2012 (6) TMI 84 - HC - Income Tax

Whether Tribunal was right in holding that the entire land introduced by the partners as their capital and later on withdrawn in the year 1986 was an agricultural land, treating it as individual property of the respective partners - Revenue contending such contribution of land as partnership firm s property on ground that land appurtenant to the structure was also part and parcel of the business of the assessee firm and the land cannot be separated from the building after construction of structure - Held that - Tribunal observed that at no point of time the ownership of the land was transferred to the partnership firm by means of transfer entry or sale deed. Further, the land was always treated as agricultural land in the earlier assessment years, therefore, finding by the Tribunal that it was agricultural land for the relevant AY and it belonged to the individual partners and was never partnership firm s property is perfectly justified.

Summary

Issues:
1. Whether the land introduced by partners as their capital and later withdrawn was agricultural land?
2. Whether the profit on the sale of building erected on the land can be considered in the hands of the firm?

Analysis:

Issue 1:
The dispute in this case revolves around the nature of the land introduced by the partners as their capital and later withdrawn. The Assessing Officer contended that since constructions were raised by the firm on the land, the land belonged to the firm. However, it was established that the land was brought by individual partners for the firm's business and remained their individual property, as per the partnership deed. The Tribunal considered the history of the firm's reconstitution, where outgoing partners took away the land, and wealth tax assessments showing the land as individual assets. The Tribunal rightly concluded that the land was owned by the partners individually, not the firm. The agricultural income derived from the land in previous years also supported this conclusion.

Issue 2:
Regarding the profit on the sale of the building erected on the land, the Tribunal found that the land was always treated as agricultural land in previous assessments. The Tribunal's decision that the land was agricultural and belonged to individual partners, not the firm, was upheld. The Tribunal's reasoning, supported by the lack of contrary evidence from the department, justified the conclusion that the land was not the firm's property.

In conclusion, the High Court upheld the Tribunal's decision that the land in question was agricultural and belonged to the individual partners, dismissing the appeal with no costs. The judgment provides a detailed analysis of the partnership arrangement, the nature of the land, and the firm's business activities, ensuring clarity on the ownership and treatment of the land in question.