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TMI Blog2019 (12) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... 45(3) of the Act requires to take the sale consideration in the case of transfer of any capital asset by the partner to the firm as capital contribution which was recorded in the books of accounts of the firm. In the case on hand, there is no dispute that the value of such assets transferred by the partner to the firm was recorded at the book value which can be verified from the financial statements of the assessee placed on pages 2 to 7 of the paper book. Accordingly, there cannot be any income in the hands of the assessee on account of transfer of such assets as capital contribution. In view of the above, we do not find any infirmity in the order of the learned CIT-A. Hence the ground of appeal of the Revenue is dismissed. Deduction u/s 80IB - AO observed that, partner did not claim remuneration and interest on capital from the firm in order to claim the higher deduction under section 80(IB)(10) - whether the assessee is bound to draw the amount of remuneration and interest from the partnership firm in pursuance to the date of partnership firm? - HELD THAT:- The clauses mentioned in the partnership deed are not mandatory but made to avoid any ambiguity and misunderstandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO for ₹ 27,36,800/- on account of transfer of land by the partners to the partnership firm. 3. The assessee in the present case is an individual and drawing his income from the source of salary and share of profit from the partnership firm namely M/s Swapnalok Developers comprising of 10 partners in total. All the partners of the firm are having equal profit sharing ratio. The assessee along with other partners held a piece of land which was purchased by all of them (partners) for ₹ 63 Lacs. All the partners brought such land to the partnership firm as capital contribution dated 5 July 2004 which was recorded by the firm as stock-in-trade at the book value. 4. However, the AO was of the view that such transfer of land as stock in trade to the firm is a transfer within the meaning of section 45(2) of the Act further noticed the fair market value (Jantri value) as on the date of transfer i.e. ₹ 3,36,68,000/-. Accordingly, the AO computed the capital gain of ₹ 2,73,68,000/- on the transfer of land by the partners as capital contribution in the partnership firm and attributed a sum of ₹ 27,36,800/- being 10% s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the sole and fine basis to invoke the sec. 147 of the Act, the believe to reopen the case, and the assessee adopted a convenient and comfortable way to record a transaction which guaranteed for the escapement of the income. The recording of the amount in the transaction involved is not justified by the assessee whereas the AO under the circumference and discussion of the section 50C found a sound ground to add the evaded tax judiciously. In addition to the discussion it pertinent here to state that the assessee made no compliance regarding the following queries via notice u/s 142(1) dated 11.03.2015 :- a) Details of project completed viz. shop/flat along with area of them on the land introduced as capital b) The plan layout of the project c) The ratio/proportion of the sale of flat/shop of the total project with that of proportionate portion of land. 8.1 The Ld.D.R further stated that the assessee has neglected the queries only to disguise the correct income earned or to be determined. The firm M/s. Swapnalok Developers has constructed residential units on the said land which has been sold during the period A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to treat it as stock in trade without having gone through any conversion is valid , sound and judicious as the capital assets must be considered under the phrase conversion or treatment . 8.2 The Ld.D.R also relied upon the judgment of Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT (1985)156 ITR 509 SC was dealing with the situation where an individual makes over his capital asset to a partnership as a contribution towards capital and the asset was valued for the purpose at the market value, and in that event it was held by the Hon'ble Supreme Court that there was asset within the meaning of section 45 of the Income Tax Act, 1961. 8.3 Even, such a transaction now takes care of by section 45(3) of the Income-tax Act, 1961, inserted from the assessment year 1988-89. Sub- Section (3) of section 45 of the Act, effective from assessment year 1988-89, enacts that the profits and gains arising from the transfer of a capital asset by a person to a firm, in which he is or becomes a partner, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital contribution by the assessee to a partnership firm in which the assessee became a partner was merely a device or ruse for converting the land into money which would substantially remain available for assessee s benefit without liability to income-tax. 9. On the other hand, the learned AR before us filed a paper book running from pages 1 to 10 and submitted as under: a. A.O. has treated the difference between value of contribution of land by partners and stamp duty as capital gain of partner u/s.45(2) for A.Y. 2007-08. b. In fact, partner contributed his personal land to the firm on dated 02-12- 2014(A.Y. 2005-06) and not this year, hence there can t be question of gain to him in A.Y. 2007-08 (PB page 1,4,5 and 10). c. Amount recorded by the firm u/s 45(3) can t be disturbed by the A.O u/s.50C or otherwise. d. Land given by partner became stock-in-trade in business of the firm and not of the partner; sec. 45(2) not attracted in partner s case; he did not sell any land in A.Y. 2007-08 at all. e. Besides in A.Y. 2005-06 contribution by partner of land as capital of firm was neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 80(IB)(10) of the Act in the hands of the firm. The AO also observed that the assessee was authorized by the deed of partnership firm for such remuneration and interest on capital as per the provisions of section 40(b) of the Act. Accordingly the AO added the amount of remuneration and interest amounting to ₹ 1,58,79,299/- and ₹ 1,02,557/- respectively to the total income of the assessee. 14. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 7.1 In the separate appeal no.228/14-15 filed in case of the said firm, I have by my separate order held that the said remuneration does not become a deduction in the hands of the firm and hence the claim of deduction u/s.80IB(10) could not have been reduced to that extent. Moreover, I also find that the A.O. never allowed the remuneration or interest to partners as deductible expenditure in assessment of the firm, in view specific provisions of Sec. 28(v), the said amount cannot be treated as income of the partner, being the appellant before me. In view of the same, as a corollary thereof, the addition in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below as favourable to them. 18. We have heard the rival contentions and perused the materials available on record. The controversy in the case before us relates whether the assessee is bound to draw the amount of remuneration and interest from the partnership firm in pursuance to the date of partnership firm. 18.1 The partnership firm comes into existence with mutual understanding between the persons. These understanding can be reduced in writing or otherwise. Thus, it is clear that it is not necessary to execute the deed of partnership in writing. However, in the current scenario, it is not possible to work under the module of the partnership without executing the partnership deed in black and white. It is because to run the business one needs to have a bank account, PAN, etc. which is not possible to obtain without having the deed of partnership. Thus, the deed of the partnership will reveal the understanding on the basis of which partners agreed to work together. 18.2 Thus it can be inferred that the clauses mentioned in the partnership deed are not mandatory but made to avoid any ambiguity and misunderstanding betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the maximum amount admissible under the Income-tax Act, 1961. 5. Both the partners shall diligently attend to the business of the partnership and carry on the same for their greatest common advantage. Both the working partners shall be entitled to a remuneration of ₹ 48,000/- per annum each or at such other rate or rates as the partners may at the end of each financial year, mutually settle subject to the maximum amount admissible under the Income-tax Act, 1961. 9.6. The aforesaid clauses of the partnership deed are clearly enabling clauses since the word used in both the clauses are the partners shall be entitled... . This shows that the partners were entitled to get interest on the capital and to draw remuneration for their services without binding them to do so. This, in my opinion, is not a mandatory provision in the partnership deed which would be worded like the partners shall be provided/given.... . Further, it is also mentioned in both these clauses, that the rate or rates of interest and the remuneration would be mutually settled by the partners at the end of each financial year. Now, a partnership, by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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