in the hands of the Associationof Persons, taking the cost of acquisition on the basis of the valueshown as on 01.04.1984 and the sale consideration on the basis of thevalue agreed upon at Rs.60,00,000/- as on 23.10.1985. TheAssociation of Persons was thus assessed for capital gains atRs.29,19,500/-. As by way of protective assessment, A.R.Srinivasan(individual) and A.R.Srinivasan (HUF) respectively were also assessedon the transfer as giving rise to long term capital gains. 9. Aggrieved by the same, the assessee viz., Midland Theatre,the appellant in T.C.166 and 167 of 2004, A.R.Srinivasan (individual)and A.R.Srinivasan (HUF), the appellant in T.C.168 and 169 of 2004,filed respective appeals before the Commissioner of Income Tax(Appeals), who, however, reaffirmed the view of the Assessing Officeron the aspect of existence of partnership firm, treating the statusas Association of Persons as well as on the aspect of Protectiveassessment to Capital Gains on Midland Theatre at the hands ofA.R.Srinivasan (HUF) and A.R.Srinivasan (individual). Thus the Commissioner of Income Tax (Appeals) upheld the orders of theAssessing Officer. 9. Aggrieved by the same, the assessee viz., Midland Theatre,the appellant in T.C.166 and 167 of 2004, A.R.Srinivasan (individual)and A.R.Srinivasan (HUF), the appellant in T.C.168 and 169 of 2004,filed respective appeals before the Commissioner of Income Tax(Appeals), who, however, reaffirmed the view of the Assessing Officeron the aspect of existence of partnership firm, treating the statusas Association of Persons as well as on the aspect of Protectiveassessment to Capital Gains on Midland Theatre at the hands ofA.R.Srinivasan (HUF) and A.R.Srinivasan (individual). Thus the Commissioner of Income Tax (Appeals) upheld the orders of theAssessing Officer. 10. Aggrieved by the same, the respective appellants, for therespective assessment years, filed appeals before the Income TaxAppellate Tribunal, which confirmed the view of the AssessingOfficer, particularly as regards the status of the assessee to beassessed as Association of persons. As regards the assessment toLong Term Capital Gains at the hands of A.R.Srinivasan (individual)and A.R.Srinivasan (HUF) on the sale of Midland Theatre, the IncomeTax Appellate Tribunal, once again reaffirmed the view of theAssessing Officer on the protective assessment made therein.However, the Income Tax Appellate Tribunal, in so holding, viewed theinclusion of the property Midland Theatre at the hands of Associationof persons as double inclusion and held that the same could not beassessed at the hands of Association of persons. As regards theRevenue's appeal filed on the question of determination of the valueof the land and Capital Gains, the Income Tax Appellate Tribunalrejected the same. 11. It is seen from the order of the Income Tax AppellateTribunal that the contention of the assessee as regards theassessment on the unexplained cash credit, though raised by theassessee, was not considered. 12. The present appeals are by the assessee challenging theorder of the Income Tax Appellate Tribunal in rejecting thecontention of the assessee as regards the status taken as Associationof Persons as well as on the assessment on A.R.Srinivasan(individual) and A.R.Srinivasan (HUF) as long term capital gains onthe sale of Midland Theatre to Jayapradha. 13. The contention of the assessee in T.C.(A).Nos.166 and 167 of2004 relating to the firm is that even though the assessee firm hadsent the original partnership deed by post and that sufficientcontemporaneous records were placed before the Income Tax AppellateTribunal as regards the existence of the partnership firm, the samehad not received due consideration at the hands of the Tribunal. Itis further contended that the Tribunal committed serious error in nottreating the assessee as a Registered Firm. 14. As far as the appeals filed by A.R.Srinivasan (individual)and A.R.Srinivasan (HUF) are concerned, it is contended that in theabsence of any document in respect of the alleged sale as per theTransfer of Property Act, the fastening of the liability underSection 145 of the Income Tax Act, 1961, at the hands ofA.R.Srinivasan (individual) and A.R.Srinivasan (HUF) is contrary tothe decision of the Supreme Court in the case of CIT Vs. AlapatiVenkatamiah reported in 57 ITR 185. It is further contended thateven assuming that the status of the assessee was to be treated as https://hcservices.ecourts.gov.in/hcservices/ Association of persons, with the status of the firm as Association ofPersons remaining unchallenged by the Revenue, the question ofassessing the individual and HUF assessees to long term capital gainsdoes not arise. Quite apart, Section 47(ii) of the Act is applicableto the facts of the case; thus, the question of fastening anyliability on capital gains does not arise. https://hcservices.ecourts.gov.in/hcservices/ Association of persons, with the status of the firm as Association ofPersons remaining unchallenged by the Revenue, the question ofassessing the individual and HUF assessees to long term capital gainsdoes not arise. Quite apart, Section 47(ii) of the Act is applicableto the facts of the case; thus, the question of fastening anyliability on capital gains does not arise. 