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TMI Blog2023 (8) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... s of assessee-firm as a going concern to company for consideration of paid up share capital does not amount to transfer liable to tax as capital gains. Thus addition made on account of capital gain on revaluation of land made in the hands of the Partners are not sustainable in law and the Grounds raised by the Revenue are devoid of merits. Therefore the appeals filed by the Revenue are hereby dismissed. - Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri Sudhir Mehta, A.R. For the Revenue : Shri Pushpendra Singh, CIT And Shri Rakesh Jha, Sr. D.R. ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These two appeals are filed by the Revenue as against separate appellate orders both dated 03-05-2012 passed by the Commissioner of Income Tax (Appeals)-XX, Ahmedabad arising out of assessment orders passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the Assessment Year (A.Y.) 2009-10 in the respective assessee s case. The Respondent assessee s are Partners in the Partnership Firms, since the issue of revaluation amount credited in the respective P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l construction work and to carry out other relating activities. Five of the Partners (other than the two Respondents herein) brought in five pieces of land into the Partnership firm. In consideration of the said land brought in, the Capital Accounts of three partners were credited by Rs. 1,03,036/- each and two partners capital accounts were credited by Rs. 1,28,133/- each. The profit sharing ratio was 10% each to the above mentioned partners. Out of the remaining five partners, three partners share was 12% each and two persons share was 7% each. Thus Respondent s share of profit was 12%. [e] The land brought in the Partnership Firm was got revalued by an Approved Registered Valuer on 10.8.2008. According to the revaluation report, the value of land was Rs. 42,71,87,326/- The difference between the original value and the value on revaluation was credited to the Partner's Capital Accounts in proportion to their profit sharing ratio. In the process, the Respondent's Capital Account was credited by an amount of Rs. 5,12,62,479/-, Subsequently, the Partnership Firm was converted into Private Limited Company on 23.09.2008. All the Partners of the erstwhile firm were allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it arises on revaluation of assets, the resultant profit is assessable only in the hands of the Partnership Firm and not in the hands of the Partners for the reason that share in profit of Partnership firm is exempt u/s.10(2A) of the Act. After considering the above submissions of the Assessee, the Ld CIT[A] deleted the additions made by the AO observing as follows: 4.5. In the light of the above discussion, the issue for consideration is whether any income arose on revaluation of land and in whose hands the income is assessable. In the assessment order, AO held that the amounts credited to appellant's capital account in the books of the two firms on revaluation of firm's land was to be treated as income of casual and non-recurring nature in the hands of the partner. In this connection, it is seen that some of the examples of casual and nonrecurring income are as follow:- A person serving independent assignment with UNO receiving money on authoring some articles, winnings from lotteries, winnings from contest from writing a caption; etc. Further, it has been held in various judicial pronouncements that even if a receipt was casual and non-recurring in nature, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re any sum of money is received without consideration or any immovable property is received without consideration. In the instant case, the revaluation of the land of the firms was done two years after the constitution of the partnership. Since the business of the firm was being carried on and share in revaluation was received by the appellant in due course of business, it cannot be said that the share was received without consideration. Further as discussed at the beginning of this para, since the receipt was in the course of business, the assessability will have to be seen under the head income from business . Thus, impugned receipt cannot be assessed under 'income from other sources . Therefore, I am of the considered view that impugned receipt cannot be considered as income of the appellant. The addition made is not in accordance with law. It is deleted. This ground of appeal is deleted. 5. Aggrieved against the appellate order the Revenue is in appeal before us raising the following Grounds of Appeal in ITA No. 1661/Ahd 2012 in the case of Shri Jatin Kanubhai Kotadia as follows: 1. The Ld.CIT(A)-XX, Ahmedabad has erred in law and on facts in deleting the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vision Finstock Ltd [Gujarat H C] b. Tax Appeal No. 368 of 2001 in the case of DCIT Vs. Well Pack Packaging [Gujarat H C] c. DCIT Vs. R.L. Kalathia Co. reported in [2016] 66 taxmann.com 249 (Guj.) d. PCIT Vs. Ram Krishnan Kulwant Rai Holdings (P.) Ltd. reported in [2019] 110 taxmann.com 5 (Madras) e. CADD Centre Vs. ACIT reported in [2016] 65 taxmann.com 291 (Madras). 