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2024 (8) TMI 488 - AT - Income TaxDenial of deduction u/s 54G - Capital Gain arising on account of shifting of an undertaking from urban area to rural area - investment was made by the partnership firm and not by the assessee - HELD THAT - Transfer must be affected in the course of or in consequences of shifting of the industrial undertaking from an urban area to a non-urban area. The capital gain would be exempt to the extent, it is utilized within a period of one year before or three years after the date of transfer. The assessee under consideration, has complied with and satisfied the following conditions, namely (i) Assessee has shifted the existing undertaking from urban to rural area, (ii) The assessee has transferred and installed the existing plant machinery, and other equipment in the rural area, (iii) The assessee made further investment of Rs. 1.38 crores in the newly undertaking for the expansion and investment in the foundry business, (iv) The assessee has made MoU to make expansion and investment in shifting of the business, and (v) The assessee made new investment in the firm and the assessee is a partner and therefore the assessee has total right in the investment of the firm. Hence, we note that the important conditions to comply with the object and intention of section 54G of the Act have been fulfilled by the assessee under consideration. We find that assessee has invested amount of Rs. 1.22 Crores in the firm, as a partner and same was utilized in construction of building and purchasing of new plant and machineries. The assessee has shifted the existing plant and machinery, along with all important business plans, goodwill to rural area and therefore the whole manufacturing undertaking has been shifted to rural- area. Therefore, the assessee is eligible for exemption u/s 54G of the Act. The firm name is only a compendious name given to the partnership for the sake of convenience. The assets of the firm belong to and are owned by the partners of the firm as held by Hon'ble Supreme Court in the case of N. Khadervali Saheb Anrs. Vs. N. Gudi Sahib 2003 (2) TMI 63 - SUPREME COURT Any property owned by it is really the property of the partners and the use of expression 'firm' is only a compendious mode to designate the persons who have agreed to a joint venture and what is called the property of the firm is really the property of the partners. The partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. In Juggilal Kamlapat Bankers vs. WTO 1983 (12) TMI 1 - SUPREME COURT Apex Court held that the interest of a partner in a partnership firm belonged to him and would be includible in his 'assets' and will have to be taken into account while computing his net wealth. In this view of the matter, the assessee in the present case could be said to be having specific interest in the factory land and the building belonging to the firm and, as such, is entitled to the exemption under section 54G of the Act. Thus as in the assessee s case under consideration, we find that each partner is owner of the assets to the extent of his share in the partnership, hence, exemption u/s 54G of the Act, should not be denied to the assessee under consideration. The primary condition is that the assessee should have made investment in the undertaking shifted in rural area, nowhere section 54G of the Act, states that asset should be acquired in the name of the assessee. Therefore, we delete the addition made by the assessing officer. Decided in favour of assessee.
Issues Involved:
1. Disallowance of deduction under Section 54G of the Income Tax Act, 1961. 2. Confirmation of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act, 1961. 3. Justification and legality of the findings of the CIT(A). Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 54G: The primary issue revolves around the disallowance of the deduction under Section 54G amounting to Rs. 88,24,035/- claimed by the assessee on account of shifting an industrial undertaking from an urban area to a rural area. The assessee, an individual, had sold land and building for Rs. 1,22,41,000/- and invested the proceeds in a partnership firm, M/s Om Metal Cast, which subsequently invested in a factory building and plant & machinery in a rural area. The Assessing Officer (AO) disallowed the deduction on the grounds that the investment was made by the partnership firm, not the individual assessee. The CIT(A) upheld this decision, stating that the individual and the partnership firm are distinct entities under the Income Tax Act, and therefore, the conditions of Section 54G were not met. Upon appeal, the Tribunal noted that the object of Section 54G is to promote the decongestion of urban areas and balanced regional growth. The Tribunal found that the assessee had complied with the essential conditions of Section 54G, namely: - Shifting the existing undertaking from urban to rural area. - Transferring and installing the existing plant and machinery in the rural area. - Making further investments in the new undertaking for expansion. The Tribunal emphasized that the firm is merely a compendious name for the partners, and the assets of the firm belong to the partners. Citing various judicial precedents, including the Supreme Court's ruling in N. Khadervali Saheb & Anrs. Vs. N. Gudi Sahib, the Tribunal concluded that the individual partners are the real owners of the assets of the partnership firm. Therefore, the investment made by the firm through the funds provided by the partners is eligible for deduction under Section 54G. The Tribunal also referred to similar cases like Chandra N. Jethwani and CIT vs. Mohanlal Kapur, where it was held that partners are not separate from the partnership firms, and thus, the income of the partner from the firm is treated as business income. The Tribunal concluded that the assessee is entitled to the exemption under Section 54G and deleted the addition made by the AO. 2. Confirmation of Interest under Sections 234A, 234B, 234C, and 234D: The assessee also contested the confirmation of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act. However, the Tribunal's decision primarily focused on the main issue of the disallowance under Section 54G. As the primary issue was resolved in favor of the assessee, the Tribunal implicitly addressed the interest-related issues, which are consequential in nature. 3. Justification and Legality of the Findings of the CIT(A): The assessee argued that the findings of the CIT(A) were not justified and were bad in law. The Tribunal, after a thorough examination of the facts and relevant case laws, found that the CIT(A) had erred in confirming the AO's disallowance. The Tribunal emphasized that the CIT(A) failed to consider the broader objective of Section 54G and the judicial precedents that support the assessee's claim. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the assessee is eligible for the deduction under Section 54G of the Income Tax Act. The Tribunal deleted the addition made by the AO and implicitly addressed the interest-related issues, thereby providing comprehensive relief to the assessee. The order was pronounced in the open court on 06/08/2024.
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