15. Learned counsel appearing for the assessee, while taking usthrough the facts of the case, pointed out to Sections 182, 183, 184and 185 of the Income Tax Act, 1961 as it stood at the material pointof time and submitted that as per the law that stood at the relevantassessment year, if the assessee did not comply with the registrationprocedure for getting the status as a Registered Firm, under thestated circumstances therein, the only other option to the Revenuewas to treat it as an Unregistered Firm and make assessment thereon.He further pointed out that prior to the amendment to Section 185 ofthe Income Tax Act, 1961 under the Finance Act, 1992, effective from1.4.1993, substituting Sections 184, 185 and 186, as per the law thatstood at the material time, the question of treating a firm as anAssociation of Persons did not arise. Thus only on and from1.4.1993, that a firm not complying with the registration provisionswould get assessed as Association of Persons. In the circumstances,the Income Tax Appellate Tribunal committed serious error in applyingthe amended provisions to the facts of the case. Consequently, hesubmitted that when there were enough evidence before the Income TaxAppellate Tribunal as regards the validly constituted partnershipfirm and its dissolution, the Tribunal ought not to have treated theassessee as Association of Persons. 16. He submitted that given the fact that the property inquestion was treated as capital contribution by A.R.Srinivasan(individual) and A.R.Srinivasan (HUF), on the dissolution of thefirm, the property thus allotted to the partners, would not attractany of the provisions relating to capital gains; as such, thequestion of invoking the provisions relating to capital gains doesnot arise. He further pointed out to the circumstances under whichthe firm was reconstituted and thereafter sale of a portion of theproperty covered under a larger extent of 14 and odd acres was madeto one of the inducting partners viz., Jayapradha. After the firmwas dissolved, the properties which were there in the capital accountof the firm, were distributed among the various partners of thedissolved firm. Thus, in the background of the said facts, thequestion of treating the partnership firm as Association of personsdid not arise. In any event, there being no transfer, the questionof invoking the provisions relating to capital gains does not arise.Hence, the assessment as such, has to be set aside. 17. He also pointed out that the Revenue had made protectiveassessment on A.R.Srinivasan (individual) and A.R.Srinivasan (HUF),assessing on the transfer of Midland Theatre to Capital Gains. Even https://hcservices.ecourts.gov.in/hcservices/ going by the view taken as to the existence of the firm, there beingno documents of sale executed by the A.R.Srinivasan (HUF) andA.R.Srinivasan (individual) in the name of Jayapradha and others, thequestion of assessing A.R.Srinivasan (individual) and A.R.Srinivasan(HUF) under the provisions on capital gains did not arise. 18. As regards cash credits, he pointed out that the Tribunalhad not dealt with the same and hence, the matter requiresreconsideration at the hands of the Tribunal. 17. He also pointed out that the Revenue had made protectiveassessment on A.R.Srinivasan (individual) and A.R.Srinivasan (HUF),assessing on the transfer of Midland Theatre to Capital Gains. Even https://hcservices.ecourts.gov.in/hcservices/ going by the view taken as to the existence of the firm, there beingno documents of sale executed by the A.R.Srinivasan (HUF) andA.R.Srinivasan (individual) in the name of Jayapradha and others, thequestion of assessing A.R.Srinivasan (individual) and A.R.Srinivasan(HUF) under the provisions on capital gains did not arise. 18. As regards cash credits, he pointed out that the Tribunalhad not dealt with the same and hence, the matter requiresreconsideration at the hands of the Tribunal. 