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TMI Blog2017 (9) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of the Commissioner "to generate some more revenue" by refixing the assessment, if two views were possible. It is not a question of two alternate views, but a case of only "one view", which came to be wrongly decided by the Tribunal. As it stands so, it is the correct view that can be sustained and not the impaired one. Non-satisfaction of the ingredient under section 47(xiv)(c) in toto is a major defect and as such, value of the "goodwill", i.e., ₹ 2,45,00,000 admittedly forming part of the assets transferred, required to be taxed under such circumstances. This being the position, the judicial precedents cited and sought to be relied on by the assessee (as relied on by the Tribunal) actually do not come to the rescue of the assessee. This court is of the firm view that the power exercised by the Commissioner under section 263 of the Act is correct and that the finding rendered by the Tribunal, to the contrary, is not sustainable. Coming to the reasoning given by the Tribunal, that "deficit" has to be treated as "loan" given by the proprietorship concern, to the proprietor; (in turn taken over by the company as "loan" to be cleared on demand), it is to be noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there cannot be any assessment separately for the "proprietor" and "proprietorship concern". There is absolutely no rhyme or reason to have interfered with annexure B order. The finding and reasoning given by the Tribunal is per se wrong and unsustainable in all respects. Annexure D order passed by the Tribunal stands set aside. Annexure B passed by the Commissioner is restored. The appeal stands allowed. - I. T. A. No. 1797 of 2009 - - - Dated:- 10-4-2017 - P. R. Ramachandra Menon And A. Hariprasad, JJ. For the Appellant : Jose Joseph, Standing Counsel, for Income-Tax For the Respondent : P. Benny Thomas, P. Gopinath, K. John Mathai, E. K. Nandakumar and Raja Kannan, Advocates JUDGMENT P. R. Ramachandra Menon, J. 1. Can, a person borrow from himself and whether the sole proprietor and his business concern can be treated as two separate entities in the realm of the assessment of long-term capital gain tax ? Is it not necessary to satisfy all the requirements under section 47(xiv) (provisos a, b and c) of the Income-tax Act (hereinafter referred to as the Act ) separately, to have exemption from the transfer envisaged under section 45 of the Act, inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance amount was payable at the end of the year, which was shown as amount due to the assessee under unsecured loans due to the assessee. As per the relevant records, the assessee had transferred to the company his individual business consisting of all the assets amounting to ₹ 9,64,39,231.19 (which includes the goodwill value of ₹ 2,45,00,000) and the liabilities amounting to ₹ 4,47,35,333.56. As the transfer of goodwill would attract capital gain tax under the Income-tax Act and since the goodwill valued at ₹ 2,45,00,000 remained untaxed under the capital gain tax, annexure A assessment finalised by the Assessing Officer was noted as erroneous and prejudicial to the interests of the Revenue. It was accordingly, that a show-cause notice dated October 14, 2004 was issued to the assessee to explain why the amount of goodwill should not be brought to the tax net under the capital gain tax. 5. On receipt of the said notice, a reply was submitted by the assessee, pointing out that he had satisfied the conditions prescribed under section 47(xiv) of the Act, to have exemption from the liability. It was pointed out, with reference to section 47(xiv)(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration was received by the assessee in respect of the transfer of assets and liabilities, except to the extent as mentioned by the assessee and further, even if the disputed amount shown in the current account of the proprietorship concern as due to the proprietor (stated as taken over by the company as a loan, to be repaid on demand), no such amount/consideration was received by the assessee in the particular year, to be reckoned for the purpose of computation. It was accordingly, that annexure B order passed by the Commissioner was interdicted and the appeal was allowed, which forms the subject matter of challenge in this appeal preferred by the Commissioner-Department. 7. Heard Mr. Jose Joseph, the learned standing counsel appearing for the appellant and Mr. Gopinatha Menon, the learned counsel appearing for the respondent-assessee at length. 