9911796707
TMI Blog2005 (2) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case. 1(iii) That the learned CIT(A) has erred in law and on the facts of the case in accepting the assessee's claim that the shares transferred to partners had been converted into stock-in-trade, when the alleged conversion was not followed by the requisite conduct expected of a dealer in shares. 1(iv) That the learned CIT(A) has erred in law and on the facts in accepting the assessee's plea that there was no distribution of shares within the meaning of s. 45(4) of the IT Act, 1961, without appreciating that the word 'distribution' is of a wide import and includes apportionment of shares among the partners by book entries, as was done in the present case. 1(v) That the learned CIT(A) has erred in law and on the facts of the case in accepting the assessee's contention that for the purposes of working out the capital gains, the actual cost of the original shares was not affected by the subsequent acquisition of bonus shares, whereas the AO had correctly computed the cost of original shares by applying the averaging out formula. Reliance is placed on CIT vs. T.V.S. & Sons Ltd. [1983] 37 CTR (Mad) 142 : [1983] 143 ITR 644 (Mad) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership deed dt. 30th July, 1988 appearing at pp. 124 to 127 of the paper book, the business of the assessee was as under: "3. The business of the partnership shall continue to be civil engineering construction and to execute the existing contracts in hand and/or take and execute any other contract or contracts and to invest in shares and sequrities, etc., and/or such other business as the partners may mutually decide from time-to-time." 5. This partnership deed was amended by executing a supplementary deed on 1st Jan., 1990, the copy of which is appearing at pp. 128 to 130 of the paper book, in which the cl. 3 was amended and the same reads as under: "1. That cl. 3 of the partnership deed dt. 30th July, 1988 shall stand substituted by the following clause : 'That the business of the partnership shall continue to be civil engineering construction and to execute the existing contracts in hand and/or take and execute any other contract or contracts and also to carry on the business of purchase and sale and to otherwise deal in stocks, shares, debentures and other securities and commercial paper and/or such other business as the partners may mutually dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500 and assessee, after amending cl. 3 of partnership deed vide supplementary deed dt. 1st Jan., 1990, converted its stock of shares of different companies being held as investment into stock-in-trade of the business w.e.f. 1st Jan., 1990 which resulted into surplus of ₹ 11,66,08,127 and this amount of surplus was credited to the account of partners in their profit-sharing ratio. The surplus arose on account of the fact that equity shares of M/s Jaiprakash Industries Ltd. was on the date of conversion quoted at ₹ 18.50 per share as against book value of ₹ 10 per share. 8. Before taking up the facts of relevant asst. yr. 1991-92, it will be in the fitness of things to take into consideration the factual position noted by the AO in respect of this conversion of stock of investment into stock-in-trade carried out during the previous year relevant to asst. yr. 1990-91. The AO noted that from scrutiny of details for the year as well as subsequent year, it was revealed that assessee-firm had sold a substantial number of shares to its partners and related persons on 17th April, 1990 and 18th April, 1990 @ ₹ 12.50 and ₹ 12 per share, respectively. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 each of Jaypee Hotels Ltd. 56,400 (iv) 7 year 14% secured redeemable non-convertible bonds of 200 National Hydro Electric Power Corporation Ltd. of ₹ 1,000 each- A supplementary deed dt. 1st Jan., 1990 was executed to this effect, a photostat copy of which is furnished herewith as per Annex. 1. The aforesaid conversion of shares and bonds into stock-in-trade is also evidenced by entries in our books of account maintained in the regular course of business. Photostat copies of these entries are furnished herewith as per Annex. 2. These shares and bonds were duly shown in the balance sheet as on 31st March, 1990 as stock-in-trade of business. As per details furnished in para 5 of our letter dt. 15th June, 1992 (photostat copy enclosed for ready reference-Annex. 3) a surplus of ₹ 11,68,08,127.50 resulted from this conversion which had been credited to the accounts of the partners in their profit-sharing ratio. This surplus is chargeable to income-tax as capital gain in the year of actual sale/transfer as per the provisions of s. 45(2) of the Act. On these facts, the conversion of the shares/bonds held on investment account into stock-in-trade of business is who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax avoidance. The AO further noted that assessee no doubt had purchased shares of different companies worth ₹ 5,21,156 on different dates and sold some shares also, but the manner and magnitude of purchases/sales made by the assessee was not sufficient to term the assessee as dealer in share and securities. On the observation made in the assessment order for asst. yr. 1990-91, the AO concluded that shares held by the assessee are to be treated as investment and not stock-in-trade. 