2017 (9) TMI 1732 - HC - Income Tax

Revaluation of assets - Determination of value of asset - whether assessment would have to be done on the basis of the value of assets as on 1st April 2011 when partnership firm was constituted or revalued value of assets? - what was the value of the assets as on 1st April 2011? - maintainability of appeal - substantial question of law - Held that - The value would necessarily have to be the value as recorded in the books of the firm as on 1st April 2011, i.e., the value before the revaluation. More over, as observed above, the learned Tribunal arrived at a factual finding with regard to the value of the assets transferred to the partnership as on 1st April 2011 and rejected the contention of the Revenue that the value of the assets as revalued would have to be taken into consideration. The learned Tribunal having factually determined the value of the assets in question as on 1st April 2011, this court cannot entertain any appeal under Section 260A of the Income Tax Act, 1961. Right of appeal is not automatic. Right of appeal is conferred by statute. When statute confers a limited right of appeal only in a case which involves substantial questions of law, it is not open for this Court to sit in appeal over the factual findings arrived at by the Appellate Tribunal. There is no substantial question of law involved in this appeal. - Decided against revenue

Summary

Issues Involved:

1. Whether the assessment should be based on the value of assets as on 1st April 2011 or the revalued value of assets.
2. Determination of substantial question of law under Section 260A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Value of Assets for Assessment:

The primary issue was whether the assessment should be based on the value of assets as on 1st April 2011, when the partnership firm was constituted, or the revalued value of assets. The Respondent Assessee, a doctor and proprietor of 'The Eye Foundation', transferred his assets to a partnership firm on 1st April 2011. The partnership firm was later converted into a private company limited by shares on 29th June 2011. The Assessing Officer computed capital gains based on the revalued value of assets, while the Assessee contended that the assessment should be based on the value as on 1st April 2011.

The Tribunal found that Section 45(3) of the Income Tax Act intended that for computing capital gains, the value of assets recorded in the books of the firm on the date of transfer should be deemed the full value of consideration. This legislative intent was supported by the memorandum explaining the clauses to the Finance Bill and Circular No.495 dated 22nd September 1987 from the Central Board of Direct Taxes (CBDT). The Tribunal concluded that the value of assets as on 1st April 2011, before revaluation, should be considered for assessment. Consequently, the Tribunal rejected the Revenue's contention that the revalued value should be used.

2. Substantial Question of Law under Section 260A:

The court examined whether the appeal involved a substantial question of law as required under Section 260A of the Income Tax Act, 1961. Section 260A stipulates that an appeal to the High Court is permissible only if it involves a substantial question of law. The court referred to precedents, including Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. & Mfg. Co. Ltd., and Hero Vinoth Vs. Seshammal, to determine what constitutes a substantial question of law.

The court noted that a substantial question of law must be debatable, not previously settled by law, and must have a material bearing on the decision of the case. It must affect the rights of the parties and should not be merely academic or technical. The court found that the Tribunal had made a factual determination regarding the value of assets as on 1st April 2011, and there was no substantial question of law involved. The principles of Section 100 of the Code of Civil Procedure, which apply to Section 260A, were also considered, emphasizing that the High Court should not interfere with concurrent findings of fact unless there are exceptional circumstances.

Conclusion:

The court concluded that there was no substantial question of law involved in the appeal. The factual findings of the Tribunal regarding the value of assets as on 1st April 2011 were upheld. Consequently, the appeal was dismissed with no costs.