2017 (7) TMI 1177 - HC - Income Tax

Capital gain on revaluation of partnership - Tax the consideration received by assessee as partner of the two firms upon reevaluation and distribution of the partnership assets as short-term capital gain - Held that - CIT (Appeals) in a detailed judgement, reversed the order of the Assessing Officer holding that if at all the transaction was held to be sham, the additions can be made in the case of the firm and not the partners. The Commissioner (Appeals) also noted that in case of one of the partnership firms, the Assessing Officer had made such addition. In other words, now to tax the partner also would amount to double taxation. The Tribunal, while confirming the view of the CIT (Appeals), further noted that in case of other partners, the Assessing Officer had had not made the addition. CIT (Appeals) had exercised revisional powers under section 263 which order was set aside by the Tribunal. No substantial question of law

Issues:
1. Appeal against the judgment of the Income Tax Appellate Tribunal regarding capital gains on purchase and sale of land.
2. Whether the assessee adopted a colorable device to evade tax.
3. Taxation of consideration received by the respondent-assessee as a partner of two firms as short-term capital gain.
4. Double taxation issue due to additions made in the case of the firm and not the partners.
5. Exercise of revisional powers under section 263 by the CIT (Appeals) and its validity.

Analysis:

1. The Revenue appealed against the Income Tax Appellate Tribunal's judgment, arguing that the transactions of purchase and sale of land attracted capital gains. The Revenue contended that the ITAT erred in ignoring the real nature of transactions and the applicability of legal precedents like the decision in the case of Mcdowell. However, the High Court found no question of law arising from the facts presented and dismissed the Tax Appeal.

2. The issue of whether the assessee adopted a colorable device to evade tax was raised. The CIT (Appeals) had reversed the Assessing Officer's order, stating that any transaction deemed as sham should result in additions in the case of the firm, not the partners. The Tribunal upheld this view and noted that taxing the partner would lead to double taxation, especially when the Assessing Officer had not made similar additions for other partners. The Tribunal set aside the CIT (Appeals) order, emphasizing that no question of law arose from the facts presented, leading to the dismissal of the Tax Appeal.

3. The case involved the taxation of consideration received by the respondent-assessee as a partner of two firms as short-term capital gain. The CIT (Appeals) had reversed the Assessing Officer's decision, highlighting the potential for double taxation if partners were taxed individually for transactions deemed sham. The Tribunal concurred with this view and noted that the Assessing Officer had not made similar additions for other partners, leading to the dismissal of the Tax Appeal due to the absence of any legal questions.

4. The issue of double taxation arose due to the additions made in the case of the firm and not the partners. The CIT (Appeals) and the Tribunal both emphasized that taxing the partners individually for transactions deemed sham would result in double taxation. The Tribunal's decision to set aside the CIT (Appeals) order was based on the lack of legal questions arising from the facts presented, ultimately leading to the dismissal of the Tax Appeal.

5. The exercise of revisional powers under section 263 by the CIT (Appeals) was also a point of contention. The Tribunal set aside the CIT (Appeals) order, emphasizing that no question of law arose from the facts presented. The dismissal of the Tax Appeal was based on the absence of legal issues warranting further consideration, thereby upholding the Tribunal's decision in this regard.

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