2022 (2) TMI 287 - HC - Income Tax

Addition towards capital gains u/s 45(3) - Land in question in the instant case was acquired with intent to transfer it as Capital contribution in the Partnership firm - whether it is beyond the scope of Section 45(3) ? - HELD THAT -VIt is not disputed before us that the substantial questions of law which have been raised in this appeal by the revenue have been held to be not substantial questions of law in the assessee s own case for subsequent assessment year 2022 (2) TMI 186 - CALCUTTA HIGH COURT as held Section 45(3) seeks to determine the capital gains with reference to the value of the asset recorded in the books of account of the firm. The value so recorded is statutorily deemed to be the full value of consideration received or accruing to the partner as a result of the transfer of the capital asset to the firm. Thus, Section 45(3) does not seek to substitute by any other figure the value agreed between the partners at which the asset is transferred by a partner to the firm. Tribunal agreed with CIT(A) that after conversion of inventory into fixed asset the firm revalued the developed land including construction thereon in order to bring it in line with the current market value to justify the business assistance secured by the firm from the banks to extent of nearly ₹ 250 crores. Therefore, on facts the tribunal concluded that the revaluation was not a colourable device. There was no withdrawal by the partners from capital accounts and therefore there cannot be any income liable to tax in their hands. - Decided in favour of assessee.

Summary

Issues:
1. Delay in filing the appeal.
2. Substantial questions of law raised by the revenue.

Delay in filing the appeal:
The High Court of Calcutta addressed a delay of 874 days in filing the appeal. Despite no reason provided for the delay, the court exercised discretion and condoned the delay. The decision was influenced by the consideration that identical issues were previously addressed in the assessee's case for the subsequent assessment year, leading to the condonation of the delay.

Substantial questions of law raised by the revenue:
The revenue raised three substantial questions of law for consideration. Firstly, whether the Tribunal erred in ignoring the detailed factual discussions in the assessment order regarding the adoption of colorable devices to avoid taxes, in light of the Supreme Court's judgment in Mcdowell & Co Ltd case. Secondly, whether the Tribunal erred in granting relief to the assessee by considering the land in question as not a capital asset, beyond the scope of Section 45(3) of the Income Tax Act. Lastly, whether the Tribunal failed to appreciate the facts and made a perverse conclusion, rendering its order unsustainable in law.

The court noted that the substantial questions of law raised by the revenue were found to be not substantial in the assessee's own case for the subsequent assessment year. The judgment in the assessee's case highlighted that the revaluation of an asset was not a business transaction resulting in pecuniary gain subject to taxation. Additionally, it was clarified that partners' share in the firm's income should not be included in their total income. The Tribunal's decision was based on factual findings, including the treatment of land as a current asset and the revaluation process to align with market value, dismissing the revenue's appeal due to the absence of any legal questions for consideration.

In conclusion, the High Court dismissed the appeal filed by the revenue, emphasizing that no questions of law, let alone substantial ones, were present for deliberation. The stay petition was also consequently dismissed.