11. The AO further proceeded to examine the details of shares sold and it was noted that more than 90 per cent shares have been transferred to M/s Siddharth Construction Co. (P) Ltd., a partner, and written agreement was executed in between assessee-firm and that partner, but so far as sale of shares to other remaining 16 partners were concerned, there was no written agreement. The other facts noted by the AO was that assessee-firm had not received sale consideration from any of the transferee partners but only book entries in the respective current accounts of the partners have been made on those dates by debiting the amount of sale consideration to their respective account. About the written agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or transferee, has shown sale of 10,00,000 shares through share broker @ ₹ 34 on 6th Sept., 1991 and resultant short-term capital gain of ₹ 2,11,49,736 and substantial dividend income has been adjusted against huge business loss by the transferee company. Not only M/s Siddharth Construction Co. (P) Ltd., but the AO has named D.G. Kadkade, Rajendra Singh, Ravi Prakash Singh and S.K. Jain who have also adopted similar types of conversion and all of them have indulged in tax avoidance by claiming business loss on the one hand and also claiming deduction under s. 48 of the Act on the other hand as done by the assessee. 16. The next point noted by the AO was that assessee has shown receipt of dividend of ₹ 51,25,000 on 17th Oct., 1990 in respect of 1,02,50,000 shares which were transferred on the register of company as on 22nd Nov., 1990. According to the AO, if the abovereferred to shares were sold by the assessee on 17th April, 1990 and on 18th April, 1990 as alleged, then there was no occasion for the assessee to receive dividend worth ₹ 51,25,000 on shares already sold by it and it again raises question mark as to the genuineness of the transactions of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other AOP or BOI (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 s. 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 transfer.' On reading of above provisions, it is clear that these provisions are applicable to the transfer of assets not only on dissolution of the firm but otherwise also and, therefore, the present case clearly falls within the ambit of these provisions. Since the shares have been transferred on 19th May, 1990, 31st Aug., 1990 and 22nd Nov., 1990, respectively, as per details already indicated in para 5.3 the quoted rate of shares on those dates in Delhi Stock Exchange (DSE) (distribution has been made in Delhi) shall be deemed to be the full value of consideration received on accruing on account of transfer of these shares. On perusal of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners. The learned counsel for the assessee challenged the very observation of the AO made in the assessment framed in asst. yr. 1990-91 and relied upon in the assessment of the assessment year under consideration in relation to the conversion to its stock investment into stock-in-trade on the ground that the same was not a genuine and bona fide one but was simply a device to avoid payment of due taxes. The contention of the assessee was that the action of conversion of its shares into stock-in-trade was evidenced by the following facts : "(a) The decision of the partners of the appellant-firm (was) to carry on the business of purchase and sale and to otherwise deal in stocks, shares, debentures and other securities. It was emphasised that the shares which were the subject of conversion were all quoted on different stock exchange. (b) The fact of conversion was evidenced by a supplementary deed of partnership executed by the partners on 1st Jan., 1990, i.e., the date of the conversion itself. Clauses 1 and 2 of this deed clearly mention about the fact of conversion and give the particulars of shares and bonds which were the subject of conversion. (c) The said conversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-in- trade. In view of these statutory provisions, the learned counsel for the assessee argued before the learned CIT(A) that there was no warrant or scope for questioning or doubting the right or act of conversion nor it is a case for application of the ratio of the Hon'ble Supreme Court of India in the case of McDowell & Co. Ltd. vs. CTO (supra). 21. The next argument of learned counsel for the assessee before the learned CIT(A) was that appellant through conversion of investment into stock-in-trade and subsequent sale of the shares as stock-in-trade has resulted into payment of higher rate of tax by the assessee as well as by its partners. The working of tax payable was given in the written submission submitted before the learned CIT(A) which revealed that if the said shares were retained by the assessee-firm without any conversion into stock-in-trade and sold to outsiders directly, the tax incidence would have come to 24 per cent to 25 per cent only while the tax incidence on conversion and subsequent sale of the shares by the partners to outsiders came to about 35 per cent. On this basis, the contention of the assessee was that Department has collected higher tax by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking was given to the financial institution as a normal practice to ensure that during the subsistence of loan, the management or the ownership of the company is not de-established. It was only to safeguard the interest of the lenders and it did not amount