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TMI Blog2013 (9) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... artner continued as 'defunet firm' owning a particular a particular asset which was sold by the firm only in A.Y. 2003-04. Thus capital gain is taxable in the hands of the firm only. The assessment of capital gain made in the hands of the appellant is illegal and be quashed. 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) failed to appreciate the provisions of law that even after dissolution and recognizing the rights of the individual partner can continue as 'defunct firm' with ownership of some of the assets with it. Legally it means the unanimous decision of the partners was to continue the ownerships of the asset with some of the assets and was entitled to dispose of the same at appropriate time. The same thing has been done by the firm in the instant case. The long term Capital gain is legally assessable in the hands of the firm in A.Y. 2003-04. The instant assessment being illegal and without jurisdiction be quashed. 3. On the facts and in the circumstances of the case and in law the appellant denies his liability to pay interest u/s. 234-A, 234-B and 234-C of the Act and the same be quashed. 3. The facts in brief, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; (v) Smt. Bhagvatidevi S. Biyani submitted the return of income on behalf of the firm for A.Y. 2001-02 in response to notice u/s. 148. (vi) During the course of assessment proceedings, Mr. Balmukund R. Biyani requested for taxing the capital gains for A.Y. 2003-04 as the property was sold on 29.03.2003 and the other partners also gave consent for the same. As far as merits are concerned, the appellant relied on various decisions to suggest that capital gains arose only on the execution of sale-deed on 29.03.2003. 6. Without prejudice to the above submissions, it was also submitted that even if it is presumed that dissolution was made on 01.04.2000, no capital gain arose as there was no distribution of capital assets and there was no transfer of immovable property and therefore it was submitted that the provisions of Section 45(4) have no application for A.Y. 2001-02 and requested that capital gains may be directed to be taxed in the hands of the firm for A.Y. 2003- 04. The assessee firm did not find any favour as Ld. CIT(A) confirmed the assessment made by the Assessing Officer. Now the assessee is in appeal before us. 4. We have heard the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no presumption can be drawn based on the allocations of the assets shown in the deed of dissolution as the said allocation was merely the book entries to clarify the capital accounts of partners. He pleaded for cancelling the capital gains assessed in the A.Y. 2001-02. The Learned Counsel relied on the following decisions: 1. CIT Vs. Vijayalaxmi Metal Industries 256 ITR 540 (MAD) 2. Chalasani Venkateshwar Rao Vs. ITO 349 ITR 423 (AP) 3. CIT Vs. A.N. Naik Associates 265 ITR 346 (Bom) 6. Per contra, the Ld. DR supported the orders of the authorities below. The issue in controversy is in narrow compass. We find that there is no dispute on the basic fact that the assessee firm was dissolved by the deed of dissolution dated 10-04-2000. The Learned Counsel has filed the English translation of the dissolution deed which is very much relevant to decide the present issue hence, we reproduce the relevant parts on which the assessment is based. 1). The whole business of the firm m/s. S. Balmukund Jaysinghpur is decided to be discontinued from 01-04-2000. 2). The balance sheet as at 31-03-2000 of the firm has been prepar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 Rajaram B. Biyani 197931 Fixed Deposit with Mahila Merchant 5000 Bank Savings A/c 416 Capital Account 168767 Cash in hand 4659 B/s Difference 1006 346388 346388 4). As mentioned above the different debtors and creditors of the partnership firm have been clearly noted against the names of the two partners and the recovery from the debtors and the payments for discharge of liabilities will remain their personal responsibility. It will not have any relation/responsibility with other partner. Also the other partner will not have responsibility for the same. The other accounts is to be completed when the plot of land will be sold. 5). The vehicle Maruti Car MAL 800 and shown in the balancesheet at 31-03-2000 is agreed to be given to Shri Radheshyam Rajaram Biyani who is brother of the partner of the firm Shri Balmukund Rajaram Biyani at book value of Rs. 8683/- Shri Balmukund Biyani will complete all the formalities and necessary documents for transfer of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other association of persons or body of individuals (not being a company or a co-operative society) or otherwise shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. 9. The Hon'ble High Court of Panaji Bench has explained Sub-sec. (4) of Sec. 45, after considering the legislative history in the case of A.N. Naik Associates and Another (supra) the operative part of the decision is as under: To plug this loophole the Finance Act, 1987, brought on the statute book a new sub-section (4) in section 45 of the Act. The effect is that the profits or gains arising from the transfer of a capital asset by a firm to a partner on dissolution or otherwise would be chargeable as the firm's income in the previous year in which the transfer took place and for the purposes of computation of capital gains, the fair market value of the asset on the date of transfer would be deemed to be the full val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it meant that the distribution of capital assets on the dissolution of a firm, etc., were rot regarded as "transfer". The Finance Act, 1987, with effect from April 1, 1988, omitted this clause, the effect of which is that distribution of capital assets the dissolution of a firm would henceforth be regarded as "transfer". Therefore, instead of amending section 2(47), the amendment was carried out by the Finance Act, 1987, by omitting section 47(ii), the result of which is that distribution of capital assets on the dissolution of a firm would be regarded as "transfer". Therefore, the contention that it would not amount to a transfer has to be rejected. It is now clear that when the asset is transferred to a partner, that falls within the expression "otherwise" and the rights of the other partners in that asset of the partnership are extinguished. That was also the position earlier but considering that on retirement the partner only got his share, it was held that there was no extinguishment of right. Considering the amendment, there is clearly a transfer and if, there be a transfer, it would be subject to capital gains tax. 10. The core issue before us is whether the property/plot o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound Nos. 1 and 2 are accordingly allowed. So far as Ground No. 3 is concerned it s consequential. 12. Now we take the appeals filed by the assessee partners being ITA Nos. 594 & 595/PN/2011, the following grounds are taken by both the assessee which are common in both the parties: 1) On the facts and in the circumstances of the case and in law the Ld. C.I.T. (A) was not justified in resorting to provisions of S. 147 to reopen the assessment for taxation of escaped income. There was no such escapement of any income in the hands of the appellant as any capital gain that was assessable in the hands of the firm in which the appellant was a partner. The reopening of assessment is illegal, without jurisdiction and consequential assessment is not tenable in law. The assessment be quashed. 2) On the facts and in the circumstances of the case and in law even after dissolution and thereby recognizing the individual rights of the partner continued as 'defunet firm' owning a particular a particular asset which was sold by the firm only in A.Y. 2003-04. Thus capital gain is taxable in the hands of the firm only. The assessment of capital gain made in the hands of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essees. While deciding the appeal filed by the assessee firm M/s. S. Balkukund Paper Mart being ITA No. 593/PN/2011 we have held that there was no transfer by way of distribution of the property/plot of land in question on the execution of the deed of dissolution dated 10-04-2000. We have also held that the capital gain is taxable in the A.Y. 2003-04 in hands of the assessee firm as the firm has sold, as per on documents record, the said plot of land on 27-03-2003. As we have held that the plot was never transferred to the partners on execution of the deed of dissolution, there is no question to treat the said plot owned by these two assessees in the capacity as the partners of M/s. S. Balkukund Paper Mart, the assessee firm and hence, the Assessing Officer was not justified in bringing to tax the capital gain in hands of these assessees in the A.Y. 2003-04. We therefore decide the issue in favour of these assessees. 15. So far as the Ground No. 1 is concerned the assessee has challenged the legality and validity of reopening u/s. 147. As the issue on merit is decided in favour of the assessees that no capital gain is taxable on the facts on this particular case is in hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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