Ita/82/2010 Of Sri.s.k.ravikumar v. The Income Tax Officer

IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 28 DAY OF NOVEMBER, 2018) BEFORE. THE HON BLE MR. JUSTICE RAVI MALIMATH| AND| THE HON'BLE MR. JUSTICE K.NATARAJAN INCOME TAX APPEAL NO.82 OF 2010 BEI|WEE SRI S.K. RAVIKUMAR|PARTNERM/S. SRINIVASA ENTERPRISES655/656, TANK ROADDODDABALLAPUR - 561 203.BENGALURU DISTRICT. AND — APPELLAWN I | (BY MISS. PRIYA V., ADVOCATE FORSRI G.K.V. MURTHY, ADVOCATE) THE INCOME TAX OFFICERWARD 8(4), L.I.C. BUILDINGSAMPIGE ROAD, MALLESWARAM, BENGALURU-560 O03. . RESPONDENT| (BY SRI K.V. ARAVIND, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT, 1961 ARISING OUT OF ORDERDATED20.11.7009|PASSEDIN|INCOMETAXAPPEAL|NO.984/BNG/2007, FOR THE ASSESSMENT YEAR 2001-2002,PRAYING THAT THIS HON'’BLE COURT MAY BE PLEASED TO: (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW)STATED THEREIN, (ii) ALLOW THE APPEAL AND SET ASIDE)THE ORDER PASSED BY THE [INCOME TAX APPELLATETRIBUNAL, BENGALURUIN|INCOMETA®XAPPEAL|NO.984/BNG/2007, DATED 20.11.2009, PASSED BY THEINCOME TAX APPELLATE TRIBUNAL, “A” BENCH, BENGALURU. ROR AR THIS INCOME TAK APPEAL COMING ON FOR FINAL|HEARING THIS DAY, RAVIMALIMATH, JDELIVERED THE.FOLLOWING: JUDGMENT The assessee is a partnership firm in the name and style|OT ~M/S.SrinivasaEnterprises’.Sri.N.A.Venugopaland.N.A.Ravigopal were the owners of immovable propertiesSituated at Doddaballapur. Tney had purchased the same.under a separate Sale Deed in the year 1973. Theyconstituted a partnership in the name of M/S.Srinivasa|Enterprises along with 12 others in terms of the PartnershipDeed dated 26.11.1976. A Theatre by name “Gopal Tneatre™WadaconstructedIntnepremises|Inquestion.Sri.N.A.Venugopal and.N.A.Ravigopalretired fromthe.partnersnip witn effect from 6.6.1978. Tne partnersnip firm|continued. It was reconstituted on several occasions. In tne.year 2001, four partners remained. The Theatre and the land) were solid to one Sri T.Prasanna Kumar by virtue of twoseparate registered sale deeds on 14.2.2001 by the partners|as well as the erstwhile partners of the firm. The firm was alsodissolved on the same day in terms of the Deed of Dissolutiondated 14.2.2001. Certain amounts were paid to the fourformer partners including Venugopal and Ravigopal. 2. A notice under Section 148 of tne Income Tax Act)was issued to the assessee-firm, which was served on the)Managing Partner. In response to the notice, the assesseefiled the return of income declaring a loss of Rs.1,40,068/-.|Tne assessee was asked to produce the details in Support of|the return filed and also a copy of the partnership deed at the|time of constitution of the firm. Thereafter, Dooks of account|were produced. The assessee was asked to furnish the break-up of the value of the land, building etc., in respect of the)Theatre sold and also evidences in support of the additions to|the movable assets. The assessee did not furnish the details|as sought for. Thereafter, the Sub-Registrar, Doddaballapura|was requested to furnish the market value adopted, in respect|of tne theatre sold and the Sub-Registrar nas given the)valuation of the land at Rs.33 lakhs and building at Rs.11./0) lakns. Tne assessee was intimated about tne valuation andproposed to compute long term capital gains in respect of the|land and snort term capital gains in respect of the buildingincluding fixtures and furniture. Thereafter, the long term)capital gains at Rs.23,25,600/- and snort term capital gains|at Rs.10,10,537/- were computed. Aggrieved by the same,|tne partners filed an appeal before the Commissioner ofIncome Tax (Appeals), which was dismissed. The appeal filed|by the partners before the Income Tax Appellate Tribunal wasalso rejected. Hence, this appeal. 3. By the order dated 1/7.3.2010, the appeal wasadmitted to consider the following substantial questions oflaW! i)Whetner,|OfNthefactsand lakns. Tne assessee was intimated about tne valuation andproposed to compute long term capital gains in respect of the|land and snort term capital gains in respect of the buildingincluding fixtures and furniture. Thereafter, the long term)capital gains at Rs.23,25,600/- and snort term capital gains|at Rs.10,10,537/- were computed. Aggrieved by the same,|tne partners filed an appeal before the Commissioner ofIncome Tax (Appeals), which was dismissed. The appeal filed|by the partners before the Income Tax Appellate Tribunal wasalso rejected. Hence, this appeal. 