9911796707
|
Home
Issues Involved:
1. Liability to assessment under section 41(2) of the I.T. Act for the sale of a depreciated building to partners. 2. Liability to capital gains tax under section 45 of the I.T. Act for the transfer of a capital asset by the firm. 3. Liability to gift-tax under the G.T. Act for the transfer of properties from the firm to its partners. Detailed Analysis: Issue 1: Liability to Assessment under Section 41(2) of the I.T. Act The court examined whether the firm was liable to assessment under section 41(2) of the I.T. Act due to the sale of a depreciated building to its partners. The court noted that the building was owned by the firm, had a written down value, and depreciation had been allowed. The firm credited the value of the building in its books following a release deed executed on February 9, 1968. The court determined that the transaction constituted a sale, as the release deed effectively transferred ownership from the firm to one of the partners, Bhanumathi. The court referenced the Supreme Court's decision in Addanki Narayanappa v. Bhaskara Krishnappa, which clarified that partnership property is owned by the firm, not the individual partners. Thus, the court concluded that the provisions of section 41(2) were applicable, and the firm was liable to assessment. Issue 2: Liability to Capital Gains Tax under Section 45 of the I.T. Act The court addressed whether the transaction resulted in capital gains chargeable to tax under section 45 of the I.T. Act. The court found that the transaction involved a transfer of a capital asset, as defined in section 2(47) of the Act, and thus attracted the provisions of section 45. The court dismissed the argument that the transaction was a gift exempt under section 47(iii), noting that the consideration was adjusted in the firm's accounts, making it a sale rather than a gift. The court also referenced the Supreme Court's decision in CIT v. Dewas Cine Corporation, which distinguished between distribution of assets on dissolution and sale of assets during the partnership's subsistence. The court concluded that the transaction was a sale, and the firm was liable to capital gains tax. Issue 3: Liability to Gift-Tax under the G.T. Act The court examined the firm's liability to gift-tax under the G.T. Act for transferring properties to its partners. The GTO had assessed the transaction as a gift, valuing the property at Rs. 5,94,000 and determining a taxable gift of Rs. 5,10,984 after exemptions. The court rejected the argument that a firm is not a "person" under the G.T. Act, noting that a firm is a body of individuals and thus liable to gift-tax. The court also found that the transaction involved a transfer for inadequate consideration, attracting the provisions of section 4(1)(a) of the G.T. Act. The court remanded the case to the Tribunal to re-evaluate the market value of the property and determine the correct amount of gift-tax liability. Conclusion: The court concluded that the firm was liable to assessment under section 41(2) and capital gains tax under section 45 of the I.T. Act. The transaction was deemed a sale, not a gift, and thus did not qualify for exemption under section 47(iii). Additionally, the firm was liable to gift-tax under the G.T. Act, subject to re-evaluation of the property's market value by the Tribunal. The questions were answered in favor of the revenue, and the revenue was awarded costs.
|
