Pr. Commissioner Of Income Tax, Alwar v. Shri Kundan Lal Badshah, Plot

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 261 / 2017 Pr. Commissioner of Income Tax, Alwar ----Appellant Versus Shri Kundan Lal Badshah, Plot No. 109, Anand Nagar, Khairthal, Alwar ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo Jain with Ms. Shiva GoyalFor Respondent(s) : _____________________________________________________HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 03/10/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdisposed of the appeal of the department with certain directions. 2.Counsel for the appellant has framed the following substantial question of law:- “1. Whether on the facts and circumstances ofthe case and in law Hon’ble ITAT was justified indeleting the addition of Rs. 1,18,75,507/- madeby Assessing Officer by applying the provisionsof section 45(1) r.w.s. 50C of the I.T. Act, 1961by holding that at the time of transfer the landbelonged to the partnership firm when at thetime of sale the land was registered in the nameof the assessee in his individual capacity. 2. Whether on the facts and circumstances ofthe case and in law Hon’ble ITAT was justified innot giving directions to tax the capital gain in the hands of the firm M/s Swamy Grit Udhyogu/s 45(4) of the I.T. Act in respect of the sale ofthe said land to Sh. Rattan Singh on12.05.2009 when it had itself held that at thetime of transfer the land belonged to the firmand not the assessee Sh. Kundan Lal Badshah?3. Whether on the facts and circumstances ofthe case and in law Hon’ble ITAT was in notissuing directions for taxing such capital gain inthe hands of the assessee in A.Y. 2007-08 whenit had itself held that the capital gain arose inthe hand of the assessee u/s 45(3) in the yearin which the property was transferred to thebooks of the firm as capital contribution.?” 3.While considering the matter, the Tribunal specifically heldthat the property was transferred in the name of partnershipfirm in the year 2006-07 and the department could havecharged the capital gain for this period. 4.In that view of the matter, the observations made by theTribunal reads as under:- “10. Now, coming to the execution of sale deeddated12.05.2009, it is noted that after theretirement of the assessee from the firm, ShriRatan Singh, on the basis of power of attorneydated 11.06.2008, executed a sale deed dated12.05.2009 in his own name. It is here that themain issue for consideration arises as to whetherthe sale deed has been executed by the assessee(through its power of attorney holder, Shri RatanSingh) in whose name the property stand in theland records or the sale deed has been executedby the firm M/s Swami Grit Udyog, in whosename the property stands and all the rightsremained vested as per the partnership deed andits books of accounts. As we have stated above,once the land has been contributed by theassessee as his share of capital contribution andacknowledged by the firm which is duly evidentby the partnership deed dated 19.07.2006, thesaid property becomes the property of the firmand the transfer thereof is chargeable to tax inthe hands of the assessee by virtue of provisionsof Section 45(3) of the Act. In case of Add. CITVs. Manjeet Engineering Industries [154 ITR 509](Del.) and in case of CIT vs. A.V. Bhanoji Rao [142 ITR 706] (AP), it is held that no particularmode or form is provided for bringing in aseparate property into the stock of the firm by apartner and no deed whatsoever registered orotherwise is required to be executed by thepartner for doing so. In the present case, thefacts are on a stronger footing as the capitalcontribution is evidenced by a deed ofpartnership and the same would be considered asa transfer in relation to capital asset in terms ofSection 2(47)read with section 45(3) of the Act.Therefore, we agree with the finding ofthe ldCIT(A) that the liability to pay tax on capitalgains, if any, arises in the hands of the appellant,when the property (purchased by the appellant)was transferred to the books of the partnershipfirm. Thus, the capital gains, if any, in the handsof the appellant would arise in FY 2006-07 underthe provisions of section 45(3) of the IT Act i.e.in the year when such property is transferred tothe books of the firm ascapital contribution. 11. As per the Ld. CIT(A), as per the provisionsof Section 45(4) of the Act, the taxability willarise on such transfer in terms of sale deed dt.12.05.2009 in case of dissolution of the firm andthe issue has to be examined by the concernedA.O having jurisdiction over the firm. It is herethat we do not agree with the finding of the Ld.CIT(A). Here it would be relevant to refer to thedecision of Hon’ble Bombay High Court in case ofCIT vs. A.N. Naik Associates 136 Taxman 107(Bombay) wherein the Hon’ble Court haveexamined the provisions of Section 45(4) of theAct. It held that the expression “otherwise” usedin section 45(4) has to be read with the wordstransfer of capital assets by a distribution ofcapital assets, if so read, it becomes clear evenwhen a firm is in existence and there is a transferof capital assets, it comes within the expression“otherwise” as the object of the amending Actwas to remove the loophole which existedwhereby capital gain tax was not chargeable. Inthe instant case, the firm continue to exist andthe subject land has been transferred by the firm(as we have held above) in favour of one of thepartners of the firm, Shri Ratan Singh. Therefore,it is for the Revenue to decide whether suchtransfer in favour of Ratan Singh is taxable inhands of the firm under section45(4) of the Actor not. To that extent, the above findings of ldCIT(A) stand modified. 5.In our considered opinion, no substantial question of lawarises. 6.The request is made to take action pursuant to theobservations made by the Tribunal. However, we are notexpressing any opinion on the said aspect in view of statutoryprovisions. 7.Hence, the appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. A.Sharma/10