2023 (8) TMI 1186 - AT - Income Tax

Addition u/s 50C v/s 45(3) - Capital contribution in the partnership firm by way of transfer of Land (capital assets) by the partner - HELD THAT - As provision of section 50C(1) of the Act is general provision in the given facts and circumstances whereas the provision of section 45(3) is specific provision dealing with the specific transfer of capital assets by the partner to partnership firm by way capital contribution. It is the accepted rule of construction that special provisions would prevail over general provisions as per the famous latin maxim Generalia Specialibus Non Derogant . When two conflicting provisions of law operate in the same field, the provision that specifically operates in that field would apply over the general rule. In holding so we draw support and guidance from the judgment of State of Rajasthan v. GopiKishan Sen 1992 (4) TMI 242 - SUPREME COURT In the case on hand, the present assessee is a partner in a firm namely M/s Pooja Buildcon and transfers land property to such partnership firm by way of capital contribution. This is a specific transaction between partnership and partner for which there is special provision enacted by the legislator vide section 45(3) of the Act. Therefore, in our considered view the consideration in the hand of the partner (present assessee) shall be determined as per the provision of section 45(3) of the Act and not as per the provisions of section 50C. Disallowance of indexed cost of improvement from the computation of capital gain - assessee against the sale of land and transfer of land to partnership firm claimed certain amount incurred in different years as cost of improvement which includes interest paid to one Shri Suresh Patel in different years and compensation paid in lieu of cancellation deed executed by the impugned party and parties from whom the assessee purchased the impugned land property - HELD THAT - We find that the lower authority failed to point out any infirmity in the evidence made available by the assessee but rejected the claim of the assessee merely on the reasoning that the cancellation deed did not contain the detail of payment and party has not offered income on receipt of such compensation. In our considered opinion, the reasons assigned by the AO and by the learned CIT(A) to reject the claim of the assessee is not justified especially considering the documentary evidence made available by the assessee qualifying the payment of compensation. As considering the elaborated factual and legal position, we hereby set aside finding of learned CIT(A) regarding the claim of cost of improvement on account of compensation paid to Om Shri Sanat Non-Trading Owners Association and direct the AO to allow the claim of the assessee in this regard. Hence, in totality the claim of the assessee on the issue raised by him vide impugned grounds of appeal are hereby partly allowed for statistical purposes.

Summary

Issues Involved:
1. Addition under Section 50C of the Income Tax Act, 1961.
2. Disallowance of cost of improvement.

Issue 1: Addition under Section 50C of the Income Tax Act, 1961

The first issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 27,31,250/- made under section 50C of the Act. The assessee, engaged in the proprietary business of processing plastic raw materials and a partner in M/s Pooja Buildcon, acquired an immovable property in F.Y. 2009-10, with a 50% share. In F.Y. 2013-14, the assessee transferred 95% of the property to M/s Pooja Buildcon as a capital contribution. The AO invoked Section 50C, determining the market value of the property higher than the recorded value, resulting in an addition of Rs. 27,31,250/- to the assessee's income.

The assessee contended that the transaction falls under Section 45(3) of the Act, which deems the value recorded in the firm's books as the full value of consideration. The CIT(A) upheld the AO's decision, citing that Section 50C applies to the transfer of land or building, irrespective of whether stamp duty is payable. The CIT(A) referred to the Allahabad High Court judgment in CIT Vs Carlton Hotels Pvt. Ltd., which supported the applicability of Section 50C.

Upon appeal, the Tribunal analyzed Sections 45(3) and 50C, concluding that Section 45(3), being a specific provision for capital contributions to a firm, prevails over the general provisions of Section 50C. The Tribunal cited the Supreme Court's principle that specific provisions override general ones and referenced the Special Bench decision in DLF Universal Ltd vs. DCIT, which supported the assessee's stance. The Tribunal set aside the CIT(A)'s findings and directed the AO to determine the consideration under Section 45(3), allowing the assessee's appeal on this ground.

Issue 2: Disallowance of Cost of Improvement

The second issue pertains to the disallowance of Rs. 59,91,687/- claimed as cost of improvement. The assessee claimed interest paid to Shri Suresh Patel and compensation paid to Om Shri Sanat Non-Trading Association as part of the cost of improvement. The AO disallowed these claims due to a lack of supporting evidence and inconsistencies in the documentation.

The assessee provided additional evidence before the Tribunal, including bank statements and confirmations, to support the claim of utilizing the loan from Shri Suresh Patel for purchasing the property. The Tribunal admitted these additional evidences and remanded the issue back to the AO for a fresh adjudication.

Regarding the compensation paid to Om Shri Sanat Non-Trading Association, the Tribunal found that the lower authorities failed to identify any infirmity in the evidence provided by the assessee. The Tribunal noted that the co-owner's similar claim was accepted by the Revenue, and thus, the assessee should not be treated differently. The Tribunal directed the AO to allow the claim of cost of improvement on account of compensation paid.

Conclusion:

The Tribunal allowed the assessee's appeal on the addition under Section 50C, directing the AO to determine the consideration under Section 45(3). The issue of cost of improvement was partly allowed for statistical purposes, with the matter remanded to the AO for fresh adjudication based on additional evidence.