1992 (6) TMI 46 - AT - Income Tax

Summary

Issues Involved:
1. Whether the transfer of a plot of land by the assessee to a newly formed partnership as its capital contribution gave rise to any capital gains.
2. The quantum of such capital gains.
3. The valuation of the property as on 1-1-1974.

Issue-wise Detailed Analysis:

1. Whether the transfer of a plot of land by the assessee to a newly formed partnership as its capital contribution gave rise to any capital gains:

The main substantive issue in this appeal is whether the transfer by the assessee of its asset, a plot of land, to a newly formed partnership as its capital contribution gave rise to any capital gains. The assessee, a private limited company, owned the plot of land for many years and entered into a partnership for the sole purpose of developing the land. The land, initially valued at Rs. 63 in the books, was revalued at Rs. 1.20 crores and transferred to the firm's books at this value. The difference was debited to the capital reserve account. The Assessing Officer (AO) concluded that the transfer was a device to evade capital gains tax, as the assessee would receive buildings worth Rs. 1 crore in return, thus evading tax that would be due if the land was sold in the open market. The AO treated the difference between the revalued figure and the original cost as long-term capital gains.

The assessee argued that since the land was transferred as a capital contribution and no consideration was received, no capital gains arose. However, the Commissioner(Appeals) concurred with the AO, stating that the transfer did give rise to taxable capital gains. The Tribunal also agreed with the revenue authorities, noting that the partnership deed indicated the excess capital of Rs. 1 crore was essentially a debt to be satisfied by allotting residential or commercial units to the assessee. Therefore, the non-payment of immediate cash consideration did not negate the capital gains, as the transfer constituted a transfer within the meaning of clause (47) of section 2 of the Income-tax Act.

2. The quantum of such capital gains:

The AO initially valued the land as on 1-1-1974 at Rs. 19,77,700 and calculated the long-term capital gains as Rs. 1,00,22,300. The Commissioner(Appeals) directed the AO to redetermine the value, which was revised to Rs. 1,02,84,070, reducing the capital gains to Rs. 17,15,930. This revised amount is the subject of the present appeal.

3. The valuation of the property as on 1-1-1974:

The assessee challenged the valuation of the property as on 1-1-1974. Initially, the AO valued it at Rs. 19,77,700. After a rectification order, the AO revised the valuation to Rs. 1,02,84,070. During the appeal, it was noted that no further appeal against this revised valuation was preferred by either party, making the revised valuation final.

Conclusion:

The Tribunal upheld the findings of the revenue authorities, concluding that the transfer of the land by the assessee to the newly constituted partnership firm gave rise to taxable capital gains. The Tribunal also agreed that the transaction was a device to evade capital gains tax and was not a genuine contribution to the partnership's share capital. The revised valuation of the property as on 1-1-1974 at Rs. 1,02,84,070 was accepted, and the appeal was decided accordingly.