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TMI Blog2015 (5) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... o support the view taken by the Assessing Officer that the assessee received certain capital assets on partition of the joint family which were later converted to stock-intrade by the assessee. A perusal of both the order of the Tribunal in the assessee’s case in the block assessment coupled with the Memorandum of Family Arrangements and Oral Partition dt.6.3.2004 clearly establishes that the erstwhile joint family of the assessee was carrying on real estate business and was holding several properties as stock-in-trade. These properties which were hitherto being held as stock-in-trade, were allotted to the assessee on partition. It is also evident that the assessee continued to carry on the said real estate business after the partition. In these circumstances, it is clear that, there is no conversion of capital assets to stock-in-trade either by the assessee or the joint family. In this view of the matter, we hold that the provision of section 45(2) of the Act are not applicable in the instant case and consequently the computation of capital gains made by the Assessing Officer is cancelled. From the ratio of the judgment of Kallooram Govindam v CIT [1965 (3) TMI 26 - SUPREME C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are appeals by the assessee against the common order dated 29.11.2013 of the CIT(Appeals)-VI, Bangalore relating to assessment year 2011-12 2012-13. 2. In these appeals, the main grievance of the assessee is that the CIT(Appeals) erred in coming to the conclusion that long term capital gain on sale of long term capital assets accrued to the assessee during the A.Ys. 2011-12 2012-13 chargeable to tax u/s. 45(2) of the Act. 3. The appeal for A.Y. 2011-12 arises out of an order passed by the AO u/s. 143(3) r.w.s. 153A of the Act, while the appeal for A.Y. 2012-13 arises out of the order passed by the AO u/s. 143(3) of the Income-tax Act, 1961 [ the Act ]. 4. In the appeal for A.Y. 2011-12, the assessee has also challenged the validity of initiation of search on the assessee u/s. 132 of the Act, based on which proceedings u/s. 153A were initiated. We first proceed to adjudicate the merits of the addition made by the AO and consequently examine the issue with regard to validity of initiation of search u/s. 132 of the Act. 5. The assessee is in the real estate business. The undisputed facts are that the assessee was a member of HUF called C. Ramaiah Reddy, HUF. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im amounted to a transfer within the meaning of section 45(2) of the Act. Such transfer will be charged to tax only when the capital asset converted as stock-in-trade of business is ultimately sold by the assessee. According to the Revenue, the assessee sold the capital asset treated as stock-in-trade of business during the previous year relevant to A.Ys. 2011-12 2012-13 and therefore the capital gain on such sale had to be brought to tax. It is on this basis the assessments were framed by the AO. 8. We have already seen that at the time of partition of HUF, the stockin- trade of HUF was valued at fair market value. According to the Revenue, this valuation was not proper and had been done only with a view to avoid taxes legitimately payable. Though such a stand has been taken by the AO in the order of assessment, ultimately while computing the capital gains u/s. 45(2) of the Act, the AO took the cost of acquisition as per the values determined in the Deed of Partition on 6.3.2004. 9. On appeal by the assessee, the CIT(Appeals) confirmed the order of the AO. Hence these appeals by the assessee before the Tribunal. 10. At the time of hearing of the appeals, the ld. counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) have held that this aspect is not relevant. This is precisely because they proceeded on the assumption that every asset received on partition constitutes capital assets. Such a proposition is, however, incorrect. This is because of the nature of assets held by the joint family is certainly relevant and in fact the same is material to resolve and decide the dispute. 7.7 In order to ascertain the nature of assets held by the erstwhile joint family of the assessee, it is necessary to consider the background of the assessee and the issues arising in the assessee s case in the earlier years. In the paper book furnished by the learned Departmental Representative, the orders of this Tribunal in the case of the assessee for the block period 1.4.1985 to 5.12.1995 in IT(SS)A No.10(Bang)/2008 dt.17.10.2008 is at pages 23 to 45 thereof. In para 15 of this order, it is held as under: A cursory perusal of the details would indicate that all the properties held by the assessee are ancestral properties and if any purchase is made, this also through sale of ancestral properties. The business of brick industry, development of lands / constructions are carried on by the assessee only by plo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Arrangement and Oral Partition which reads as under : 2. The FIRST PARTY thereafterwards effected an Oral Family Arrangement in which all the properties of the joint family as aforesaid, especially, the capital of the family in real estate business after making a fair and market value valuation of all the properties held as stock-in-trade of the real estate business have been partitioned by him orally and in the said partition, he allotted and provided a portion of the capital various members towards their rights