19. Supporting the order of the Income Tax Appellate Tribunal,learned Standing counsel appearing for the Revenue pointed out thatwhen the genuineness of the firm itself is in doubt, rightly, theRevenue made protective assessment at the hands of the A.R.Srinivasan(individual) and A.R.Srinivasan (HUF) and assessed them under theprovisions on Capital Gains. Hence, no exception could be taken tothe order of the Income Tax Appellate Tribunal. 20. Heard learned counsel appearing for the assessee and learnedcounsel appearing for the Revenue and perused the material availableon record. 21. A reading of the order of the Income Tax Appellate Tribunalshows that it affirmed the view of the Assessing Officer on theaspect of existence of a valid partnership firm. As far as the claimfor registration or at least to follow the procedure relating to theregistered firm as applicable to the unregistered firm is concerned,the Tribunal pointed out that the assessee did not produce theoriginal partnership deed either before the Assessing Officer orbefore the Tribunal. The assessee was directed to produce at leastpossible evidence and contemporaneous records that there existed agenuine partnership. 22. It is seen from the order of the Tribunal and the otherauthorities that the said partnership firm claimed that it had sentthe original deed of partnership to the Income Tax Officer byordinary post. The Tribunal pointed out that the assessee could notshow that the cover sent from the Auditor's Officer at Kumbakonamcontained the application for registration along with the partnershipdeed in original. The assessee had sent it in an insufficientlystamped cover. There was nothing on record to show that theDepartment ever received such deed sent by post, or for that matter,the assessee ever produced the original deed before the authoritiesconcerned. In the absence of any material to substantiate thisaspect, the Tribunal held that no document was placed on record thatthe assessee applied under Section 185 of the Income Tax Act, 1961 totreat the firm as a Registered Firm. It however rejected theobservation of the Assessing Officer as regards A.R.Srinivasansigning in dual capacity. Accordingly, the Tribunal upheld the view of the Assessing Officer in treating the firm as Association ofPersons. 23. As far as the claim of the assessee for inducting three morepartners is concerned, the Tribunal pointed out that the deed ofpartnership dated 23.04.1985 was written in a stamp paper dated24.07.1985. Given the fact that there was no explanation as regardssuch execution of the document dated 23.04.1985 in a stamp paper ofthe month of July, 1985, the Income Tax Appellate Tribunal held thatit raised serious doubt as regards the very existence of thepartnership firm. of the Assessing Officer in treating the firm as Association ofPersons. 23. As far as the claim of the assessee for inducting three morepartners is concerned, the Tribunal pointed out that the deed ofpartnership dated 23.04.1985 was written in a stamp paper dated24.07.1985. Given the fact that there was no explanation as regardssuch execution of the document dated 23.04.1985 in a stamp paper ofthe month of July, 1985, the Income Tax Appellate Tribunal held thatit raised serious doubt as regards the very existence of thepartnership firm. 24. Given the fact that the assessee could not explain thewhereabouts of the original deed or placing the same before theAssessing Officer when he demanded it and that there was noexplanation as regards the deed dated 23.04.1985, written on a stamppaper dated 24.07.1985, in the absence of any material to show theconstitution of a partnership under deed dated 1.4.1984, theformalities as regards the registration under Section 184 of theIncome Tax Act, 1961 not being complied with and the existingdocument dated 01.04.1984 itself not being proved, the Tribunal heldthat an inference as regards the existence of the firm could not bedrawn. While so holding, the Tribunal applied the decision reportedin [1973] 87 ITR 695 (Imperial Automobiles Vs. Commissioner of IncomeTax) and held that the Assessing Officer was correct in rejecting theclaim of the assessee to treat it as a firm and the Assessing Officerrightly treated the same as Association of Persons for the year 1984-85 and 1985-86. Thus, on the status as Association of Persons,admittedly, the Revenue had no grievance at all and rightly, theyhave not filed any Tax Case in this regard. 