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TMI Blog2021 (5) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... rent account - Decided against revenue. Undisclosed / unaccounted /out of books income / investment - HELD THAT:- It cannot be said that the purpose behind restructuring of the partnership firm (i.e admission and retirement) was done primarily for tax avoidance as contended by the ld AO. In fact the firm PLA held the property as its owner which was also reflected in its audited accounts. When the said property was sold as a result of the said restructuring to the new firm PLA-2 , the due tax was paid by the firm and this cannot be re-taxed in the hands of the assessee as tax avoidance. The said amount is the amount of devaluation of the investment which is forming part of the books of accounts. Hence, it is completely misconceiving to treat the same amount as undisclosed income / investments. We find that the ld CIT-A had duly appreciated the contentions of the assessee and had rightly deleted the addition made in this regard, on which, we do not find any infirmity. Accordingly, the Ground No. 4 raised by the revenue is dismissed. Correct head of income - rent received as business income or income from house property - HELD THAT:- CIT-A rightly observed that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PER M. BALAGANESH (A.M): These cross appeals in ITA No.2753/Mum/2014 3365/Mum/2014 for A.Y.2010-11 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-21, Mumbai in appeal No.CIT(A)-21/IT/188/2013-14 dated 28/02/214 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2013 by the ld. Dy. Commissioner of Income Tax-10(1), Mumbai (hereinafter referred to as ld. AO). 2. The revenue has raised the following grounds of appeal :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not applying the principle laid down by the Hon ble ITAT in the case of Sudhakar Shetty (130 ITD 197(Mum) and thereby treating the amount of ₹ 1,35,38,77,722/- as capital receipt not chargeable to tax u/s.45. 2. On the facts and circumstances of the case and in law Ld. CIT(A) erred in deleting an amount of ₹ 1,34,68,82,688/- as alleged long term capital gains on retirement from erstwhile from PLA-1 treating the same as not transfer u/s.2(47) and not chargeable to tax. 3. On the facts and circumstances of the case and in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had filed its return of income declaring total income of ₹ 1,70,26,883/- after claiming exemption of ₹ 135,38,77,723/- u/s 10(2A) of the Act and book profit of ₹ 89,03,928/- u/s 115JB of the Act. We find that the assessee had claimed share from partnership firm as under:- Share of surplus on revaluation of investment of M/s Pranik Landmark Associates (PLA) 135,38,77,723 Share of loss from PLA (24,31,82,466) Share of profit from M/s Bharat Steel Fab. Engineering Works 51,88,277 Share of Loss from M/s D B Promoter (7,969) Total 111,58,75,565 Though the share of surplus on revaluation of investment of PLA was mentioned at ₹ 135,38,77,723/-, we find that the assessee was actually paid only ₹ 92,18,852/-. We find that the total income of the firm PLA including the capital gains was ₹ 153,33,50,024/- and the assessee s share in total income for claim u/s 10(2A) of the Act was ₹ 148,73,49,523/-. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had preferred an appeal before the ld CITA. We find that the ld CITA held in its order as under:- a) upheld the action of the ld AO in denying exemption u/s 10(2A) of the Act; b) held that share of revaluation and devaluation were in the nature of capital receipt not chargeable to tax and therefore, should not be taxed u/s 45(1) or 45(4) of the Act ; c) held that second condition of clause (iib) of Explanation 1 to section 115JB of the Act is not applicable to the assessee and hence, revaluation reserve cannot be taxed u/s 115JB of the Act; d) deleted the addition of ₹ 119,85,18,833/- as undisclosed / unaccounted/ out of books income / investment ; 4.4. We find that the revenue had filed an appeal before us in respect of :- a) Treating the amount of ₹ 135,38,77,722/- as capital receipt not chargeable to tax. b) Deletion of long term capital gains of ₹ 134,68,82,688/- assessed in the hands of the assessee. c) Allowing deduction of ₹ 135,57,86,616/- while computing book profits u/s 115JB of the Act. d) Deletion of the addition of ₹ 119,85,18,833/- as undisclosed / unaccounted out of books income/investment. 