2017 (4) TMI 442 - AT - Income Tax

MAT computation - inclusion of long term capital gain earned by a partnership firm, in which the assessee is the major partner, as part of book profit of the assessee computed u/s. 115JB - Held that - As consistent with the view taken by the co-ordinate bench in the case of M/s. Rahil Impex Pvt. Ltd. (2016 (6) TMI 1199 - ITAT MUMBAI), we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to exclude share income from partnership firm while computing book profit u/s. 115JB of the Act.

Summary

Issues:
Inclusion of long term capital gain earned by a partnership firm in book profit computed u/s. 115JB of the Act.

Analysis:
The appeal pertains to the inclusion of long term capital gain earned by a partnership firm, in which the assessee is a major partner, in the book profit computed u/s. 115JB of the Act for the assessment year 2011-12. The assessee transferred shares to the partnership firm, which subsequently sold some shares and earned a long term capital gain. The assessee excluded this gain from the book profit computation, claiming it as exempt u/s. 10(2A) of the Act. However, the Assessing Officer added the gain to the book profit, alleging tax avoidance. The CIT(A) upheld the AO's decision, leading to the current appeal.

The Tribunal noted a similar case where the issue was decided in favor of the assessee, emphasizing legitimate tax planning within the law. The assessee argued that the partnership formation and share transfer were legitimate tax planning measures, not colorable devices. The Tribunal, citing legal precedents, distinguished between legitimate tax planning and colorable devices. It highlighted the importance of adhering to the provisions of the Act and approved accounts audited under the Companies Act.

The Tribunal found that the partnership firm had filed its return of income, which was accepted by the department. Considering the facts and legal principles, the Tribunal concluded that the assessee's actions constituted legitimate tax planning within the law. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to exclude the share income from the partnership firm while computing the book profit u/s. 115JB of the Act, ultimately allowing the appeal filed by the assessee. The judgment was pronounced on 5.4.2017.