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2011 (11) TMI 461 - HC - Income TaxCapital Gain - transfer of Immovable Property to the partners of the firm - Held That - ITAT is the final authority to decide the question of fact. Both the AO and the first appellate authority have held that since there was transfer of capital asset on 29-3-1995 in favour of the new partners of the firm the same would attract provisions of Section 45(4) and tax has to be paid on the capital gain. However the ITAT set aside the order passed by the FAA and AO only on the ground that in the earlier order passed by the ITAT in Unity Care & Health Services it has been held that on similar facts that the transaction would not attract Section 45(4) . The facts of present case are clearly different from the case as relied by ITAT. The ITAT has not gone into other aspects which are in the reasoning given by the first appellate authority and the Assessing Officer while holding that the capital gain under Section 45(4) is attracted and the assessee is liable to pay tax on the same and therefore the order passed by the ITAT is perverse and arbitrary and cannot be sustained and liable to be set aside. As transfer of immovable property which would attract capital gain under Section 45(4) is a pure question of fact and the same is to be decided by the ITAT the matter is to be remitted to the ITAT for fresh disposal in accordance with law - in favour of the revenue.
Issues:
1. Validity of re-opening of assessment for the assessment year 1995-96. 2. Whether the impugned transaction would attract capital gain under Section 45(4) of the Income Tax Act, 1961. 3. Applicability of the decision in Unity Care & Health Services case. 4. Whether the ITAT's order was justified in setting aside the Assessing Officer's and first appellate authority's orders. Analysis: 1. The appeal before the Karnataka High Court challenged the order passed by the Income Tax Appellate Tribunal (ITAT) in relation to the assessment year 1995-96. The dispute arose from the re-opening of the assessment based on a revenue audit objection regarding a transaction involving immovable property and potential capital gain under Section 45(4) of the Income Tax Act, 1961. The Assessing Officer held that the transfer of assets to partners would attract capital gain, which was confirmed by the first appellate authority but later set aside by the ITAT. 2. The key contention was whether the impugned transaction indeed constituted a transfer of capital asset attracting capital gain. The ITAT relied on a previous decision in the Unity Care & Health Services case to conclude that there was no transfer of capital asset in the present case. The court analyzed the facts of both cases, emphasizing that the Unity Care case involved different circumstances, such as revaluation of assets before conversion into a company, unlike the current scenario. The court found the ITAT's reliance on the Unity Care decision unjustified and held that the ITAT did not adequately address the reasons provided by the Assessing Officer and the first appellate authority. 3. The parties presented arguments regarding the applicability of the Unity Care decision and the transfer of capital asset. The respondent contended that the Unity Care judgment applied to the current case, while the revenue argued that there was indeed a transfer of capital asset and capital gain should be imposed. The court considered these arguments but ultimately found that the Unity Care decision did not align with the facts of the present case, leading to the conclusion that the ITAT's order was arbitrary and unsustainable. 4. The court acknowledged that the determination of whether there was a transfer of immovable property attracting capital gain was a factual question falling under the ITAT's jurisdiction. Therefore, the court remitted the matter back to the ITAT for fresh consideration in accordance with the law. The substantial question of law was answered in favor of the revenue, and the ITAT's order was set aside, directing a fresh disposal of the appeal with all contentions open for further arguments. This detailed analysis of the judgment before the Karnataka High Court provides a comprehensive overview of the issues, arguments presented by the parties, and the court's reasoning leading to the final decision to remit the matter back to the ITAT for fresh consideration.
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