9. We have given our thoughtful consideration and perused the materials available on record including the paper books and case laws filed by the assessee. It is undisputed fact that revaluation of lands had taken place during the financial year 2008-09 in the case of erstwhile Partnership firms, wherein the Respondent/assessee is one of the Partner. It is further noticed that the increased value of land was reflected as 'Current Capital' of the Partners on credit side of the balance sheet of the firms. Thereafter, the above Partnership firms had been converted to the Private Limited Companies with effect from 23-09-2008 and the capital account appearing in the Partnership Firms (revaluation reserve) has been transferred to 'Unsecured Loan' received from the shareholders. Thereafter, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In CIT Vs. Vision Finstock Ltd. in TA No. 485/2017 (Guj) held as follows: 2. To put briefly, Revenue seeks to tax the consideration received by the respondent-assessee as partner of the two firms upon reevaluation and distribution of the partnership assets as short term capital gain. CIT (Appeals) in a detailed judgment, reversed the order of the Assessing Officer holding that if at all the transaction was held to be sham, the additions can be made in the case of the firm and not the partners. The Commissioner (Appeals) also noted that in case of one of the partnership firms, the Assessing Officer had made such addition. In other words, now to tax the partner also would amount to double taxation. The Tribunal, while confirming the view of the CIT (Appeals), further noted that in case of other partners, the Assessing Officer had had not made the addition. CIT (Appeals) had exercised revisional powers under section 263 which order was set aside by the Tribunal. 3. Considering such facts, we do not find any question of law arising. Tax Appeal is dismissed. 9.4. In Tax Appeal No. 368 of 2001 in the case of DCIT Vs. Well Pack Packaging jurisdictional High Court held as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a notice under Section 143(2) of the Act was issued. After considering the explanation of the respondent-assessee, the Assessing Officer determined the total income of the respondent assessee at Rs. 1,30,07,761/-. The respondent assessee disputed the impugned addition and filed an appeal before the CIT(A) which was dismissed and the addition was confirmed. .. . 6. Heard the learned advocates appearing for the parties and considered the submissions. Learned advocate Mr. Divatia submits that the same question came up for consideration before the Andhra Pradesh High Court in the case of Commissioner of Income Tax vs. United Fish Nets in Income Tax Tribunal Appeal No. 100 of 2002, wherein, interpretation of Sec. 45 was made and the questions of law formed raised herein were also the subject matter of decision in the said appeal. In para-14, the Andhra Pradesh High Court has held as under: 14. The underlined portion, in a way, signifies the basic tenets of transfer of assets. The distribution must result in some tangible act of the physical transfer of properties or the intangible act of conferring exclusive rights vis.a.vis an item of property on the erstwhile shareholder. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t requires to be addressed is as to whether the provisions of section 45 are attracted in the facts of the present case. For the purpose of attracting sub-section (1) of section 45 profit or gain should have arisen from the transfer of a capital asset. Sub-section (2) of section 45 provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to tax as his income of the previous year in which such stock-in- trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital assets. Insofar as invocation of sub-section (2) of section 45 is concerned, while the Assessing Officer has briefly referred to the said provision in his order, no factual foundation has been laid down in that regard to establish that the said properties had been brought into the books as stock-in- trade. On the contrary the assessee has maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins and, therefore, made addition towards short term capital gains - Tribunal, however, deleted addition made by Assessing Officer - Whether in case of conversion of partnership firm into private company, unless and until first condition of transfer by way of distribution of assets is satisfied, section 45(4) will not be attracted Held, yes Whether, since, in instant case, there was no transfer by way of distribution of assets, Tribunal was justified in holding that there was no violation of conditions stipulated in section 47(xiii) and, thus, impugned addition was rightly deleted - Held, yes [Para 14] [In favour of assessee] 9.7. The Hon ble Madras High Court in the case of CADD Centre Vs. ACIT reported in [2016] 65 taxmann.com 291 (Madras) held as follows: Section 2(47), read with sections 45 and 47(xiii), of the Income-tax Act, 1961- Capital gains - Transfer (Conversion of partnership firm into company) - Whether when a partnership firm is transformed into a limited company with no change in the number of partners and extent of property, there is no transfer of assets involved and hence, there is no liability to pay tax on capital gains - Held, yes [Para 16] [In favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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