25. Going by the facts found by the Income Tax AppellateTribunal as a final fact finding authority, we do not find anyjustification in the contention of the assessee firm in relying onthe provisions as it stood, to contend that they be treated as anunregistered firm. The question of treating them as unregisteredfirm would arise only if and when the assessee is able to prove theexistence of a valid partnership deed to constitute a firm.Registration is only a second aspect in the matter of applying theprovisions under Section 184 of the Income Tax Act. 26. A reading of the provisions as contained in Section 184 ofthe Income Tax Act, 1961 shows that for the purpose of registration,the assessee has to enclose the original instrument evidencing thepartnership. Sub Section (5) of Section 184 states that if theIncome Tax Officer is satisfied that for sufficient reason, theoriginal instrument cannot conveniently be produced, he may accept acopy of it, certified in writing by all the partners. Even where theapplication is made after the dissolution of the firm, the https://hcservices.ecourts.gov.in/hcservices/ application shall be accompanied by a duplicate copy of the originalinstrument signed by all the persons referred to in clause (b) of subsection (3) who were partners in the firm immediately before itsdissolution and by the legal representative of any such partner whois deceased. In such event, on satisfaction as to the genuinenessof the firm and the document thus presented, Section 184 of theIncome Tax Act, 1961 permits the Officer to process the applicationfor grant of registration. https://hcservices.ecourts.gov.in/hcservices/ application shall be accompanied by a duplicate copy of the originalinstrument signed by all the persons referred to in clause (b) of subsection (3) who were partners in the firm immediately before itsdissolution and by the legal representative of any such partner whois deceased. In such event, on satisfaction as to the genuinenessof the firm and the document thus presented, Section 184 of theIncome Tax Act, 1961 permits the Officer to process the applicationfor grant of registration. 27. As far as the present case is concerned, admittedly, nosteps were taken by the assessee to produce the partnership deed forthe purpose of considering it for registration. Further, nomaterials were available before the Assessing Officer as to thefiling of the application with the original of the partnership deed,or for that matter, even after the dissolution, no attempt was madeas provided under Sub Section (3) of Section 184, to substantiate theexistence of a firm as indicated by a deed of partnership dated01.04.1984. So too the view of the Income Tax Appellate Tribunal asregards the subsequent partnership entered into with Jayapradha andGroup, where the document was recorded on a stamp paper in the monthof July, 1985. Even on this aspect, the assessee had not taken anysteps even to register this at least as a firm. Even though learnedcounsel for the assessee contended that they had producedcontemporaneous records to show that there was a partnership firm byway of copy of a letter addressed to the Commissioner of Police dated07.11.1985 and copy of a letter from Tamil Nadu Electricity Boarddated 27.08.1987, we do not find that the same, in any manner,advances the case of the assessee, to prove the existence of thepartnership firm. The Tribunal considered that none of thesedocuments throw light on the constitution of the firm. The Tribunalfurther pointed out that these were of the period subsequent to theassessment year. In paragraph 11 of the order, the Tribunal pointedout that even the evidence produced in the form of a letter addressedto the Commissioner of Police dated 07.11.1985, the letter addressedto the Superintending Engineer, TNEB and the letter from theSolicitor Firm regarding certain claims of the party, did not, in anymanner, support the case of the firm as to its claim on validconstitution. The letter addressed to the Tamil Nadu ElectricityBoard sought for transfer of security deposit in favour of the newfirm. The Board called for the deed of partnership as well as thedeed of dissolution. Thus the Tribunal pointed out as follows: (i) The assessee had not produced the materials as to the formationof the firm as claimed under the partnership deed dated 1.4.1984and 24.4.1985. (ii) The original of the deed was nowhere produced at any pointof time before the Officer.of time before the Officer. (iii) The deed dated 24.4.1985 was drawn on a stamp paper of the date much later to the date of execution of the deed, whichraised serious doubts as to the genuineness of the claim. The Tribunal confirmed the view of the Assessing