to prohibition upon the transfer of the shares. Non-disposal undertaking only involved the obtaining of necessary permission from the financial institution by the company before a transfer or share was registered in the books of the company and did not prohibit the sale or the transfer of share which being a moveable property, could be carried out by mere delivery of the script along with a duly completed transfer deed. In the case of the assessee, the learned counsel for the assessee submitted before the learned CIT(A) that shares were transferred in the registers of the shareholders of the company only after the permission of the IFCI had been obtained and such permission in respect of transfer of 19,96,000 shares were accorded on 23rd Oct., 1990 and the same were actually registered in the company only on 22nd Nov., 1990. 26. The learned counsel for the assessee explained that no doubt purchasers of the shares who were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision, it was contended by the learned counsel for the assessee before the learned CIT(A) that facts of the assessee's case are also pari materia and the decision of the Tribunal, Bombay Bench, is squarely applicable. 29. In the same context, it was further contended that it was an admitted fact that the shares were not sold or transferred to all the partners according to their profit-sharing ratio as given in the partnership deed. There were at least two partners to whom no shares were sold or transferred at all. It again ruled out question of any distribution of assets of the assessee-firm to its partners since distribution must necessarily include and cover all the partners unless otherwise specifically agreed. Further, it was pleaded that sale of shares to the respective partners was not in their profit-sharing ratio, as more than 90 per cent of the total shares were sold to one partner viz., M/s Siddharth Construction Co. (P) Ltd. while that concern was having 41.5 per cent sharing ratio in the profit and losses of the assessee-firm. Similarly, the ratio of the shares sold to other partners is different from their respective profit-sharing ratio in the firm. On all thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was that there was no warrant or justification for reduction in the actual cost of the original shares or for the increase by ₹ 45,75,042 in the amount of capital gains. Reliance was placed on the decision of the apex Court in the case of Sekhawati General Traders Ltd. vs. ITO 1972 CTR (SC) 120 : [1971] 82 ITR 788 (SC) and the decision of Hon'ble Calcutta High Court in the case of CIT vs. Steel Group Ltd. [1981] 22 CTR (Cal) 354 : [1981] 131 ITR 234 (Cal) in which it was held that mere fact of the issue of bonus shares could not result in the reduction in the cost of the original shares. The learned counsel for the assessee also pointed out that this issue was also considered by the Tribunal, Allahabad Bench, in the case of Smt. Rekha Dixit which was decided in favour of the assessee. The learned CIT(A) also noted that he has followed that decision in the case of Ram Adhar Singh in asst. yr. 1991-92 vide order dt. 30th Nov., 1993. Following all these, the learned CIT(A) was in agreement with the plea of the assessee and noted that original cost of acquisition in respect of shares sold out should be taken at ₹ 1,32,02,878 and capital gains have to be wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within short span of time within which shares were converted from investment into stock-in-trade. The finding of the AO was that this exercise of conversion was motivated with objective of tax evasion. Ultimate finding was that entry of conversion of investment into stock-in-trade was a colourable device to avoid correct incidence of taxation and for that the AO was justified to take support from the famous decision of the Hon'ble Supreme Court of India in the case of McDowell & Co. Ltd. vs. CTO (supra). 35. The next argument of the learned CIT (Departmental Representative) was that the AO has rightly observed that by conversion of shares from investment to stock-in-trade, the assessee had shown increase in the value of the shares and the assessee-firm had credited the amount of such increase into respective capital account of the partners as per profit-sharing ratio. This was incorrect method adopted by the assessee. The learned CIT (Departmental Representative) contended that capital account of partners can be increased either by deposit made by the partners or by profit of the firm or the profit of that partner received as per his share from the profit of the firm. The sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reverse the order of the AO. 38. As against it, Shri Kanchun Kaushal, learned counsel for the assessee, reiterated the same submissions as were raised before the learned CIT(A). In this connection, the learned counsel for the assessee has placed reliance on the copies of written submission submitted before the learned CIT(A) and the first written submission is appearing at pp. 1 to 5 of the paper book-I and the learned counsel for the assessee pointed out that the learned CIT(A) had made queries vide order dt. 13th May, 1993, the copy of which is appearing at p. 1 of the paper book-II, and assessee submitted detailed reply thereof in respect of conversion of capital assets into stock-in-trade and the same is appearing at pp. 2 to 5 of the paper book-II. The other reply