3. By the order dated 1/7.3.2010, the appeal wasadmitted to consider the following substantial questions oflaW! i)Whetner,|OfNthefactsand circumstances of the case, the Tribunal|is rignt in holding that the firm,M/s. SrinivasaFnterprises,Wastheowner of the capital asset viz. land andDuilaing comprised in Gopal theatresituated at Tank Road, Doddaballapur? il)WhetherOP)thefactsandcircumstances of the case, the Tribunal is rignt in nolaing tnat the provisions ofSection 45(4) of the Income Tax Act,1961 are applicable to the facts of thepresent case? lil)WhetherOP)thefactsandcircumstances of the case, the Tribunalis rignt in upnoiding tne reliance placedby the Respondent on the_ reportreceived from tne Jjurisaictional SubRegistrar to determine the fair marketvalue of capital asset, inspite of the factthat as per the provisions of Section45(4) of the Income Tax Act, 1961 theSale consideration received snould bedeemed to be the fair market value? iV) WhetherOf)thefactsandcircumstances of the case, the Tribunalhas erred in not appreciating the factthatthefirm, M/S. SrinivasaFnterprises, is made liable to pay taxCVeETOf)thepartoftheSaleconsideration received by four personsVIZ.N.A. Venugopal,N.A.Ravigopal,S.S.Puttaraju and S.S.Muralidnara, wnowere not its partners at the time of sale_of the capital asset? VvWhetherOP)thefactsandcircumstances of the case, the Tribunal|Nas erred in uphoiding the levy of taxon tne value of plant and_ furniturewhich were not the subject matters ofSale?circumstances of the case, the Tribunal|Nas erred in uphoiding the levy of taxon tne value of plant and_ furniturewhich were not the subject matters ofSale? 4. Miss.Priya V., learned counsel for the appellant.submits that the Tribunal nas committed an error in passing|the impugned order. The material on record would clearly|indicate that part of the sale consideration was paid to the)erstwhile partners, therefore, that amount cannot be taxed in/tne nands of the assessee since the sale has been effected by|the erstwhile partners. Therefore, it cannot be considered that|the property stood in the name of the partnersnip firm. That)the computation of the capital gains is erroneous. 5. The same is disputed by the counsel for the revenue.6. Heard learned counsels. 7. Tne contention of the assessee is tnat the erstwnile|partners namely Venugopal and Ravigopal were the only.owners of the land and therefore tne income tnat Is assessed|in the name of the firm, requires to be deleted. However, the| material on record would indicate thnat bpotn of them nafurnished a joint letter dated 28.11.2006 wherein they stated|tnat they nad contributed their snare as capital towards the)partnership firm, running Gopal Theatre along with land and)building. Tnerefore,thepartnersnipTirm,namely,M/S.Srinivasa Enterprises nas become the absolute ownerSINCEthatdate,namely,26.11.19/6.VenugopalandRavigopal have retired from the partnership firm with effectfrom 6.6.1978 and they nave also executed a Release Deed in|favour of the continuing partners of the firm. Therefore, they|are not the owners of the property and have relinquished all|tne rights and interest of the property as indicated py them. 8. Based on the submissions made by them, it is crystal clear that the partners retired from the partnership firm and|the ownersnip of the property remained witn the partnership|firm. Therefore, the partnership firm has been rightly|assessec.| 8. Based on the submissions made by them, it is crystal clear that the partners retired from the partnership firm and|the ownersnip of the property remained witn the partnership|firm. Therefore, the partnership firm has been rightly|assessec.