9911796707
TMI Blog1988 (11) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... E-Ward, determined the amount of House property income at Rs. 36,940 assessable in the hands of the assessee under section 64. The ITO who completed the assessment of Shri G. Sharma Barua, the ITO, B-Ward, Gauhati, who gave opportunity to the assessee to state as to why the income derived by the minor should not be included. The assessee filed a written statement and submitted that the income exclusively belonged to the assessee's two grand sons in their individual rights as the entire interest thereof was acquired by the minors out of their own sources w.e.f. 1-2-81 and that such income was assessed in their hands respectively. It was submitted also that nothing has been gifted by the assessee, Shri G. Sharma Barua to the grand sons as could be apparent from the records. It was argued, therefore, that in the circumstances, section 64(1) was not applicable and the clubbing of the income in the assessment of the assessed did not arise. Now, we may refer to the assessment order and findings given by the ITO, E-Ward, in the case of Shri Chinmoy Sharma, minor who was represented by his father, Shri Phani Sharma. This assessment was also made in the status of individual under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective measure. 4. Now we shall come back to the assessment order and the findings in the case of Shri G. Sharma Barua as passed by the ITO, B-Ward, who made a reference to the assessment of the minor as made by the ITO, E-Ward. This ITO also did not accept the contention and the arguments of the assessee Shri G. Sharma Barua. According to the ITO, the building was standing in the name of the assessee as per Municipal records and "transferred" to the grandson was made through the device of partnership deed which was not bona fide as the firm was constituted just for this purpose and not for carrying on the business. He also noticed that there was no registered deed transferring the property to the grandson who did not acquire any right in the property as such. The ITO concluded that the property income was assessable in the hands of the assessee i.e. Shri G. Sharma Barua who was the rightful owner till the bona fide transfer is made by a registered deed. Reference was made to the decision as in CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 (SC). The ITO also held that mere assessment in the hands of the grandson did not estop the department for assessing the income in the hands of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an of the minor would have to pay and satisfy all the debts and liabilities existing at the time of dissolution of the partnership. According to the assessee's learned counsel, through the deed of dissolution the minors had become owners in equal shares relating to the immovable property and by virtue of such ownership the income of such property should be assessed only in the hands of the minor co-owners. It was also contended that the transactions relating to transfer of beneficial ownership took place through the arrangement of the partnership and at this stage there was no element of gift or transfer for inadequate consideration so as to attract section 64. It was urged, therefore, that inclusion of the minor as mentioned above was not justified. The AAC expressed the view that the transaction was quite alright up to after the stage of formation of the partnership, registration of the same etc. The AAC, however, noted that in the allotment of the assets and liabilities some doubts have arisen. He pointed out that none of the assets and liabilities of the firm have been apportioned to the partners, namely, Shri G. Sharma Barua and Shri Phani Sharma. According to the AAC, the min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessable in their hands in equal proportion. It is also contended that the AAC went wrong in upholding the protective assessment made by the ITO. In the appeal of Shri Chinmoy Sharma ground No. 4 is not pressed regarding disallowance of Municipal tax. 9. In the appeal by Shri G. Sharma Barua, the contention is that the AAC erred in upholding the finding of the ITO as mentioned earlier. It is the appeal by this assessee that the authorities below went wrong in stating that the partnership firm which was constituted just for transfer of property without any adequate consideration and not for carry on any business and that the observation was on the basis of suspicion against the facts. In this appeal also, it is reiterated that the authorities below erred in holding that the grandsons of the assessee did not acquire any right to the property in the absence of registered deed to that effect although the property has been received on dissolution of the firm contrary to the provisions of section 47 as well as the Transfer of Property Act. This assessee, therefore, submits that the authorities below erred in including the income of the minor under section 64. In this appeal, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partnership assets, does not require registration even though the partnership assets comprised of movable as well as immovable property. It is submitted, therefore, that the authorities below erred in holding a contrary view. In course of his arguments, the assessee's learned counsel refers to the various papers to the paper-book in order to stress the point and high-lighted the arguments to support the claim that since the firm was properly and legally constituted and registered and in respect of the assets distributed by the minors and no registration is necessary and the assets have become the properties of the minors concerned and income therefrom was assessable in the hands of the minors and cannot be clubbed under section 64. It is repeated before us that there was no gift or any element of gift to the minors by any one as the minors had received their share of the partnership assets in their own right. It is argued at length that having regard to the facts and circumstances of the case and the materials available on record, it could be seen that the claim of the assessees in the present case have wrongly been rejected by the authorities below. 