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TMI Blog2018 (5) TMI 1876X X X X Extracts X X X X X X X X Extracts X X X X ..... e from all encumbrances, from APIIC. The land can only be allotted to persons who are engaged in the activity of manufacture or intended to carry on the old business. In a nutshell, the vacant land cannot be said to be the land owned by the previous owner. Assessee relied upon several case law which only speaks of succession of business and they do not refer to a specific land which was previously in the possession of M/s. Veena Industries proprietary concern as a licence holder but it has no rights to transfer the said land, whenever there was a change of constitution. In the instant cases, the land appears to have been handed over to the partners collectively by virtue of a sale deed entered into in 1990, on payment of 15,000/- only. The value of the land and not with regard to the structures which are constructed by the previous occupant of the said land. In order to appreciate as to whether APIIC has a right to withhold the property from a manufacturer whenever there is a change of the constitution of the Members manning the business, one has to refer to the rules prescribed thereunder but nothing has been placed before me except the sale deed which merely indicates that though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed that the cost of acquisition of 2420 sq. yards was adopted by the assessee at ₹ 31,68,080/- by revaluing since the cost of the land as per the balance sheet as on 31.03.1997 was ₹ 1,08,467/-. 4. It may be noticed that the land was allotted by APIIC in the industrial area, for industrial purposes, to M/s. Veena Industries, which was a proprietary concern of Smt. C. Rajkumari. Possession of the land was delivered to her by APIIC on 28th November, 1973. The business was run as a proprietary concern in the said premises. The said concern was converted into a partnership firm on 01.04.1986 which consists of four persons. In other words, the proprietrix had taken three more persons and constituted a partnership firm and the land was utilised by the said firm since the firm succeeded to the business of the proprietary concern. Vide partnership deed dated 17.04.1986 it was declared that the business run in the name and style of M/s. Veena Industries, as a proprietary concern, was convered into partnership firm by including Shri O.P. Jaswal, Shri K.L. Jaswal and Shri S.P. Jaswal as partners since the proprietrix is desirous of increasing business and to reduce her share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 01.04.1981 should be taken into consideration. With regard to the disallowance of interest, the claim of the assessee is that notional interest was sought to be considered which is not permissible in law. It was contended that the amount was paid to Sri K.L. Jaiswal and Sri S.P. Jaiswal in respect of acquisition of property and income from the said property was admitted to tax and therefore, disallowance of notional interest is not called for. 9. Before the Ld. CIT(A) assessee contended that a part of the land, which was sold during the year under consideration, was allotted to M/s. Veena Industries on 20.11.1973 and the same business continued by the firm by way of succession by inducting three more persons as partners in which event the cost of acquisition would be the cost as on 20.11.1973, in which event fair market value of the land as on 01.04.1981 has to be adopted for determining the capital gains. It was also submitted that the fair market value as per the Registered Valuers report was ₹ 500/- per square yard. 10. Ld. CIT(A) observed that the proprietary concern and partnership concern are two different entities. The land was originally allotted by Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that there is succession to the business with induction of three more partners, without disturbing the identity and continuity of the business, in which event the cost of the asset in the hands of the assessee should be taken as a cost at which it was first allotted i.e., on 20.11.1973. In this regard, assessee relied upon the decision of the Apex Court in the case of ED Sassoom & Co. Ltd (86 ITR 757) (SC). Reliance was also placed upon another decision of the Hon'ble Supreme Court in the case of CIT vs. K.H. Chambers (55 ITR 674 at 680-681) wherein the Court considered the provisions of section 170 of the I.T. Act, 1961 to hold that if a business was taken over as a going concern, it implies that the identity and the continuity of the business is preserved. Reliance was also placed upon the decision of the Hon'ble jurisdictional High Court in the case of P. Koteshwar Rao (46 ITR 882) (AP). 