4.4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had restored the matter to the file of this Tribunal to decide the issue in light of the following decisions:- a. Decision of Hon'ble Gujarat High Court in the case of CIT vs. Mohanbhai Pamabhai reported in 91 ITR 393 (Guj) b. Decision of aforesaid Gujarat High Court affirmed by Hon'ble Supreme Court in 165 ITR 166 (SC) c. Decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT reported in 156 ITR 509 (SC) d. Decision of Hon'ble High Court in the case of CIT vs. R. Lingmallu Raghukumar reported in 247 ITR 801(SC) 10. We find that during the impugned assessment year, the assessee retired from the partnership firm and received amount standing to its credit in the books of the partnership firm. Much prior to the retirement i.e. on 01/04/2007, the firm re-valued its asset i.e Development rights in land which resulted in appreciation of ₹ 262,12,92,699/- and correspondingly credited partner's current account in their respective profit sharing ratio in the books of that firm. The assessee's share thereon worked out to ₹ 10,48,51,708/-. In response to this revaluation, no entry was passed in the books of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by offering the said property as capital contribution to the firm, then such property becomes the common property of the partnership firm wherein the other partners also would be entitled for a share in proportion to their profit sharing ratio. This transaction was accepted as a transfer by the Hon'ble Supreme Court. Hence, it could be seen that the facts before us and the facts before the Hon'ble Supreme Court are factually distinguishable. 11.2. Decision of Hon'ble High Court in the case of CIT vs. Lingamallu Raghukumar reported in 247 ITR 801(SC) We find that the Hon'ble Supreme Court in the said case held that when a partner of a firm retires and the amount of his share in the partnership assets after deduction of liabilities and prior changes is determined on taking accounts, there is no element of transfer of interest in the partnership assets by the retired partner to the continuing partners. The amount received by the retiring partner is not liable to tax as 'Capital Gains' under Section 45 of the Act. 12. We find that this Tribunal had originally placed reliance on the decision in the case of Sudhakar Shetty reported in 130 ITD 197 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the ld. DR vehemently argued that this is not a case of simple retirement of a partner from the partnership firm. He argued that assessee had relinquished its interest in the partnership firm vide retirement deed dated 06/11/2009 w.e.f. 01/04/2009 and the same tantamount to transfer eligible for levy of capital gains. The ld. DR argued that pursuant to the revaluation made in the books of the firm, the capital of the assessee had been notionally increased and assessee had received excess consideration over and above the amounts actually invested by it in partnership firm and hence, the said excess would have to be brought to tax as capital gains. The ld. DR vehemently relied on the decision of this Tribunal in the case of Shri Sudhakar Shetty reported in 130 ITD 197 and also on the Co-ordinate Bench decision of Pune Tribunal in the case of Shevantibhai C Mehta vs ITO reported in 83 TTJ 542. We find that in the case before the Pune Tribunal referred to supra, the retiring partner had assigned his interest in partnership firm specifically by a deed of retirement executed in writing to continuing partners and consideration for the same was agreed to be paid to him in lumpsum. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 115JB of the Act for the reason that clause (iib) of Explanation 1 to Section 115JB stipulates two conditions namely, (a) amount has to be withdrawn from the revaluation reserve and (b) it should not exceed the amount of depreciation on account of revaluation of assets. In assessee's case, value of assessee's share in the revaluation was credited to assessee's profit and loss account. This amount being in the nature of revaluation reserve had to be reduced from profits while computing book profits. The second condition is not applicable as the loss is not depreciable asset where depreciation is allowed. 13.2. We find that revaluation by the partnership firm of its capital asset was an unilateral act yielding notional profits and not real profits. Accordingly, the amounts received thereon by the assessee from the partnership firm cannot contain any element of income. In such scenario, the same ought to be construed only as a capital receipt. 13.3. The inclusion of a capital receipt in the sum of ₹ 10,48,51,708/- while computing book profits u/s.115JB of the Act was the subject matter of adjudication by various Tribunals and High Courts and we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of section 115JB to tax something which is not taxable at all. 13.5. We find that the ld. DR had placed reliance on the decision of Hon'ble Karnataka High Court in the case of B B Infratech Ltd. vs. ITO reported in 396 ITR 420 (Kar) to drive home that the provisions of Section 115JB of the Act have an overriding effect upon other provisions of the Act. We have no quarrel with regard to this proposition. However, a receipt from the inception should have an element of income so as to fall within the ambit of inclusion as book profits u/s.115JB of the Act. Once, a receipt is classified as income then, the same would be liable for inclusion in book profits u/s.115JB of the Act even though the said income is exempt or otherwise deductible under other specific provisions of the Act. In our considered opinion, this is a subtle distinction, which needs to be understood. In other words, the profits and gains that are otherwise deductible