Officer that theintention of the parties to frame a firm was clearly to transfer thetheatre to Jayapradha as though it was a distribution on dissolution,thereby evade payment of capital gains. The Tribunal held that thepartnership alleged to have been entered into with Jayapradha Grouphad to be treated as an Association of Persons in continuation fromthe Assessment Year 1984-85. (ii) The original of the deed was nowhere produced at any pointof time before the Officer.of time before the Officer. (iii) The deed dated 24.4.1985 was drawn on a stamp paper of the date much later to the date of execution of the deed, whichraised serious doubts as to the genuineness of the claim. The Tribunal confirmed the view of the Assessing Officer that theintention of the parties to frame a firm was clearly to transfer thetheatre to Jayapradha as though it was a distribution on dissolution,thereby evade payment of capital gains. The Tribunal held that thepartnership alleged to have been entered into with Jayapradha Grouphad to be treated as an Association of Persons in continuation fromthe Assessment Year 1984-85. 28. In the light of the above said facts, we have no hesitationin rejecting the first substantial question of law raised inT.C.Nos.166 and 167 of 2004. As already pointed out, on the groundof rejection of the existence of a genuine partnership firm, theTribunal upheld the order of the Assessing Officer, holding thestatus of the assessee as Association of Persons. Accordingly, wereject the assessee's contention in T.C.(A)Nos.166 and 167 of 2004. 29. As regards the protective assessment on A.R.Srinivasan(individual) and A.R.Srinivasan (HUF) on the issue of capital gains,when the Tribunal considered the status of the assessee asAssociation of Persons and its dissolution, we find that the Tribunalcommitted a serious error in ignoring the effects of the same andgoing further in treating the sale of Midland Theatre as attractingcapital gains at the hands of A.R.Srinivasan (individual) andA.R.Srinivasan (HUF). 30. Given the fact that the Income Tax Appellate Tribunal hadconfirmed the view of the Assessing Officer as to the status of theassessee as Association of Persons and that the Revenue had notdisputed the same, the Tribunal should have given this finding alogical end on the dissolution of Association of Persons. Section 47(ii) of the Income Tax Act, 1961, as it stood during relevant periodof time till 31.03.1988, excluded the operation of Section 45 of theIncome Tax Act, 1961 on any distribution of capital asset on thedissolution of the firm, body of individuals or association ofpersons. In other words, as per Section 47(ii), distribution ofcapital assets on the dissolution of the firm, body of individuals orother association of persons did not construe 'transfer' of a capitalasset for the purpose of attracting the provision on capital gains.Thus, when the status of an assessee is treated as Association ofPersons, on the dissolution or distribution of assets, as a naturalcorollary, Section 47(ii) would enure to the benefit of the assesseeto exclude the operation of Section 45. It may be of relevance tonote that Section 47(ii) was omitted by the Finance Act, 1987 witheffect from 01.04.1988 and sub sections (3) and (4) of Section 45were inserted by the Finance Act, 1987 with effect from 01.04.1988.Section 47(ii), as it stood prior to the assessment, reads as under:- " 47. Transactions not regarded as transfer. --Nothing contained in Section 45 shall apply to thefollowing transfers:(i) .......(ii) any distribution of capital assets on thedissolution of a firm, body of individuals orother association of persons" . 31. Section 45(3) and (4), effective from 01.04.1988, reads asunder:- " 47. Transactions not regarded as transfer. --Nothing contained in Section 45 shall apply to thefollowing transfers:(i) .......(ii) any distribution of capital assets on thedissolution of a firm, body of individuals orother association of persons" . 