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2010 (9) TMI 124 - HC - Income TaxValuation of the land - property was brought in by partner of the assessee firm in the form of capital- it was to be evaluated in the manner the partners agreed in the manner provided in Clause 3 of the Partnership Deed - stipulates that it would be as per the wealth tax returns - Held that - It would be clearly an absurd position that for the purpose of payments of wealth tax it was valued at ₹ 36,61,625, but when it comes to his capital contribution by giving that asset to the firm, it is valued at a partly sum of ₹ 2,01,000 - assessee by filing revised return well within the permissible limits prescribed under the Income Tax Act - capital account was also upgraded - favour of the assessee and against the Revenue
Issues Involved:
1. Whether the assessee firm is entitled to deduction of Rs. 2,01,000 or Rs. 36,61,625 as the cost of the land. 2. Whether there is any evidence of money being charged or whether the addition sustained by the Judicial Member is justified. 3. Whether the assessee is entitled in the computation of its profits to the deduction of Rs. 3 lakhs paid to Dr. Miss Lila Raj and Dr. Miss Shanti Raj by the assessee firm. Issue-wise Detailed Analysis: Issue 1: Deduction of Cost of Land 1. The land at 15-Barakhamba Road, New Delhi was originally leased to a partnership firm in which late Shri H.R. Vadera was a partner. The firm M/s. Hansalaya Properties was formed on 08.08.1970, and Shri H.R. Vadera brought the leasehold property as his capital contribution. 2. Initially, the capital account of Shri H.R. Vadera was credited with Rs. 2,01,000, which was the value of the property in the firm's books. However, in a revised consolidated Profit and Loss Account filed in March 1978, the cost of the land was debited by Rs. 36,61,625, representing the market value as per an approved valuer's certificate. 3. The Income Tax Officer (ITO) rejected the revised figure of Rs. 36,61,625 and allowed only Rs. 2,01,000 as the cost of the land. This decision was upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT). 4. The Special Bench of the Tribunal agreed with the Judicial Member's view that the land should be valued at Rs. 2,01,000, not Rs. 36,61,625. 5. The High Court analyzed Clause 3 of the Partnership Deed, which stated that the land should be valued as per the Wealth Tax return of Shri H.R. Vadera. The Court noted that the land was valued at Rs. 36,61,625 in the Wealth Tax assessment, and this value should be considered for the capital contribution. 6. The Court found that the revised return filed by the assessee was within the permissible time and that the capital account of Shri Vadera was updated accordingly. The Court held that for consistency and fairness, the value of the land should be Rs. 36,61,625, as accepted by the Wealth Tax Authorities. 7. The High Court answered the first question in favor of the assessee, stating that the value of the land should be Rs. 36,61,625 for computing the profits and gains of the firm. Issue 2: Evidence of Money Being Charged8. The second issue concerned whether there was any evidence of money being charged or whether the addition sustained by the Judicial Member was justified. However, no arguments were advanced on this issue, and it was implied that this question was not pressed. 9. Therefore, the High Court returned the second question unanswered. Issue 3: Deduction of Rs. 3 Lakhs Paid to Dr. Miss Lila Raj and Dr. Miss Shanti Raj10. The third issue was whether the assessee was entitled to the deduction of Rs. 3 lakhs paid to Dr. Miss Lila Raj and Dr. Miss Shanti Raj in the computation of its profits. This issue was not specifically addressed in the judgment, and no arguments were presented. 11. Consequently, the High Court did not provide a detailed analysis or answer for this issue. Conclusion:12. The High Court concluded that the assessee firm is entitled to consider Rs. 36,61,625 as the cost of the land for computing its profits, aligning with the valuation accepted by the Wealth Tax Authorities. The second question was returned unanswered due to lack of arguments. 13. The reference was answered accordingly, favoring the assessee on the primary issue of land valuation.
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