11. On the other hand, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ITO and the same required to be restored and maintained. 13. We have heard both the sides at length and we have gone through the orders of the authorities below carefully, for our consideration along with the various papers placed before us. It is seen from the different papers placed in the paper-book that the land was owned by Shri Phani Sharma, son of the assessee Shri G. Sharma Barua, which was taken on lease by Shri G. Sharma Barua from the said son on lease rent of Rs. 350 per month payable yearly by the said father to the son and the lease was stipulated to last for 25 years with a further right of renewal for another 25 years at the option of the lessee i.e. the father. The lease deed was dated 9-3-1976. In this lease deed it was stipulated that the lessor has given delivery, possession of the said land from 1-7-1973 and that the lessee that is Shri G. Sharma Barua had erected and constructed pucca building thereon. In the circumstances, we fail to see how the said property would or was available with Shri Phani Sharma for the purpose of contributing the same property which has been leased out as mentioned above, as contribution as his capital to the partnership firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject of that assessee was to acquire land and buildings and to turn them into account by letting and selling them, the activity contemplated did not by itself turn the lease into a business deal. It was also held that as the assessee never carried on any business in the premises let out and there was nothing to show that it intended to carry on a hotel business in the building, the letting of the building did not amount to carry on of the business and the income could not be assessed under section 10. Of course, it was observed in this judgment that whether a particular letting is business has to be decided in the circumstances of each case. In the instant case before us, on the land taken on lease by Shri G. Sharma Barua from Shri Phani Sharma a building was erected by Shri G. Sharma Barua. There was no indication or and no materials were available from which we could infer that these assets i.e. the land and building were the commercial assets as such. On the materials available before us, we do not find any substance in the submissions made on behalf of the assessee. Of course, as submitted by the assessees' learned counsel that on dissolution of a firm registration is not neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of execution of the deed of partnership as at that point of time the land was under a lease granted by Shri Phani Sharma to Shri G. Sharma Barua for a period of 25 years. There was no indication that there was any default of lease rent by the lessee. In fact, the lessor had delivered the possession of the premises to the lessee who constructed the building thereon. Thus for all intents and purpose the asset in the form of land taken on lease and the occupancy right accompanying with it together with superstructure raised thereon belonged to Shri G. Sharma Barua as the same were invested from his own sources. In fact, in matters of taxation each year is independent, depending on the circumstances of each case and, therefore, the fact that the firm M/s. G. Sharma Barua was registered would not preclude the ITO assessing Shri G. Sharma Barua to lift the veil covering the transaction to ascertain the truth. In our opinion, the transaction of constituting a partnership or contributing of capital by the partners and the dissolution of the firm within a short time and that too the very landed properties were allocated to the minors who are in fact not full-fledged partners but wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the stage of formation of the partnership, registration of the same, admission of the minors into the benefits of partnership etc. In the instant case, the partners have sought to introduce landed properties as capital contribution to the firm. This transaction by itself tantamounts to transfer although the partner concerned did not receive any consideration. In this connection, we may refer to the decision of the Hon'ble Supreme Court in the case of Sunil Sidharthbhai, which was applied by the Hon'ble Supreme Court in the case of Dhirajben R. Amin v. CIT [1988] 174 ITR 307. In other words, Shri G. Sharma Barua by his contribution to landed properties as discussed by us above had transferred those assets to the partnership and he had received no consideration for the same. As repeatedly mentioned earlier, the two minors grandsons have been only admitted to the benefits of the partnership. By this action of the parties, it cannot be said that the minors have been made partners of the partnership as otherwise it would violate the relevant provisions of the Indian Partnership Act and the Indian Contract Act. For such proposition, we may refer to various decisions, namely, in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners are entitled to obtain and receive different assets on dissolution of the firm after certain liabilities and other obligations have been paid off. But in the instant case, the immovable properties have been allocated only to the minors concerned, whereas only the credit balance in the firm have been allotted to the major partners and such balances were stated to have been treated as interest bearing loans to the partners, through their guardian. That apart, the minors through their father and natural guardian have been made to pay and satisfy or cause to be paid and satisfied all assets and other liabilities existing on the date of dissolution of the partnership firm since dissolved (Clause 7 or the dissolution deed) which indicated that these minors though through their guardian have been made a full-fledged partners so as to entitle them to receive certain immovable properties of the partnership and also to pay off liabilities etc. In our opinion, the minors cannot be saddled with such liabilities. 21. As mentioned earlier, it has been pointed out by the assessees' learned counsel that Rs. 1,00,000 each would be contributed by the minors through their guardian i.e., Shri Ph ..... X X X X Extracts X X X X X X X X Extracts X X X X
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