2014 (4) TMI 522 - AT - Income Tax

Transfer u/s 2(47) - Exemption u/s 47(xiii) - partnership firm succeeded by a private limited company. - The revaluation amount was shown as loan instead of treating the same as shares in the hands of the erstwhile partners / shareholders. - Whether, when no transfer within meaning of section 2(47) of Act, there cannot be any capital gain Held that - assets and liabilities of partnership firm as it existed at time of succession was not treated as shares of respective partners / shareholders - Treating value of land as loan in hands of company amounts to an indirect transfer of property to the partners - This is an accounting technique adopted by the partnership firm to avoid capital gain tax Provisions of section 47(xiii) cannot be ignored when there is an indirect way of avoiding tax by applying accounting techniques against provisions of Income tax Act - Do not find any error, much less, a prima facie error order of ITAT sustained - Decided against the assessee. Indexation of cost of acquisition Held that - assessee has not raised indexation issue before assessing officer - Though a ground was raised before CIT(A) with regard to indexation, this was not apparently disposed of by CIT(A) - Therefore, ground raised by assessee with regard to indexation is not arising out of order of CIT(A) - Assessing officer shall consider issue of indexation with regard to cost of property on merit in accordance with law after giving reasonable opportunity to assessee Decided partly in favour of Assessee. Levy of interest u/s 234B and 234C - In respect of capital gain tax, there cannot be any levy of interest u/s 234B and 234C Held that - levy of interest u/s 234B and 234C on capital gain has to be computed in accordance with law while giving effect to order of this Tribunal - This Tribunal, at this stage, cannot compute interest - Assessing officer shall consider whether assessee is liable to pay interest u/s 234B and 234C on capital gain and thereafter compute same in accordance with law Decided partly in favour of Assessee. Name of assessee in cause title Held that - in cause title, assessee has mentioned name as K.T.C. Automobiles - However, at column No.10 of appeal memo assessee mentioned name as K.T.C. Automobiles (P) Ltd - This may be reason for incorporating name of assessee as K.T.C. Automobiles (P) Ltd - Name in cause title shall only be K.T.C. Automobiles - Mentioning of the K.T.C. Automobiles (P) Ltd in the cause title is an error Decided in favour of Assessee.

Summary

Issues:
1. Error in the name of the assessee in the Tribunal order.
2. Disposal of certain grounds in the appeal.
3. Assessability of capital gain and applicability of section 47(xiii).
4. Indexation of cost of acquisition.
5. Levy of interest under sections 234B and 234C of the Income-tax Act.

Error in the Name of the Assessee:
The assessee filed a miscellaneous petition citing an error in the Tribunal order where the name of the assessee was mentioned as 'K.T.C. Automobiles (P) Ltd' instead of 'K.T.C. Automobiles'. The representative argued for rectification, clarifying that the current account balances of partners are liabilities of the firm, not capital. The Tribunal found that current balances are not liabilities, leading to a dispute regarding the treatment of partners' current accounts. The representative contended that no transfer occurred when the partnership firm was converted into a private limited company, thus no capital gain should apply. However, the Tribunal upheld the indirect transfer of property through accounting techniques to avoid tax, emphasizing the harmonious reading of Income-tax Act provisions.

Disposal of Certain Grounds in the Appeal:
The Tribunal examined the disposal of grounds 3, 4, and 5 in the appeal, emphasizing that the issue was elaborately considered, aligning with the decision in a similar case. It was concluded that the grounds raised by the assessee were adequately addressed or covered in the Tribunal's order, dismissing the claim of non-disposal. Additionally, the Tribunal clarified that the issue of indexation of the cost of acquisition was not raised before the assessing officer but should be considered on merit during further proceedings.

Assessability of Capital Gain and Applicability of Section 47(xiii):
Regarding the assessability of capital gain, the Tribunal analyzed section 47(xiii) and found that the partnership firm indirectly transferred assets to a private limited company, treating the revaluation amount as a loan to partners. This indirect transfer was deemed an accounting technique to avoid capital gain tax, leading to the conclusion that there was no error in the Tribunal's order. The Tribunal distinguished a previous case where conditions under section 47(xiii) were not violated, indicating a clear violation in the current case.

Indexation of Cost of Acquisition:
The Tribunal noted that the indexation issue was not raised before the assessing officer but was brought up before the CIT(A) without resolution. It was clarified that the assessing officer should consider the indexation matter in compliance with the law during further proceedings.

Levy of Interest under Sections 234B and 234C:
Regarding the levy of interest under sections 234B and 234C on capital gain, the Tribunal stated that the interest computation should be done in accordance with the law during the implementation of the Tribunal's order. The assessing officer was tasked with determining the interest liability and calculating it appropriately.

This detailed analysis of the judgment addresses the various issues raised in the appeal, providing insights into the Tribunal's considerations and decisions on each matter.