11. In short, the case of the assessee was that so long as the identity and continuity is proved, it amounts to succession to the business though the business was converted into partnership firm from 01.04.1986. Under section 55(2)(b) of the I.T. Act, 1961 the fair market value of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akravarthi which was paid to Sri K.L. Jaiswal and Sri S.P. Jaiswal for acquiring a house. Though it was paid towards sale consideration, sale deed was executed later and rent received on the property was offered to tax in the next year. Thus, it is not a diversion of income for other purpose. 15. The Ld. CIT(A) did not take note of the contention of the Learned Counsel for the Assessee though it was categorically mentioned in para of the statement of facts and in Ground No.7 Ld. CIT(A) merely observed as under: "Ground No.7: The Assessing Officer on examination of profit and loss account, found that the assessee had debited ₹ 1,70,000/- as interest payment on loan availed from Smt. Rashmi Chakravarthi amounting to ₹ 26 lakhs. The said loan was advanced to Sri K L Jaiswal and Sri S P Jaiswal. Even though the assessee has availed interest-bearing loan from Smt. Chakravarthi, no interest was charged from Sri K L Jaiswal and Sri S P Jaiswal. Therefore, I hold that A.O. is justified in making disallowance of the interest. Thus, Ground number 7 is dismissed." Further aggrieved, assessee is in appeal before the Tribunal. 16. Learned Counsel for the Assessee adverted m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not paid any amount by APIIC which indicates that the possession was already given to M/s. Veena Industries in 1973 and in 1986 there was a mere succession of business of M/s. Veena Industries from the proprietary concern to partnership firm, in which event provisions of section 55(2)(b) r.w.s 49(1) of the Act comes into play. He referred to the decision of the Supreme Court in the case of E.D. Sassoom & Co. Ltd., (86 ITR 757) to submit that if an assessee takes over the business of predecessor of a going concern, it amounts to 'succession of the business' falling within the meaning of section 49(1) in which event the cost of the previous owner has to be taken into consideration. Section 170 of the Act was also referred to contend that when a person is carrying on a business and that has been succeeded by any other person and continues to carry on that business, it can be considered as a 'succession to business'. Though the said section was with reference to income assessable to tax in the hands of the previous owner and if the predecessor cannot be found it is to be assessable separately and recoverable from the successor. Learned Counsel for the Assessee refers to the aforem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact owned the property and rents received therefrom were offered to tax in the subsequent year. Learned Counsel for the Assessee submitted that this aspect was overlooked by the A.O. as well as the Ld. CIT(A). 21. On the other hand, Learned Departmental Representative relied upon the orders passed by the Tax Authorities and it was submitted that the case law relied upon by the assessee are distinguishable on facts. The cases referred to by the assessee were pertaining to succession simpliciter i.e., where the same property, which was owned by predecessor assessee, was passed on to the successor assessee, whereas in the instant case, the sale deed between APIIC and the partners upon payment of ₹ 15,000/- towards purchase consideration by the firm leaves no doubt that it was a case of purchase of property from APIIC by the assessee-firm, as otherwise there was no need for making payment of ₹ 15,000/- by the firm. 22. I have carefully considered the rival submissions and perused the record. No doubt, the Learned Counsel for the Assessee relied upon several decisions with regard to the expression "succession" but the issue as to whether it was a case of succession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by the Ld. CIT(A), on this aspect, does not call for any interference. Since cost as on 07.08.1990 has to be taken into consideration, the other contentions of the assessee regarding fair market value as on 01.04.1981 etc., need not be considered. 23. As regard the issue of disallowance of interest payable to Smt. Rashmi Chakravarthi, the assessee categorically states that it was utilised for purchase of house property and the rent received from the said property was offered to tax in the hands of the firm. However, the agreement of sale as well as the sale deed shows that it was represented by its partner Smt. Sujata Jaiswal and Smt. Sashi Jaiswal, who are not referred to as partners in the deed dated 17.04.1986. Since the assessee claims that the rent was offered to tax in the hands of the firm, the same requires verification and if the amount is offered to tax by the firm and taxed accordingly, there is no case for disallowance of interest. Therefore, I hereby set-aside this issue to the file of the Assessing Officer to verify the same and reconsider the issue in accordance with law. 24. In the result, appeal filed by the assessee is treated as allowed for statistic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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