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TMI Blog2022 (9) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act in the case of the assessee - Section 45(3) is the specific provision which states that profit or gain arising from the transport of the capital asset by a person to a firm or other association of persons or body of individual (not being a company or a co-operative society) in which he becomes a partner or member by way of capital contribution shall be chargeable to tax as his income for the previous year for which such transfer takes place. For the purpose of section 48, the amount recorded in the books of accounts of the firm as capital asset shall be deemed to be full value of consideration received or accrued as a result of the transfer of capital assets. Hon ble Supreme Court in the case of Pr. CIT Vs. Dr. Ramamurthy ( 2018 (9) TMI 1102 - SC ORDER ) held that for the purpose of computing capital gain u/s.45(3) of the Act, value of assets recorded in the books of account of a firm on date of transfer would be deemed to be full value of consideration received or accrued as a result of transfer. In the case of DCIT Vs. Amartara Pvt. Ltd. [ 2020 (4) TMI 222 - ITAT MUMBAI] it is held that profit or gains arising from the transfer of capital asset by a partner to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred land of value of Rs.4,95,00,000 whereas the Registrar had adopted the sale consideration at Rs.9,11,10,000 for the purpose of stamp duty. On querry, the assessee explained that the said land was transferred to the partnership firm as contribution towards share capital and as per the provisions of section 45(3) of the Act, the amount recorded in the books of accounts of the company/firm shall be deemed to be the full value of consideration receive on such transfer of capital asset. The assessee further submitted that the provision of section 50C is not applicable to such kind of transfer to which specific provisions of section 45(3) is applicable. The Assessing Officer has not agreed with the submission of the assessee and he was of the view that on transfer of land or building or both if the consideration received is less than the value adopted by the authorities of the state government for the purpose of payment of stamp duty, then the provisions of section 50C are applicable to determine the deemed value of consideration on transfer of capital asset. The Assessing Officer also observed that provision of section 45(3) is not a non-obstante clause and it does not talk an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s u/s.45(3) of the Act, value of assets recorded in the books of firm on date of transfer would be deemed to be full value of consideration received or accrued as a result of transfer. The learned counsel for the assessee also referred to page 119 of the Paper Book pertaining to copy of the judicial pronouncement in the case of Pr. CIT, Coimbatore Vs. Dr. D. Ramamurthy 102 taxman.com 330 (Mad). The learned counsel for the assessee also submitted that as per decision of ITAT Mumbai in the case of ITO Vs. Chiraayu Estate Dev. Pvt. Ltd. ITAT, Mumbai C Bench vide ITA No.263/Mum/2010 dt.24.08.2011. 6. On the other hand, the learned Department Representative contended that the provisions of section 50C will be applicable in place of section 45(3) of the Act and he has placed reliance on the orders of authorities below. 7. Heard both the parties and perused the material available on record. Without reiterating the fact as elaborated above, the assessee has contributed land as contribution towars capital in the partnership firm viz. Well wishers properties at a value of Rs.4,95,00,000. The assessee claimed as per the provisions of section 45(3) of the Act, the amount recorded i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as capital asset shall be deemed to be full value of consideration received or accrued as a result of the transfer of capital assets. We have also perused the judicial pronouncements relied upon by the learned counsel. The Hon ble Supreme Court in the case of Pr. CIT Vs. Dr. Ramamurthy (supra) held that for the purpose of computing capital gain u/s.45(3) of the Act, value of assets recorded in the books of account of a firm on date of transfer would be deemed to be full value of consideration received or accrued as a result of transfer. The relevant portion of the pronouncement is as under : Section 45 of the Income-tax Act, 1961-Capital gains Chargeable as (Firm/partner, in case of) Assesses, a proprietor, transferred, his assets to a partnership firm constituted on 1-4-2011 On or about 29.6.2011, partnership firm was converted into a private company limited by shares Before private limited company was constituted, assets of partnership firm were revalued-It was contention of revenue that assets were actually revalued before 1-4-2011 and value of assets was much higher on 1-4-2011 than what was shown in deed of partnership - Assessing Officer, thus, passed an order of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as full value of consideration. Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer. The purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for computation mechanism of capital gain and also provides for consideration to be adopted for the purpose of determination of full value of consideration. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset. This legal proposition is further supported by the decision of Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged under section 45(3). In the instant case the purchase price of land as recorded in the transferor s book and recorded in the books of the joint venture are the same. As per provisions of section 45(3) price of land recorded in the books of joint venture is required to be considered as receipt of full value of consideration received or accrued as a result of transfer of capital assets. Once the price recorded in the joint venture s books is treated as full value of consideration, the provisions do not permit substitution of any value so as to make addition under section 45(3). In fact the approach of the A.O. is also not correct in the sense that under section 45(3) once the full value of consideration is taken as the amount recorded in the books of the joint venture, the capital gain can be worked out by reducing the cost of purchase as per the books of assessee. In case the A.O. substitutes the cost of purchase, by whatever means, then that cost price has to be adjusted in the capital gains. This may result in a loss of equal amount as the books of joint venture show the book value as consideration and substituted cost price( value determined by AO in the order) as a deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall be chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or accruing as a result of transfer. A plain reading of provisions of section 45(3) makes it dear that it conies into operation only in special cases of transfer between partnership firm and partners and in such Circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as full value of consideration. Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created b\j the statue by way section 45(3) to deal with special cases of transfer. Vie purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat since the Act itself has provided for deeming consideration to be adopted for the purpose of Section 48 of the Act, another deeming section provided by Section 50C cannot be extended to compute deemed full value of consideration accruing as a result of transfer of capital assets by partner in a firm as capital contribution. The Hon'ble Tribunal has relied upon the decision of the Supreme Court in CIT v. Moonmill Ltd (59 ITR 574) for the proposition that one deeming section cannot be extended by importing another deeming section. Accordingly, the Hon'ble Tribunal has held that the profits and gains arising from transfer of a capital asset by a partner to a firm by way of capital contribution recorded in the books of account of the firm (i.e. Rs.7,50,00,000 in this case) shall be deemed to be the full value of consideration for the purpose of computing capital gain. 6.1.5. It is observed that the AO, in para 5.4 of his order has relied on a decision of the Lucknow Bench of the Tribunal in the case of Carlton Hotel Pvt. Ltd. (122 TTJ 515). It is observed that the Hon'ble Bombay Tribunal while deciding the case of the Appellant has duly considered the said Lucknow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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