of the assessee is appearing at pp. 2 to 29 of the paper book-II. The assessee further filed detailed reply dt. 21st June, 1993 and copies thereof are appearing at pp. 30 to 85 of the paper book and another written submission was filed on all these points and the same is appearing at pp. 86 to 114 of the paper book-II and again another written submission dt. 29th Jan., 1994 was filed and copy thereof are appeari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court of India in the cases of Bengal & Assam Investors Ltd. vs. CIT (supra) and CIT vs. Gioz-Beckert Saboo Ltd. (supra). Not only this, the learned counsel for the assessee pointed out that the Hon'ble Madras High Court in the case of CIT vs. Ambadi Enterprises Ltd. [2001] 171 CTR (Mad) 237 : [2000] 243 ITR 431 (Mad) had followed the ratio of the apex Court decision in the case of CIT vs. Bai Shirinbai K. Kooka (supra) and the Hon'ble Gujarat High Court has followed the decision in the case of CIT vs. Groz-Beckert Saboo Ltd. (supra) and in the case of CIT vs. Kaira District Co-operative Milk Producers' Union Ltd. [2001] 165 CTR (Guj) 57 : [2001] 247 ITR 314 (Guj) in which the right of conversion of capital assets into stock-in-trade by the assessee has been recognised. The learned counsel for the assessee submitted that in view of these facts, the Department cannot be allowed to question the right of the assessee to convert the holding of shares which was invested originally as investment into stock-in-trade and that too by amending the main clause of partnership deed and the same was given effect by necessary entries in the books of account as mentioned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that assessee had shown receipt of ₹ 47 lakhs as interest charged by the assessee from this concern. There was no need for written agreement with other partners because they were having credit balances and the amount of sale consideration stand adjusted by the assessee-firm out of those outstanding balances. 43. Further, the AO failed to take note of the fact that shares were not transferred to all the partners nor in their profit-sharing ratio basis. Further, it is also submitted by the learned counsel for the assessee that the AO wrongly attached much significance to non-disposable undertaking given by the assessee to the IFCI. There was no prohibition to sell the shares, but the only thing required was to obtain permission from IFCI to whom non-disposable undertaking was given by the assessee-firm and it was a regular feature in such business transactions. The assessee obtained clearance from financial institution and the only lacuna was that names of the purchasers could have not entered in the register of the company unless and until such clearance from IFCI was not obtained by the assessee. Here, the purchasers have not asked for such clearance and the clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial amount and in this connection, the learned counsel for the assessee had given working of short-term capital gain returned by M/s Siddharth Construction Co. (P) Ltd. in asst. yr. 1991-92 to the extent of ₹ 2,11,59,436 and in asst. yr. 1993-94 to the extent of ₹ 34,38,225 and again in the same year to the extent of ₹ 1,90,27,600. The share price could have fell down and in that case those partners could have also suffered losses but it is the trend of the market and thus observation of the AO questioning sale of shares to partners in any manner is not justifiable. 46. About application of provisions of s. 45(4) of the Act, the learned counsel for the assessee submitted that the same is not applicable at all because it is not the case of distribution of capital assets as is required under s. 45(4) of the Act, but it was a case of simple sale of capital assets by the assessee-firm to partners for consideration. The transaction of sale is not covered under provisions of s. 45(4) and for that reliance has been placed by the learned counsel for the assessee on the decision of the Hon'ble Bombay High Court in the case of Burlingtons' Exports vs. Asstt. CIT (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the learned CIT(A) has rightly decided the issue in favour of the assessee and it does not require any interference. 48. We have considered the rival submissions and perused the record carefully. The facts which are not in dispute are that on 31st March, 1986 the assessee-firm was holding 1,83,940 shares of ₹ 100 per share of M/s Jaiprakash Associates (P) Ltd. M/s Jaiprakash Associates (P) Ltd. and M/s Jaypee Rewa Cement Ltd. moved a petition before the Hon'ble High Court of Allahabad for amalgamation and admittedly the Hon'ble High Court of Allahabad allowed such amalgamation vide order dt. 30th July, 1986, the copy of which has been filed before us and as mentioned above, the transferee-company viz., M/s Jaypee Rewa Cement Ltd. was to issue at par and allot to the transferor-company viz., M/s Jaiprakash Associates (P) Ltd. 75 equity shares of ₹ 10 per share for every one fully paid-up equity share of ₹ 100 per share held in the transferor-company. Accordingly, the assessee-company became entitled to 1,37,95,500 shares of JIL @ ₹ 10 per share. It is also on record that assessee was in the construction business but the said business was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 48(2) of the Act thereon and on the other hand, the assessee has claimed business loss on account of sale on the reduced price of ₹ 12 and ₹ 12.50 per share as against converted cost of ₹ 18.50 per share. In this way, the assessee has succeeded in tax evasion to a great extent. For this, the AO has taken help from the ratio of the apex Court in the case of McDowell & Co. Ltd. vs. CTO (supra) and his finding is that it was a colourable device adopted by the assessee to evade payment of lawful taxes. 