2012 (12) TMI 686 - AT - Income Tax

Transfer of Asset whether covered by the word otherwise contained in section 45(4) - Held that - The assessee after getting the valuation done from the Registered Valuer had distributed the assets equally though on WDV equally amongst all the four partners by crediting the current capital account. Once the assets have been removed from the capital account of the partners and have been credited to the current account, the partners are free to withdraw the said amount as and when they require. Therefore, it is a clear cut case of transfer of capital assets by way of distribution which is covered by the word otherwise contained in section 45(4). Value in respect of residential house - value pertains to the building OR land - Held that - The residential house can not be separate between land & building . The assessee had never objected to the value taken by the AO during assessment proceedings even after show cause was given to the assessee. The assessee did not exercise option for the fair market value as on 01.04.1981 or the cost of residential house as on 01.04.1981 during assessment proceedings inspite of the fact option given vide show cause letter dated 26.12.2008. Therefore, the value taken by the AO at Rs.18,00,000/- is correct. Value of showroom at Gulmarg Bagh taken by the AO as on 01.04.1981 was duly communicated to the assessee vide show cause dated 26.12.2008 and sufficient opportunity was given to opt either for book value or fair market value. But the same option was never exercised by the assessee during the assessment proceedings. Transfer with regard to the land at Gulmarg was a lease property and the land cannot be transferred without the prior approval of the authority - It was correctly observed by the AO that the lease of land was more than a period of 12 years and therefore, assessee is the deemed owner. The arguments of the assessee, therefore, cannot help the assessee. Regarding boundary wall, the same is also a capital asset, has rightly been observed by the A.O. Gulmarg Hut - same had been dismantled and construction of the hotel was going on when asset was transferred in the name of the partners - Held that - As in this regard, it was submitted that the construction of hotel was being carried out through M/s. Manzoor Construction through whom an amount of Rs.19 lacs was advanced.As regards the order of the CIT(A), the same is not a speaking order and he has ignored the findings of the AO who has rightly taken the fair market value and after taking into consideration the indexed cost and has rightly computed the long term capital gain vide paras 12(a) to 12(d) of his order. Therefore,no infirmity in the order of the A.O. in this regard. Thus, all the grounds of the Revenue are allowed - appeal of the Revenue allowed.

Summary

Issues Involved:
1. Valuation of land in addition to house building at Kathi Darwaza.
2. Existence of asset on the date of transfer for land at Gulmarg.
3. Existence of asset on the date of transfer for Gulmarg Hut.

Issue-Wise Detailed Analysis:

1. Valuation of Land in Addition to House Building at Kathi Darwaza:
The Revenue questioned whether the CIT(A) was correct in taking the value of land in addition to the house building at Kathi Darwaza when the book value of the land was not separately accounted for by the assessee while distributing the asset among its partners. The Assessing Officer (AO) found that the assessee distributed certain fixed assets to its partners, including a residential house valued at Rs.18,00,000/-. The AO argued that the entire value of the fixed assets was equally distributed among the partners, crediting their current capital accounts. The AO believed this distribution fell under section 45(4) of the Income Tax Act, which pertains to the transfer of capital assets by way of distribution. The CIT(A) initially dismissed the assessee's claim, agreeing with the AO that land could not be segregated from the residence and both should be valued together. The Tribunal upheld the AO's view that the valuation of Rs.18,00,000/- was correct as the assessee did not object to this value during the assessment proceedings.

2. Existence of Asset on the Date of Transfer for Land at Gulmarg:
The Revenue contended that the CIT(A) erred in treating that no asset existed on the date of transfer for the land at Gulmarg, which had a book value of Rs.35,304/-. The AO noted that the land at Gulmarg was taken on lease and subsequently transferred to the firm, making the firm a deemed owner under section 269UA(f) of the Income Tax Act. The AO treated this as a transfer of capital assets under section 45(4). However, the CIT(A) found that the land at Gulmarg was on lease from the Development Authority, similar to the shop at Bund, which was not considered an asset transfer by the AO. The Tribunal agreed with the AO's view that the land at Gulmarg, being on lease for more than 12 years, made the assessee a deemed owner, thus supporting the AO's inclusion of this land in the capital gains computation.

3. Existence of Asset on the Date of Transfer for Gulmarg Hut:
The Revenue challenged the CIT(A)'s decision that no asset existed on the date of transfer for the Gulmarg Hut, which had a book value of Rs.61,834/-. The AO observed that the Gulmarg Hut was dismantled, and a new building was being constructed over the land. The AO included the value of the Gulmarg Hut in the capital gains computation, considering it a transfer of capital assets under section 45(4). The CIT(A) allowed the assessee's claim that no asset existed for transfer as the hut was being reconstructed, supported by the remand report indicating ongoing construction work. The Tribunal, however, found that the CIT(A)'s order was not a speaking order and upheld the AO's decision to include the value of the Gulmarg Hut in the capital gains computation, as the dismantling and reconstruction did not negate the existence of an asset at the time of transfer.

Conclusion:
The Tribunal concluded that the AO correctly applied section 45(4) of the Income Tax Act in treating the distribution of assets as a transfer of capital assets. The Tribunal found no infirmity in the AO's computation of long-term capital gains and allowed the Revenue's appeal, reversing the CIT(A)'s relief to the assessee.