2018 (12) TMI 466 - HC - Income Tax

Sale of land - Assessment in hands of partnership firm v/s partners - letter written by the partners, they were no more the owners of the property in question from the date of retirement namely 6.6.1978 - relinquishment of rights of partners - Held that - Partners have stated in the sale deed that they have relinquished their right does not pre-suppose that any right existed in them as on that date. The partners could relinquish only which they possess. The sale deed was executed on 14.2.2001. The partners retired on 6.6.1978. Therefore, they had no right at all which they could relinquish. Therefore, in the absence of possessing any legal right, the question of relinquishment does not arise for consideration. Therefore, such a contention cannot be accepted. The finding recorded by the Tribunal that the assessee was the owner of the land and building, is just and proper. It is also justified in holding that the provisions of Section 45(4) of the Income Tax Act are applicable to the facts of the case. So far as placing reliance by the respondent on the report received from the jurisdictional Sub-Registrar is concerned, the same is in accordance with law. That the fair market value of the capital asset has been determined based on the rules as specified by the Sub-Registrar. Even when repeated requests were made, there was no valuation furnished by the assessee. Therefore, the Assessing Officer had no other option but to obtain the fair market value from the jurisdictional Sub-Registrar who was authorised to furnish the same. So far as the sale is concerned, whether the entire consideration were received in the hands of the assessee or not becomes a secondary question. It is only an adjustment by the assessee with the other persons. The same can be ascertained from the recitals in the sale deed, which would indicate that in order to settle certain disputes, the shares have been given to the said persons. Therefore, the assessee alone is liable to pay tax on the sale consideration. Therefore, the contention of the assessee on that issue also, cannot be accepted. Even so far as upholding of the levy of tax insofar as the furniture and fixtures are concerned, is also in accordance with law and does not call for any interference - Decided in favour of the revenue

Summary

Issues:
1. Ownership of the capital asset by the partnership firm.
2. Applicability of Section 45(4) of the Income Tax Act, 1961.
3. Reliance on Sub-Registrar's report for determining fair market value.
4. Tax liability on the sale consideration received by former partners.
5. Tax levy on plant and furniture not part of the sale.

Ownership of Capital Asset:
The judgment involves a dispute regarding the ownership of a capital asset, a theatre, by the partnership firm. The partners claimed that the property remained under the ownership of the former partners, but the court found that the partnership firm became the absolute owner as per the partnership deed. The retired partners had relinquished their rights, and the property ownership was with the firm since their retirement, supporting the assessment of the firm.

Applicability of Section 45(4) of the Income Tax Act:
The judgment discusses the application of Section 45(4) of the Income Tax Act, 1961 to the case. The court upheld that the provisions were indeed applicable to the facts presented. The partners' contentions regarding tax liability on the sale consideration were dismissed, emphasizing that the firm was liable to pay tax on the sale consideration received.

Reliance on Sub-Registrar's Report:
Regarding the determination of fair market value, the court supported the reliance on the report received from the jurisdictional Sub-Registrar. Despite the lack of valuation furnished by the assessee, the Assessing Officer obtained the fair market value from the Sub-Registrar, as authorized. The court found this action to be in accordance with the law.

Tax Liability on Former Partners' Sale Consideration:
The judgment addresses the issue of tax liability on the sale consideration received by former partners. It was established that the partners had no legal right to the property at the time of sale, and hence, their relinquishment of rights in the sale deed did not hold weight. The court ruled that the firm alone was liable to pay tax on the sale consideration, rejecting the partners' contentions.

Tax Levy on Plant and Furniture:
Lastly, the judgment discusses the tax levy on plant and furniture not part of the sale. The court found that upholding the tax levy on these items was in accordance with the law and did not warrant any interference. Consequently, the substantial questions of law were answered in favor of the revenue, upholding the Tribunal's order.

In conclusion, the judgment clarifies the ownership of the capital asset, the application of relevant tax provisions, the reliance on valuation reports, and the tax liabilities concerning former partners and additional assets, providing a comprehensive analysis of the issues raised in the case.