2015 (11) TMI 983 - AT - Income Tax

Transfer of property - AO treating the capital gain as short-term capital gain - Held that - We are conscious that the partnership firm under the common law is not a legal entity. However, under the Income-tax Act, it is a separate and distinctly assessable unit. This distinction has to be borne in mind and the partnership firm carried on its business through its partners. Therefore, for all practical purposes, under the provisions of the Income-tax Act, the partnership firm is the owner of the property and the assessee became the owner on the date on which it was re-transferred from the partnership firm. Therefore, the gain, if any, on transfer of property, has to be assessed only as short-term capital gain and not as long-term capital gain. Therefore, this Tribunal do not find any infirmity in the order of the lower authority and accordingly, the same is confirmed. The provisions of sections 54 and 54EC of the Act are applicable only in respect of gain arising from transfer of long-term capital asset. In this case, the gain arose from the transfer was short-term capital gain. Therefore, the provisions of sections 54EC and 54 are not applicable at all.

Summary

Issues:
1. Computation of capital gain in transfer of land.
2. Applicability of sections 54EC and 54 of the Income-tax Act.
3. Valuation of property for assessment purposes.

Issue 1: Computation of Capital Gain in Transfer of Land:

The appeal and stay petition were against the Commissioner of Income-tax (Appeals)'s order for the assessment year 2009-10. The main issue was whether the gain on the sale of land should be treated as long-term or short-term capital gain. The assessee claimed it as long-term capital gain, arguing that the land was not transferred to the partnership firm due to the absence of a registered document. However, the Departmental representative contended that under the Income-tax Act, registration was not mandatory for property transfer, and the property was considered an asset of the partnership firm. The Tribunal held that under the Act, the definition of "transfer" in section 2(47) prevails, and the property was effectively transferred to the partnership firm, making the gain short-term capital gain.

Issue 2: Applicability of Sections 54EC and 54 of the Income-tax Act:

The assessee also claimed deductions under sections 54EC and 54 of the Act. However, these sections apply only to gains from the transfer of long-term capital assets. Since the gain in question was short-term capital gain, the provisions of sections 54EC and 54 were deemed inapplicable by the Tribunal.

Issue 3: Valuation of Property for Assessment Purposes:

Regarding the valuation of the property, the Assessing Officer and the Commissioner of Income-tax (Appeals) had considered the value as reflected in the balance-sheet of the partnership firm. The Tribunal found no fault in this valuation method and confirmed the lower authority's decision.

In conclusion, the Tribunal dismissed the appeal, confirming the lower authority's order. As a result, the stay petition was also dismissed. The Tribunal emphasized that under the Income-tax Act, the partnership firm is a separate assessable unit, and the gain on property transfer was rightly assessed as short-term capital gain. The Tribunal also clarified the inapplicability of sections 54EC and 54 of the Act due to the nature of the gain. The valuation of the property based on the balance-sheet was upheld by the Tribunal.