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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 ..... icer has wrongly applied Sec. 2(47) (v) of the Income-tax Act by observing that the partners by executing the deed of dissolution have become absolutely owners one of the share of the property. Both the parties below have misinterpreted the provisions of law and by discarding the factual aspect taxed capital gain in A.Y. 2001-02. We therefore hold that the Assessing Officer was not justified to bring to tax the capital gain in hands of the assessee firm in the A.Y. 2001-02. We further hold that the property was sold by the assessee firm in the A.Y. 2003-04 and so far as the present property is concerned the said was not transferred to the partners at any time. As transfer contemplates the transferring the title and interest in the said property. - Decided in favor of assessee. - ITA No.593,594,595/PN/2011 - - - Dated:- 24-6-2013 - G S Pannu and R S Padvekar, JJ. For the Appellant : Shri M K Kulkarni For the Respondent : Shri Santosh Kumar ORDER:- PER : R S Padvekar This batch of three appeals, one by the assessee firm and two by the partners are filed, challenging the respective impugner orders of the Ld. CIT(A)-Kolhapur. So far as the assessee firm is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty and hence, the Assessing Officer issued the notice u/s. 148 dated 08-11-2006. The assessment was completed in consequence of the said notice. The assessee firm filed the return of income admitting total income of Rs.11,33,420/- under the head Long Term Capital Gains but during the assessment proceedings the assessee denied the liability to capital gains tax by taking the stand that there was no actual transfer of asset. The assessee also filed an application to the Assessing Officer requesting that the gain on the transfer or sale of the property at Kolhapur may be taxed in the A.Y. 2003-04. The assessee also contended that no effect was given to any of the clause of the deed of dissolution by any of the partners. The Assessing Officer rejected the contentions of the assessee and brought to tax the Capital Gain as per the provisions of Sec. 2(47) r.w.s. 45. The matter was carried before the Ld. CIT(A) the contentions of the assessee is recorded in para nos. 5 6 of the order of the Ld. CIT(A) which is as under: 5. During the course of appellate proceedings, the appellant filed written submission wherein it was contended that (i) Because of differences, Shri B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed of dissolution was executed on 10- 04-2000. As per the terms of the deed of dissolution, it was agreed that the said property will remain the property of the firm and same is to be sold by the firm and after paying all the debts/liabilities balance amount was to be distributed amongst the partners. 5. The Learned Counsel submits that the said property was sold by sale deed dated 29-03-2003 for Rs.27 lacs to Shri Dattatray Vithal Ganjave and others and hence, the capital gain was required to be assessed in A.Y. 2003-04 in the hand of the firm. The Learned Counsel refer to the deed of dissolution dated 10-04-2000 more particularly clause nos. 3 6 and submits that in the very clear terms both the partners agreed that the property bearing C.S. No. 355/B/3 at Mangalwar Peth, Kolhapur was continued to be owned by the assessee firm and only other assets were distributed. He argues that the said property was finally sold on 29-03-2003 and copy of sale deed is placed in the compilation. He took us the copy of the sale deed (which is in Marathi) and submits that in the said sale deed categorical assertion is made that the said property was belongs to the assessee firm. He therefore s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital 34961 Plot No. 355, Kolhapur share 157540 Sundry Creditor 1167226 Furniture 67807 Mahamult Agencies 93168 Scooter 4358 S.B. Biyani Bros. 135242 Scooter 8700 18953 Shree Om Agencies 5047 Shares 34885 Nath Traders 122147 Ichalkaranji Janata bank 9000 Archana Agencies 140101 Karad M.N.S.O. 1500 Niket Traders 466938 Kolhapur Mahila Bank 18000 S. B. Udyog 204583 Building Fund 6000 Kolhapur Mahila Bank 111 Mahavir bank 250 Bank Current A/c 6975 Bank SB A/c as per balance sheet 3614 Ganesh b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and necessary documents for transfer of the said car. 6). The open plot of land situate at CS No. 355 B, Ward, Kolhapur purchased by the partnership firm is in the ownership of the partnership and the use or sell of the same will be as per mutual understanding of both the partners and then thereafter both the partners are free to utilize the proceeds in 50:50 share. 7). All the Govt. taxes payable in respect of CS No. 355, B Ward, Kolhapur, for their possession and in relation to its sale are to be paid by both the partners continuing to-day. 8). .. 9). .. 10). .. 7. We have perused the copy of the sale deed dated 29-03-2003 which is in Marathi place at Page Nos. 12 to 36. Now let us the issue of legal possession more particularly in the context in the Partnership Act, 1932. There are different modes of the dissolution of the firm. So far as the dissolution of the assessee firm is concerned it is dissolution is At Will . Sec. 46 of the Indian Partnership Act, 1932 provides as under: Right of partners to have business wound up after dissolution. On the dissolution of a firm every partner or his representative, is entitled as agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer. Therefore, if the object of the Act is seen and the mischief it seeks to avoid, it would be clear that the intention of Parliament was to bring into the tax net transactions whereby assets were brought into a firm or taken out of the firm. The expression "otherwise" in our opinion, has not to be read ejusdem generis with the expression, "dissolution of a firm or body or association of persons". The expression "otherwise" has to be read with the words "transfer of capital assets" by way of distribution of capital assets. If so read, it becomes clear that even when a firm is in existence and there is a transfer of capital assets it comes within the expression "otherwise" as the object of the amending Act was to remove the loophole which existed whereby capital gain tax was not chargeable. In our opinion, therefore, when the asset of the partnership is transferred to a retiring partner the partnership which is assessable to tax ceases to have a right or its right in the property stands extinguished in favour of the partner to whom it is transferred. If so read it will further the object and the purpose and intent of the amendment of section 45. Once, that be the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of dissolution was executed and our answer is no as per the document on record. We find that the said property remained to be the property of the dissolved firm and it was sold by the assessee firm on 27-03-2003. The law is well settled that the firm in the eyes of law is not a separate legal entity but ultimately the rights or vested in the partners only. The Indian Partnership Act provides the effect on the dissolution of the firm by incorporating the different provisions like Sections 46, 47, 48, 49 and 50 etc. In fact the assessee s case is supported by the sale deed of the said property dated 29-03-2003 in which the assessee firm is shown as seller no. 1 alongwith the partners. There is a categorical averment in the sale deed that the partners have taken a loans from the Kolhapur Mahila Sahkari Bank and Ichalkaranji Sahkari Bank and hence the said property was decided to be sold to apply proceeds to repay said loans under Sec. 45(4) it is not only sufficient that there is a dissolution but there must be transferred by way of distribution of the assets. We find that in one of the assessment order the Assessing Officer himself admit that the distribution need not be on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. C.I.T. (A) was not justified in holding that only dispute is whether it is short-term or long term capital gain." The Ld. C.I.T.(A) failed to appreciate that the only dispute was taxability of any capital gain in the hands of the appellant. The Ld. C.I.T. (A) decided the issue against appellant without application of mind and appreciation of law. The assessment be quashed. 4) 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 deleted. 13. In the case of both of these assessees the return of income for the A.Y. 2003-04 were filed admitting total income of Rs.2,79420/- and Rs.1,08,426/-. It is observed by the Assessing Officer that these assessees were jointly owned the property which was purchased by the M/s. S. Balkukund Paper Mart on 20-12-1984 and the said property was sold during the financial year relevant to the assessment year 2003- 04 but no capital gain was offered. The Assessing Officer has observed that these assessee s were the partners of M/s. S. Balkukund Paper Mart which was dissolved w.e.f. 01-04-2000 vide deed of dissolution dated 10- 04 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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