| 9. The contention of the partners that the property|continued to remain under the ownership of the erstwhile|partner, therefore cannot be accepted, nor is there any material to support such a contention. However, it is being.contended that the said letter issued by the partners jointly|runs contrary to the sale deed. It is contended that in the saledeed effected by the firm and the partners in favour of the)purcnasers dated 14.2.2001, it is mentioned in page 10 of the|said document tnat in order to avoid the dispute and settie|the matter, the snare of the vendor in the schedule property|ISdaeterminecas|Rs.1,00,000/-.COvendorNo.1and.Rs.1,00,000/- to vendor No.2 and that tney agreed to |relinquisn their rignts by executing the deed. It is therefore|contended that the letter runs contrary to the deed of saledated 14.72.7001. 10. In terms of the letter written by the partners, they|were no more the owners of the property in question from thedate of retirement namely 6.6.1978. Therefore, merely.because they have stated in the sale deed tnat they nave.relinquisned their rignt does not pre-suppose that any right)existed in them as on that date. Tne partners could relinquishOnly which they possess. The sale deed was executed on.14.2.2001. The partners retired on 6.6.1978. Tnerefore, they|had no right at all which they could relinquish. Therefore, in| the absence of possessing any legal rignt, the question of)relinguishment does not arise for consideration. Therefore,|such a contention cannot be accepted. 11. It is also indicated at page No.10 of the deed that,|tne so called settlement was arrived at in view of the pendingsuit. It is pleaded that a suit in O.S.No.210 of 1992 was filed|peforetheCourtOT AdaitionalMunsift, (Jr.Dn.),Doddaballapur, for implementation of the Release Deedclaiming their rignt and disputing their relinquisnment of the|rignts in the said lands. Tne said suit was dismissed. A’Miscellaneous Petition was filed for restoration, which waspending for consideration. 12. Yet anotner reference is made in page No.14 of tne|deed with regard to 0.S.458 of 1996 filed by vendors 7 and 8claiming their rignt over the schedule property. In order to_avoid the dispute in this suit, vendors 7 and 8 nave come.forward to sell their right in the schedule property in favour of|the purchaser. Therefore, so far as the earlier suit in’O.S.No.210 of 1992 is concerned, there is no material to show|as to what was the dispute whicn was required to be settled| and between whom. Therefore, the finding recorded by the)Tribunal that the assessee was the owner of the land and/building, is just and proper. It is also justified in holding that|the provisions of Section 45(4) of the Income Tax Act are)applicable to tne facts of the case. 13. So far as placing reliance by the respondent on the.report received from the jurisdictional Sub-Registrar is_concerned, the same is in accordance with law. That the fair|market value of the capital asset has been determined based|on the rules as specified by the Sub-Registrar. Even when)repeated requests were made, there was no. valuationfurnished by the assessee. Therefore, the Assessing Officer|nad no other option but to obtain the fair market value from|the jurisdictional Sub-Registrar who was authorised to furnishtne same.| 14. So far as the sale is concerned, whether the entire|consideration were received in the nands of the assessee or/not becomes a secondary question. It is only an adjustment|by the assessee with the other persons. The same can be)ascertained from the recitals in the sale deed, which would) 14. So far as the sale is concerned, whether the entire|consideration were received in the nands of the assessee or/not becomes a secondary question. It is only an adjustment|by the assessee with the other persons. The same can be)ascertained from the recitals in the sale deed, which would) indicate that in order to settle certain disputes, the snares|have been given to the said persons. Therefore, the assessee|alone is liable to pay tax on the sale consideration. Therefore,|the contention of the assessee on that issue also, cannot be)accepted. | 15. We are also of the view that even so far as-upholding of the levy of tax insofar as the furniture andfixtures are concerned, is also in accordance with law anddoes not call for any interference. | 16. For the aforesaid reasons, we find no reasons tointerfere. The substantial questions of law are answered infavour of the revenue and against the assessee. The order oftne Tribunal is therefore upheld. | SD/- JUDGE ~ SD/-|JUDGE|