2020 (7) TMI 134 - HC - Income Tax

Long term capital gain - section 45(2) applicability - Property received by assessee on partial partition of Hindu Undivided Family - expenses claimed u/s 37(1) - Properties held as stock in trade by the joint family before they were allotted to the respondent on partition - substantial question of law involving in the case or not? - whether tribunal was correct in law in holding that the provisions of Section 45(2) and 49(1) of the Income Tax Act are not applicable in respect to the property received by assessee on partial partition of Hindu Undivided Family and thereby deleting the long term capital gain? - as per tribunal cost of the properties received in partial partition of HUF to be adopted as claimed by the assessee under Section 37 (1) of the Income Tax Act as deduction while computing the income under the head Profit and Gains of Business or Profession . HELD THAT - From perusal of clause (iii) of memorandum of partition, it is axiomatic that asset, which were taken over were forming part of stock in trade of real estate business and continued to be in nature of stock in trade in the hands of the assessee. There is no iota of material on record to show that the assets obtained by the assessee were capital assets. The character of assets received on partition did not change and there is no provision in the Act to indicate that assets received on partition are capital assets, as no deeming provisions have been enacted by the Legislature. Section 45(2) of the Act are not applicable in the fact situation of the case as the asset received is stock in trade. Alternatively, it is worth noticing that there is nothing on record to indicate that any capital asset has been converted to stock in trade and provisions of Section 49(1) are not applicable to stock in trade. The definition of capital asset in Section 2(14) expressly excludes stock in trade. The substantial questions of law framed by this court are in fact questions of fact and the findings on the questions involved in this appeal have been arrived at by the tribunal on the basis of meticulous appreciation of material on record. It is well settled in law that the tribunal is a fact finding authority and a decision on the facts of the tribunal can be gone into by the high court only if a question has been referred to it, which says that the finding of the tribunal is perverse. SEE SUDARSHAN SILKS AND SAREES VS. CIT 2008 (4) TMI 5 - SUPREME COURT In SANTOSH HAZARI VS. PURSHOTTHAM TIWARI 2001 (2) TMI 131 - SUPREME COURT while dealing with the expression to be a question of law involving in the case , there must be first a foundation for it laid in pleadings and the questions emerged from sustainable findings of fact arrived at by courts of fact and it must be necessary to decide that question of law for a just and proper decision of the case. In the instant case, it is pertinent to note that no factual foundation has been made in the pleading with regard to the findings of fact arrived at by the tribunal and no material has been placed on record to demonstrate that the findings of fact recorded by the tribunal are perverse. Therefore, the substantial question of law framed by a bench of this court in fact do not arise for consideration in this appeal as the matter is concluded by findings of fact. - Revenue Appeal dismissed.

Summary

Issues Involved:
1. Applicability of Section 45(2) and 49(1) of the Income Tax Act to the property received by the assessee on partial partition of Hindu Undivided Family (HUF).
2. Determination of the cost of properties received in partial partition of HUF for deduction under Section 37(1) of the Income Tax Act.

Detailed Analysis:

1. Applicability of Section 45(2) and 49(1) of the Income Tax Act:
The primary issue was whether the provisions of Section 45(2) and 49(1) of the Income Tax Act were applicable to the property received by the assessee on partial partition of HUF, thereby attracting long-term capital gains. The tribunal held that the properties received were stock in trade and not capital assets, thus Section 45(2) was not applicable. The revenue argued that the sale of these properties should give rise to capital gains, invoking Section 45(2). However, the tribunal found that the properties were treated as stock in trade both before and after the partition, and there was no conversion of capital assets into stock in trade. The High Court upheld this view, noting that the character of the assets as stock in trade did not change upon partition, and thus, Section 45(2) did not apply.

2. Determination of the Cost of Properties for Deduction under Section 37(1):
The second issue was whether the cost of properties received in the partial partition of HUF should be adopted as claimed by the assessee under Section 37(1) for deduction while computing income under 'Profit and Gains of Business or Profession'. The assessing officer had determined the total income by adding long-term capital gains, which was contested by the assessee. The tribunal concluded that the properties were part of the stock in trade of the real estate business and continued to be so, thus the cost claimed by the assessee was valid. The High Court agreed, stating that the properties received were not capital assets but stock in trade, and thus, the provisions of Section 49(1) were not applicable.

Key Points and Legal Terminology:
- Section 45(2): Applies to the conversion of a capital asset into stock in trade.
- Section 49(1): Pertains to the cost of acquisition of capital assets received on partition of HUF.
- Stock in Trade: Excluded from the definition of capital assets under Section 2(14).
- Capital Asset: Defined under Section 2(14) but does not include stock in trade.
- Memorandum of Family Arrangement and Oral Partition: Key document indicating that the properties were stock in trade.
- Findings of Fact: The tribunal's decision was based on meticulous appreciation of facts, which the High Court upheld as not perverse.

Conclusion:
The High Court dismissed the revenue's appeal, affirming that the properties received by the assessee were stock in trade and not capital assets, thereby not attracting the provisions of Section 45(2) and 49(1) of the Income Tax Act. The tribunal's findings were based on substantial evidence, and no material was placed on record to demonstrate that these findings were perverse.