50. In view of these facts, the first question arises as to whether the assessee was justified to convert the shareholding shown as investment into stock-in-trade ? In this connection, reliance has been placed by the learned counsel for the assessee on several decisions out of which two case laws had been referred to by the learned CIT(A) and that are CIT vs. Bai Shirinbai K. Kooka (supra) and CIT vs. Groz-Beckert Saboo Ltd. (supra). In both the cases, right of conversion of once investment into stock-in-trade had been judicially recognised. The other two cases had been referred (to) by the learned counsel for the assessee during the course of hearing before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that this issue was before the Tribunal, Allahabad Bench, in the case of the assessee for just preceding asst. yr. 1990-91 though in different context, as the issue in that year was as to whether each of the partner was having actual amount available to them for making withdrawal and interest on such withdrawal may be charged or not. The Tribunal has also considered the amount of appreciation (which) arose on account of conversion of shareholding from investment into stock-in-trade. The learned CIT (Departmental Representative) had raised point that alleged appreciation in the valuation of share was only notional and no cash flow was there on the basis of that valuation and accordingly the partner should not have been allowed withdrawal. The learned CIT (Departmental Representative) had also stressed that if at all for the purpose of accountancy, the correct valuation of the share had to be reflected in the account, then the balance amount, i.e., "investment and the actual price" should have been shown as reserve and not credited to the accounts of the partners. This is the same argument as pleaded by the learned CIT (Departmental Representative) before us. The observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crediting of the said amount to the accounts of the partners in proportion to their share was also justified on the basis of the principle of accountancy." 52. This observation of the Bench in the case of the assessee goes against the Department and submission of the learned CIT (Departmental Representative) to the effect that assessee instead of crediting capital account of partners should have created reserve, does not have any substance in it. 53. Apart from it, we may refer the decision of the apex Court in the case of CIT vs. J.K. Hosiery Factory [1986] 159 ITR 85 (SC) and relevant observations are as under: "Similarly, reliance was placed on the observations of the Division Bench of the Allahabad High Court in K.T. Wire Products vs. Union of India [1973] 92 ITR 459 (All). It may be mentioned that there it was noted that under the general scheme of the IT Act, losses and profits under different heads had to be aggregated and the net income arrived at which was liable to tax. If the resultant figure was a loss, it was carried forward and set off against the business profits of the succeeding year. This is the position in the case of all assessees except registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observation of asst. yr. 1990-91 in which it was observed that the amount of appreciation on account of conversion of shareholding investment into stock-in-trade was notional one and not to be taken into consideration. In this connection, again we may refer that Tribunal, Allahabad Bench, in the case of the assessee for asst. yr. 1990- 91 has decided this issue vide order dt. 23rd Dec, 1993 referred to above and relevant findings are to the effect that the amount credited by the assessee- firm in respect of capital accounts of the partners out of appreciation in the shareholding on account of conversion was real one and not the notional one as observed by the AO. 57. The AO first of all observed in the assessment order for asst. yr. 1990-91 and again in the assessment order for the year under consideration that assessee had sold most of the shares to its partners. In this connection, the AO was not justified to question the bona fides of the assessee in such transactions, because the assessee-firm is separate and independent identity for income-tax purposes and partners are separate from the assessee-firm for that very purpose. Further, assessee has rightly placed reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said principle. 