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TMI Blog2012 (10) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm or with the partners. 4. The facts of the case are that in the year under consideration an amount of Rs. 2.50 crores was received from M/s Veera Gala Developers (VGD) towards compensation for surrender of the tenancy rights. During the course of assessment proceedings, the AO noticed that the firm was dissolved vide dissolution Deed dated 22-12-2005. Prior to this date, the assessee was carrying on its business from a rental premises since coming into being from inside Rajkamal Studios, Dr. S. S. Rao Road, Parel, Mumbai 400012 and was paying a rent of Rs. 3,375/- per annum. 5. The AO was intimated by his colleague that on 12-02-2007 a survey operation was conducted on VGD, and an agreement of surrender of tenancy by the assessee, i.e. M/s Bombay Electric Laundry (BEL) in favour of VGD was recovered, wherein, they have agreed to pay Rs. 2.50 crores to the partners of BEL in their profit sharing ratio. The AO enquired, since the surrender of tenancy was by the firm and its accounts did not show the receipt of the surrendered amount, the AO asked as to why this amount of Rs. 2.50 crores should not be brought to tax in its hands. Vide letters dated 05-06-2007, 18-06-2007, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's alternative plea also by holding that the Act recgonises firm and its partners as distinct and according to section 2(31) of the Act, firm is a separate entity. The AO, therefore, brought to tax Rs. 2.50 crores being receipts of the firm, in the hands of the firm. 9. Aggrieved, the assessee approached the CIT(A), who on going through the entire facts and various deeds of partnerships entered into by the heirs of Mr. Assandas S. Rawtani and Mrs. Vishnibai S. Rawtani, from time to time, arrived at the conclusion that Mr. Assandas Shamdas Rawtani and Mrs. Vishnibai S. Rawtani got the tenancy rights from the Government of India in their individual capacity, and after their death their legal heirs stepped into the tenancy rights in their individual capacity. The CIT(A) also came to the conclusion that none of the partners in the appellant firm had ever introduced his/her share in the tenancy rights of the said property in his capital and that the tenancy rights in the said property belonged to the partners of the firm in their individual capacity and appellant had no right over the same. The CIT(A) further held that since the rent was paid by the firm, it was its normal allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion executed on 24th June,1974 wherein it was stated that the firm was dissolved w.e.f. 12th April, 1974-Title to the property passes to the purchaser only after execution of release deed-bate of release deed preceded dote of execution of dissolution deed-Cap Ito? gains arising from this transaction is assessable only in the hands of the firm "Where the property belonging to a firm is transferred by the partners before the execution of dissolution deed and wherein the release deed was effected in favour of the purchaser before the date of execution of dissolution deed, the firm only is liable to pay tax on capital gains on such transaction and not the partners in their individual capacity". b) ITO v/s Ch. Atchaiah, 218 ITR 239 (S.C) wherein the Hon'ble Supreme Court held as under: 4. In our opinion, the contention urged by Dr. Gauri Shanker merits acceptance. We are of the opinion under the present Act, the ITO has no option like the one he had under the 1922 Act. He can, and he must tax the right person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the expression "right person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising from the sale of such property is chargeable to tax as capital gains in the hands of the firm The DR also cited the case of Addanki Narayanappa v/s Bhaskara Krishanappa, reported in (1966) 3 SCR 400/AIR 1966 SC 1300, wherein the Hon'ble Supreme Court held, From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner Is entitled to is his share of profits, if any, accruing, to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his it is right is to obtain such profits, If any, as fall to his share from time to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge of the High Court who first heard the application felt that Bai Marniben who Was entitled to the protection of the Act even after the determination of the lease had an interest in the premises which could be bequeathed by her in favour of any person of her choice under a will irrespectiveEUR of the fact whether the legatee was a member of her family carrying on business, trade or storage in the said premises along with her at the time of her death. He however, referred the matter to a larger.. Bench, since substantial issues of law had arisen for consideration. Ultimately, the Full Bench by its judgment dated September 24, 1985 held that the petitioner could not acquire. Under the will any interest in the tenancy in question and that the decision of the Extra Assistant Judge, Baroda did not call for any interference. And later on, the Hon'ble Court observed, "Ordinarily it is only an interest that can be inherited that can be bequeathed. But the heritability of a tenancy after the determination of the lease, which is protected 7 by the Act is restricted In the case of residential premises only to the members of the tenant's family mentioned in sub- clause (i) of clause (c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Sind, Pakistan. 13. The AR on these facts submitted that since the business has been in the name of Bombay Electric Laundry, however the conveyance and the tenancy was executed and awarded to the two individuals. The AR further pleaded that in the various partnership deeds, consistently it was mentioned that the tenancy remained with the individual persons and even in the last partnership deed dated 04.04.1990 in clause 13, the initial is, "That all the rights over the trade name, goodwill, license and permits shall belong to the partners in proportion to the profit sharing ratio as per clause (7) including the tenancy/ownership rights of the business premises viz. Messer's Bombay Electric Laundries, inside Rajkamal Studios, Dr. S. S. Roa Road, Parel, Bombay-400 012". The AR, therefore, concluded that the order of CIT(A) in line with the facts of the case. 14. We have heard the arguments from either side and perused the material on record and case laws cited by the DR to support his contentions on alternative grounds, i.e. the online receipts should be taxed in the hands of the assessee firm and the alternative plea of the assessee, that in case the CIT(A)'s order is not acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it is, "That all rights over trade name, goodwill license and permits shall belong to the partners......". 20. Looking and examining all the recitals, we find that it is the persons, legal heirs of Mrs. Assandas S. Rawtani and Mrs. Vishnibai S. Rawtani, who have continued to hold the tenancy rights and have used the name of the business only for the sake of convenience, which had been continuance from the pre partition days. Moreover, none of the partners, at no point of time have ever introduced his/her share in the tenancy as capital in the accounts of the firm. Lastly, according to Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, section 11, defines tenant, wherein it says "tenant means any person by whom or on whose account rent is payable for any premises includes sub tenants and other persons or have derived title under a tenant before the 1st day of February 1973". Section 14 (aa) says "any person to whom interest in premises has been assigned a transferred as permitted or deemed to be permitted under section 15". And Explanation to section 18 says "The provisions of this clause for transmission of tenancy shall not be restricted to the death of the ori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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