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TMI Blog2014 (12) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of partnership firm in FY 1991-92, the provisions of section 49(1)(iii)(b) will not apply - as the transfer has taken place in terms of section 45(4) of the Act, on dissolution of partnership firm in the FY 1991-92, the value of the asset as per the books on the date of transfer has to be taken as cost of acquisition – relying upon Suvardhan Vs. CIT [2006 (8) TMI 142 - KARNATAKA High Court] - AO and CIT(A) were not justified in adopting the cost of acquisition of land at ₹ 10,000 per acre as against ₹ 13,40,000 as shown in the books at the time of transfer on dissolution of the partnership firm – the AO is directed to compute capital gains by adopting the cost of acquisition at ₹ 13,40,000 for two acres of land. Deemed dividend u/s 2(22)(e) – Advances received from sister concern - Held that:- Following the decision in Assistant Commissioner Of Income-Tax. Versus Bhaumik Colour (P) Limited [2008 (11) TMI 273 - ITAT BOMBAY-E] - assessee is not a registered shareholder of M/s Bimco Isolators Ltd. - only because both the companies are having common shareholders will not be a ground to treat advances received as deemed dividend at the hands of assessee u/s 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further submitted that originally land belonged to M/s Bimco Products, a partnership firm, which was later converted into a private ltd. company on 01/10/91 and all the assets and liabilities were taken over by the company. Explaining further, assessee submitted a letter on 21/08/06 giving details of transfer of land. As per the details furnished by assessee, partnership firm in the name and style of Bimco Products having two partners was constituted in 1973 and carried on business of manufacture of isolators, AB switches and other electrical products required for transmission of power. M/s Bimco products was allotted two acres of industrial land by AP Govt. vide G.O.No. 849 dated 19/09/1973. There was a change in the constitution of firm on 03/09/1985 with admission of two new partners namely Aswhin Buva and Pankaj Buva in addition to two other continuing partners. On 23/03/1990 under a retirement deed two partners namely L.B. Prasada Rao and Smt. L. Rajeswari retired from the partnership. Whereas, the other two partners continued the partnership business. Again, there was a reconstitution of firm on 1st April, 1991 by admission of a third partner i.e. Bimco Electricals Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same in appeal before CIT(A). 5. In course of hearing of appeal before ld. CIT(A) on the basis of the submissions made by assessee ld. CIT(A) called for a remand report from AO. In the remand report, AO after examining the books of account and all other related documents noted that in the year 1987, the partnership firm, which was the owner of the property had revalued the land of two acres at ₹ 13,40,000 and credited to the partners capital account. He further noted that on 01/10/1991, after retirement of Shri Ashwin Bhuva and Pankaj Bhuva from the partnership firm, which resulted in dissolution of the firm, assessee company took over the assets and liabilities of the partnership firm. Thus, the company acquired two lakhs of land at the book value as appearing in the partnership firm at ₹ 13,40,000. AO in the remand report noted that in case of assessee, cost of acquisition of asset should be either historical cost at ₹ 10,000 per acre and year of acquisition should be 1981 (since it was acquired in 1973) or the cost of acquisition of asset is to be taken as nil and the year of acquisition as 1991 being the year in which the land was transferred to assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions of the appellant and the reasonings of the Assessing Officer in his assessment order and as well as remand report and the reply of the appellant to the remand report. The A.O. has rightly determined the Long Term Capital Gains at Rs/ 1,11,18,460 by adopting ₹ 20,000 as cost of land of 2 acres and ₹ 8002 for cost of land of 3873 sq.yds sold by the appellant on the basis of the records for the A.Y,2004-05, where the cost of land was adopted at ₹ 20,OOO (as on 1-4-1981) by rejecting the appellant's claim of cost at 13,40,OOO. The appellant also not furnished any details to justify the original cost adopted at ₹ 13,40,OOO rejected by the department. Hence, I confirm the action of the Assessing Officer and upheld the determination of long term capital gains at ₹ 1,11,18,460. 6. The learned AR submitted before us that in the remand report, AO has not disputed the fact that as per section 45(4) of the Act, distribution of assets on dissolution of a partnership firm results in a transfer. He submitted that there is also no dispute to the fact that book value of the asset at the time of transfer was ₹ 13,40,000. Therefore, when there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, hence, capital gain has to be charged to tax at the hands of the firm irrespective of the fact whether any consideration was received by firm or not. As can be seen from the remand report, though AO has accepted the aforesaid position of law, however, he has commented that as no consideration has been paid to the dissoluted firm either by assessee company or erstwhile partners and as the firm has not offered any capital gain, transfer to assessee company in the year 1991-92 has to be taken at NIL value, hence, original cost of ₹ 20,000 per two acres should be taken as cost of acquisition at the hands of assessee company. 10. In our view, this is an incorrect interpretation of the statutory provision. It is trite law that when provisions of taxing statute are plain and unambiguous literal interpretation has to be given to it. On a plain reading of section 45(4) it becomes clear that if there is transfer of assets on dissolution of partnership firm, then, profits and gains derived from such transfer has to be charged to tax at the hands of the firm and the consideration received has to be deemed to be the FMV of the land as on the date of transfer. Therefore, considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he companies and are holding more than 20% of the share. He further noted that M/s Bimco Isolators, which is a domestic company in which public are not substantially interested, is also having accumulated profits of ₹ 4,92,649 as on 31/03/2005 and ₹ 1,15,85,795 as on 31/03/2006. AO, therefore, proposed to treat advances received as deemed dividend u/s 2(22)(e) of the Act. Though, assessee objected to the proposed addition, but, AO rejecting the submissions made by assessee treated an amount of ₹ 18,82,901 as deemed dividend u/s 2(22)(e) of the Act. Assessee challenged the addition before ld. CIT(A), who confirmed the addition with the following observations: 6.3 I have carefully considered the submissions of the appellant and the findings of the Assessing Officer. The appellant company had received payments by way of advance from its sister concern M/s Bimco Isolaters Limited, Hyderabad: Shri Aswin Bhuva and Sri Pankaj Bhuva have share-holding of 24% each in the appellant company and 34% and 28% respectively in Mls Bimco Isolaters Limited, Hyderabad. The Aa has rightly held that the shareholders were holding more than 10% shares in Mls Bimco Isolaters Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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