59. Apart from it, reasons why sale of shares was effected to the partners have also been explained by the assessee in the written submissions submitted on 20th May, 1993 before the learned CIT(A)-III and copy thereof is appearing at pp. 2 to 5 of the paper book in which it was submitted that assessee came to know that shareholding of the firm in respect of shares of JIL being held as stock-in-trade began to show a declining trend. Some suggestions were received that these may be sold in the open market even at the reduced rate prevailing on that time but partner did not find it feasible and beneficial to sell these shares in the open market, as the same act would have further reduced the prices of those shares substantially. Further, the very position of JIL and M/s Jaiprakash Enterprises Ltd. would have gone down in the share market and then it was decided that instead of selling shares in the open market, the partners will purchase the same. It is also relevant to point out that it is not the partners who have purchased the shares in their profit-sharing ratio. These two important aspects have to be kept in mind. 60. The AO has also questioned that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h & Co. 10 Converted into stock-in-trade at ₹ 18.50 per share Sold to Siddharth at ₹ 12.00 per share Sold by Siddharth at ₹ 34 per share Taxability in the hands of the firm (1) Capital gains : Sale consideration under s. 45(2) (1,37,75,600 x 18.50) 25,48,48,600 Less : Cost of share (1,37,75,600 x 0.63) 86,78,628 Long-term capital gain 24,61,69,972 Less: Deduction under s. 48 @ 60% 14,77,01,983 (A) 9,84,67,989 (2) Trading loss : Sale consideration (1,37,75,600 x 12) 16,53,07,200 Less : Converted value (1,37,75,600 x 18.50) 25,48,48,600 (B) 8,95,41,400 (3) Total income (A+B) 89,26,589 Firm's tax on the above @ 20.16% (C) 17,99,600 Partner's shares 71,26,989 Taxability in the hands of the company (1) Capital gain Sale consideration (1,37,75,600 x 34) 46,83,70,400 Less : Cost of purchase (1,37,75,600 x 12) 16,53,07,200 Short-term capital gain (D) 30,30,63,200 (2) Partner's share of R.K. Singh & Co. (LTCG) 71.26,989 Total income 31,01,90,189 Tax on the above @ 5175% 16,05,23,423 Total tax paid 16,23,23,023 Effective rate 34.66% 62. This working given by the assessee has not been challenged by the Department nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Department has already taxed those partners on the amount of short-term capital gain earned by respective partners. However, the assessee cannot be treated to have manipulated the facts and adopted any device much less colourable in all these transactions because price of such share was quoted as per stock exchange and assessee cannot be expected to guess about future and this was also not available to the AO. 64. The next plea of the AO was in respect of application of provisions of s. 45(4) of the Act. In this connection, assessee was justified to place reliance on the decision of Tribunal, Bombay Bench, in the case of Burlingtons' Exports vs. Asstt. CIT (supra). The relevant portion thereof is in para 18 and the same is reproduced as under : "18. We, however, find force in the contention of the learned counsel for the assessee, Sri Dastur, that in that case also, there should be a distribution of assets by the firm to the partners so as to invoke the provisions of s. 45(4) of the Act. The words 'or otherwise' are used as an alternate to the words 'on dissolution' and, therefore, in both the situations, i.e., on dissolution or otherwise, the dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of s. 45, such as sub-ss. (1), (2), (3) and (5). A situation would emerge out in that case that the two provisions would exist simultaneously at particular time, side by side. Such an interpretation giving rise to an overlapping of one provision over the other has to be avoided. Even if such an overlapping is permitted or possible, the law favourable to the assessee should prevail. In this case, as we have held, there was a transfer on 7th Oct., 1986 and, therefore, it would fall under s. 45(1) of the Act, which brings to tax only that capital gains which arises to the assessee on transfer. The written down value of the two properties was the consideration that has arisen to the assessee. Amount which is over and above the stated or agreed consideration cannot be brought to tax even though the market value of the two properties was much higher to the stated or agreed consideration. It is not the case of the learned Departmental Representative that the assessee had received the market value of these properties and, therefore, as held by Their Lordships of the Supreme Court in the case of K.P. Varghese, nothing more than what has been agreed to and actually received or reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. 68. The grounds 1(i) to 1(v) are accordingly decided against the Department. 69. So far as remaining grounds are concerned, the learned counsel for the assessee has furnished a chart at p. 121 of the paper book and all the grounds are virtually covered. 70. Ground No. 1(vi) relates to deletion of interest amounting to ₹ 61,38,630 which was added by the AO and identical issue was before the Tribunal in the case of the assessee for asst. yr. 1990-91 and Tribunal vide its order dt. 23rd Dec, 1993 in Raj Kumar Singh & Co. vs. Dy. CIT ITA No. 1288/AU/1993 has already decided this issue in favour of the assessee and the learned CIT(A) has also taken note of this fact. As the learned CIT(A) has followed the order of the Tribunal, there is no infirmity in the order and we also confirm the view taken by the learned CIT(A) which is based on the decision of the Tribunal in the case of the assessee for just preceding year. 71. Ground No. 1(vii) relates to deletion of addition towards hire charges receipts which were increased by ₹ 33,16,225 and identical issue was before the Tribunal in the case of the assessee for asst. yr. 1990-91 and Tribunal vide its order dt. 23rd Dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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