31. Section 45(3) and (4), effective from 01.04.1988, reads asunder:- "(3) The profits or gains arising from thetransfer of a capital asset by a person to a firmor other association of persons or body ofindividuals (not being a company or a co-operativesociety) in which he is or becomes a partner ormember, by way of capital contribution orotherwise, shall be chargeable to tax as hisincome of the previous year in which such transfertakes place and, for the purposes of section 48,the amount recorded in the books of account of thefirm, association or body as the value of thecapital asset shall be deemed to be the full valueof the consideration received or accruing as aresult of the transfer of the capital asset. (4) The profits or gains arising from thetransfer of a capital asset by way of distributionof capital assets on the dissolution of a firm orother association of persons or body ofindividuals (not being a company or a co-operativesociety) or otherwise, shall be chargeable to taxas the income of the firm, association or body, ofthe previous year in which the said transfer takesplace and, for the purposes of section 48, thefair market value of the asset on the date of suchtransfer shall be deemed to be the full value ofthe consideration received or accruing as a resultof the transfer." Going by the provisions of Section 47(ii) of the Income Tax Act, 1961relevant to the assessment years under consideration, distribution ofassets on the dissolution of the Association of Persons does notattract capital gains. 32. Even otherwise, if one has to accept the case of the Revenuefor taxing capital gains at the hands of A.R.Srinivasan (HUF) andA.R.Srinivasan (individual) therein as by way of protective assessment, there must be material enough to show a transfer ofproperty by A.R.Srinivasan (HUF) and A.R.Srinivasan (individual) infavour of Jayapradha. The Revenue does not deny the fact thatA.R.Srinivasan (HUF) and A.R.Srinivasan (individual) offered MidlandTheatre as by way of capital contribution when the alleged firm wasconstituted. The said property in question was treated right fromthe beginning as a business asset of the firm. Thus, when theAssessing Officer had treated the firm constituted by A.R.Srinivasan(individual), A.R.Srinivasan (HUF) and his two daughters Mrs.UmaShankar and Mrs.Geetha Shivakumar as an Association of Personscarrying on business in the exhibition of films, the distribution ofthe business asset Midland Theatre on the dissolution of theAssociation of Persons should have been considered at the hands ofthe Association of Persons only for considering capital gains inaccordance with the provisions of Section 47(ii) of the Income TaxAct, 1961. There is nothing on record for the Revenue to show thatthere was, in fact, a transfer by A.R.Srinivasan (individual) andA.R.Srinivasan (HUF) in favour of Jayapradha and that the propertywas never treated as the property of Association of Persons. 33. Leaving it aside, to treat the dissolution deed as transfer,the Revenue must show that the said transaction falls within themeaning of "transfer" as defined under Section 2(47) of the IncomeTax Act, 1961. The inclusive definition reads as follows:- 33. Leaving it aside, to treat the dissolution deed as transfer,the Revenue must show that the said transaction falls within themeaning of "transfer" as defined under Section 2(47) of the IncomeTax Act, 1961. The inclusive definition reads as follows:- 34. On going through the above said provision, we do not findthat the Revenue could fit the transaction under any of the clausesmentioned therein. Learned Standing Counsel appearing for theRevenue submits that the said aspect has not been considered rightfrom the Assessing Officer to the Income Tax Appellate Tribunal. Theconsistent case of the Revenue is that the property allotted toJayapradha and Group is a 'sale' attracting Long Term Capital Gainsat the hands of A.R.Srinivasan (individual) and A.R.Srinivasan (HUF).Admittedly, the Revenue could not place any document under which thetransfer of the immovable property was effected by A.R.Srinivasan(HUF) and A.R.Srinivasan (individual) in favour of Jayapradha. Inthe absence of any such documents, we fail to understand how the https://hcservices.ecourts.gov.in/hcservices/ transaction would come within the meaning of the term "transfer" toattract Capital Gains under Section 45 of the Income Tax Act, 1961.The Tribunal pointed out to the order of the Assessing Officer in thecase of A.R.Srinivasan (HUF) that he had treated the sale of MidlandTheatre at the hands of Association of Persons as resulting in shortterm capital gains and had assessed so. The status given to the firmas Association of Persons in 1985-86 continued so for the assessmentyear 1986-87. The Tribunal further pointed out that the Assessmentorder indicates the recognition of bringing the land and building ofMidland Theatre as capital contribution and based on this, in theassessment year 1986-87, the Assessing Officer treated this as shortterm capital gains in the hands of Association of Persons. Havingheld so, the Assessing Officer, however, found that there was lack ofbona fide in floating the firm and treatin