or assorted or assumed rights in all the assets of the family to ward of all possible litigations and bickering among the members thereof in future. From a reading of the aforesaid clause (2), it becomes clear that all properties of the joint family, especially the capital of the family in the real estate business in the Memorandum dt.6.3.2004. It is only thereafter that the assessee was allotted the balance of the capital of the family in the real estate business in accordance with the terms and conditions of clause 3 of the Memorandum of Family Arrangement and Oral Partition which reads as under : 3. The FIRST PARTY has been allotted the balance of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the considered view that the assessee was allotted the family s real estate business. In coming to this view, we are fortified by the decision of this Tribunal in the assessee s own case for the block period, referred to earlier in this order. We, therefore, hold that the assessee, on partition of the joint family, had received the balance capital of the family in the real estate business comprising various assets, which were in the nature of stock-in-trade and it cannot be considered that the various assets or properties received by the assessee on partition are capital assets and these capital assets were converted into stock-in-trade of the real estate when the assessee continued to carry on the business of the erstwhile joint family. We also find, as rightly contended by the assessee, that if at all there was any capital asset received on partition, such a capital asset would be the real estate business carried on by the erstwhile family. 8. The Assessing Officer s application of the provisions of section 45(2) of the Act to the instant case is to be examined. The provisions of section 45(2) of the Act are attracted only when there is a conversion of a capital asset into sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act are not applicable. In this regard, the reliance placed by the assessee on the decision of the Mumbai Bench of the Tribunal in the case of Atul G Puranik (supra) is relevant. At para 10.3 thereof, it is held as under : 10.3 However, in order to apply the mandate of s.49(1), it is sine qua non that the capital asset acquired by the assessee in any of the modes prescribed in cls.(i) to (iv) should become the subject matter of transfer and only in such a situation where such capital asset is subsequently transferred, the cost to the previous owner is deemed as the cost of acquisition of the asset. It is apparent from the language of sub-s. (1) itself which opens with the words Where the capital asset became the property of the assessee and after enumerating certain situations, provides that the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. The phrase the asset used in the later part of the provision relates to the capital asset which became the property of the assessee in the given circumstances. The natural corollary which, therefore, follows is that the cost to the previous owner is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustration : A and B were members of a joint Hindu family in 1930 and continued to be so till 1960, when a partition was effected between them. They had 4 houses in4 villages; and the original cost of each of the houses was ₹ 100. If a partition had taken place in 1930 or thereabout, each one of the two brothers would have got 2 houses each, and the partition would have been equitable and fair. But during these 30 years one village developed into a town and the value of the house therein had increased to ₹ 500. There was no appreciable rise in price in regard to the other 3 houses and they together would fetch only ₹ 500 in the market. In the result at the partition that was effected in 1960 the house in the town was given to one of the brothers and the other three houses together were given to the other brother. What would be the cost of the house in the town to the brother to whom it was allotted ? Clearly it would be ₹ 500, though the original cost of the house at the time it was built or purchased was only ₹ 100. Because of the uneven rise in prices of the different houses, instead of two houses he got only one house at the partition. The cost to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to the present years also. 14. The ld. DR pointed out before us that the CIT(Appeals) in the impugned orders had framed the following four issues for consideration and elaborated on the same in the impugned order:- (i) Whether the cost of acquisition claimed by the appellant is correct? (ii) Whether the increased values of land as per Partition under facts and circumstances of the case can be adopted as such as cost of acquisition of the property and whether the decision of Hon ble Supreme Court in the case of Kallooram Govindam v CIT (MP) 57 ITR 335 can be applied in this regard under the circumstances of the case? (iii) Whether section 45(2) is to be applied? Whether any benefit of long term capital gain is to be allowed u/s 45(2)? (iv) Whether under the circumstances of the case, the decision of Hon ble ITAT for A.Y. 2006-07 dated 25.05.2012 can be applied in toto to A.Y. 2011-12 2012-13 also? (v) Whether merely because the values of stock of land have been adopted in earlier years, these should be adopted under the present facts and circumstances for the years in question also? 15. On the above submission of the learned DR, the ld. counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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