u/s.10A/10B/Section 80IA / 80IB of the Act under normal provisions of the Act would still be liable for book profits u/s.115JB of the Act, since the provisions of section 115JB of the Act have an overriding effect over other provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuting two separate deeds in respect of admission and retirement happened on the same day creating a fa ade of mere change in constitution of the firm to evade stamp duty and other state duties applicable on such transaction relating to real estate and second by artificially devaluing the land property to benefit other partners of the firm and with the purpose to obtain undisclosed/unaccounted/out of books income /investment thereby defrauding the revenue by evading taxes. Accordingly, the ld AO made an addition of ₹ 119,85,18,833/- while assessing the total income of the assessee for the Asst Year 2010-11. We find that the ld CITA had accepted the contentions of the assessee and held that :- a) The firm PLA had devalued the assets at ₹ 119,85,18,833/- and the share of the assessee was 97% ie. ₹ 116,25,63,268/-. b) The revaluation is effected in the books of the erstwhile PLA firm and it has nothing to do with the assessee s chargeable income. There is no reason to treat the revaluation as giving rise to income chargeable to tax under the Act. c) The ld AO had not brought any iota of evidence on record that any unaccounted money has flown to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income instead of income from house property. 6.1. We have heard the rival submissions and perused the materials available on record. We find that in 1992, the assessee acquired all rights, titles and interest in a factory premises which pertained to M/s Synchem Chemicals Laboratories in Ankleshwar. In 1996, the assessee entered into a Business Conducting Agreement with Lupin Laboratories Limited (later on amalgamated with Lupin Ltd) wherein the manufacturing facility including factory building and plant and machinery was leased out for conducting the business of the assessee. The agreement was renewed from time to time. On 9.8.2007, the assessee renewed the agreement for another period of 36 months for a monthly consideration of ₹ 500. Lupin Ltd also paid ₹ 18 crores as interest free refundable deposit to the assessee vide a separate deposit agreement. Though the business conducting agreement is entered for ₹ 500 per month, the assessee, in its return of income has offered ₹ 12,00,000/- as income from business and profession being composite rent for leasing out the said premises for its own business purposes. We find that further, vide letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at High Court in the case of CIT vs New India Industries reported in 201 ITR 208 (Guj) d) Decision of Hon ble Supreme Court in the case of New Savan Sugar Gur Refinery Co. Ltd vs CIT reported in 74 ITR 7 (SC) 6.4. We find that the ld CITA rightly observed that the assessee had leased the factory premises along with plant machinery to Lupin Ltd for which it was paid rental income of ₹ 500 per month. Further , the assessee was offering ₹ 12 lakhs per annum as tax under the head income from business. However, the ld AO computed this income as income from house property. The ld CITA by placing reliance on following decisions held that rental income in letting factory building and plant and machinery would be business income for exploitation of commercial assets and this was also accepted in the past assessment years :- a) Decision of Hon ble Punjab Haryana High Court in the case of CIT vs Anand Rubber Plastics (P) Ltd reported in 178 ITR 301 (P H) b) Decision of Hon ble Madras High Court in the case of CIT vs Kongarar Spinners Pvt Ltd reported in 208 ITR 645 (Mad) 6.5. We find that the ld CITA also applied the rule of consistency by stating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held that notional interest on interest free deposit cannot be taken as determinative factor to arrive at the fair rent . 7.2. We find that the it is duty of the ld AO to find out or bring on record the reasonable or fair rent or standard rent and then compare the same with the actual rent received or receivable to find out the Annual Value. This should be done after due inquiries being conducted by the ld AO. None of these facts have been brought on record by the ld AO in the instant case. Hence we find that the ld CITA had rightly deleted the notional interest on interest free deposit. Accordingly, the Ground Nos. 6 to 7.2. raised by the revenue are dismissed. 8. The Ground Nos. 8 9 raised by the revenue are general in nature and does not require any specific adjudication. 9. In the result , the appeal of the revenue is dismissed. Let us take up the assessee appeal in ITA No. 2753/Mum/2014 10. The Ground No. 1 raised by the assessee is challenging the denial of exemption of ₹ 135,38,77,722/- u/s 10(2A) of the Act. The Ground No. 2 raised by the assessee is challenging the action of the ld CITA in treating the amount of ₹ 135,38,77,723/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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