8. Any profits or gains arising from the transfer of capital assets effected in the previous year shall, save as otherwise provided in the particular situations referred to under section 45 of the Income-tax Act, are chargeable to Income-tax under the head Capital gains and it shall be deemed to be the income of the previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that, as pointed out by the Tribunal in paragraph 11 of annexure D order, no such consideration was ever received by the assessee in the very same financial year 2001-02 . The learned counsel sought to defend the order passed by the Tribunal, also placing reliance on the decisions referred to and relied on by the Tribunal in the very same order, contending that invocation of power under section 263 of the Act by the Commissioner was quite wrong. The learned counsel also pointed out that, even if two views are possible, it is not a ground for interference, when the view already expressed is also sustainable. 11. We have gone through the decisions cited across the bar and as referred to in annexure D order passed by the Tribunal. With regard to the observation made by the Tribunal, finding fault with the course pursued by the Commissioner for invoking the power under section 263 of the Act, it is to be noted that, section 263 confers adequate power upon the Commissioner to call for and examine any proceedings under the Act, if he considers that the order passed by the Assessing Officer is erroneous, in so far as it is prejudicial to the interests of the Revenue . Under such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company as loan to be cleared on demand), it is to be noted that, under no circumstances can a person borrow from himself and transpose as creditor and borrower at the same time. To this extent, proprietor and proprietorship concern are not two different entities. Whatever is pumped in by the proprietor to his proprietorship, is nothing other than investment and it forms part of the asset, which, when taken over by the company, will have to be compensated (after deducting the liabilities). If at all any exemption is to be claimed to come outside the purview of transfer envisaged under section 45 of the Act, various requirements mentioned under section 47(xiv) have to be satisfied. There may not be any dispute to the fact that all the assets and liabilities of the proprietorship concern have been taken over, but if there is wrong description of part of the assets concerned as a liability , such wrong procedure/accounting cannot be glibly swallowed, disregarding the mandate of the provisions of law in relation to the exigibility to tax. The proprietorship concern could have borrowed any amount to have categorised as a loan , only if it was procured from some other sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport from the ruling rendered by the apex court in Competent Authority v. Barangore Jute Factory [2005] 13 SCC 477 and by this court in Lakshmikutty Amma v. Vijayalakshmikutty [1992] 2 KLT 341 taking a cue from the celebrated English decision 1875 (1) Ch.D 426 (Taylor v. Taylor). The value of goodwill of the proprietorship firm passed on to the company, having a value of ₹ 2,45,00,000 as part of consideration/benefit which has been indirectly/wrongly shown as loan from the proprietorship concern, to the proprietor , taken over by the company, to be satisfied as and when demanded. Viewed in the above circumstances, the said consideration had legally come to the credit of the proprietor/assessee on October 1, 2000 itself, to have transposed the latter as a creditor of the company, who sought to show the said amount as a loan procured from the proprietor. 15. In this context, it is also relevant to note the stand of the assessee as per the case/explanation projected by him, in response to the show-cause notice issued by the Commissioner proposing to exercise the power under section 263 of the Act. The said version is specifically taken note of by the Commissioner i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned therein appears to be a mistake, which might be section 2(d)). It is quite fundamental, that there cannot be any agreement contrary to the provisions of law. When the Tribunal propounds that there was an agreement between the proprietor and the proprietorship concern (treated as two different entities), the necessity to have two legal persons to arrive at a contract (lender and borrower), based on the consideration paid or agreed to be paid, was quite conveniently ignored. The role of two different persons/entities and their status unfortunately has been conferred upon the same person, i.e. the proprietor ; thus propounding a strange proposition that the proprietorship concern had borrowed an amount from the proprietor , to be satisfied in the due course on demand; which liability in turn was stated as taken over by the company. 17. The crux of the above discussion is that, the legal position applied correctly by the Commissioner to the given set of facts and circumstances, as per annexure B order, came to be disturbed by the Tribunal, as per annexure D order. It is true that in tax parlance, partnership is different from partners and both can be taxed, thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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