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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 ..... A No.1661/Ahd/2012 is taken as the lead case and Brief facts of the case are as follows: a. Yougstar Infrastructure is a Partnership Firm constituted on 7.11.2006 with five partners, including the two respondents herein. The business of the Partnership Firm was of dealing in land, development thereof, carrying out commercial and residential construction work and to carry out other related activities. One of the Partners (other than the Respondent herein) brought into the partnership two pieces of land as his capital. Thus capital account in the books of the firm was credited by an amount of Rs. 2,11,41,990/-. The profit sharing ratio was 50% to the Partner who brought in the land as Capital contribution and the remaining four Partners profit sharing ratio was 12.5% each. b. This Partnership was re-constituted by a deed dated 01-05-2008 by admitting three more Partners with effect from 01-05-2008. The profit sharing ratio was 20% each to the Partner who brought in the land originally and three newly admitted Partners. Remaining four original Partners profit sharing ratio was 5% each. The land of the Partnership Firm was got revalued on 10.08.2008 by an Approved Registered Valuer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land, was converted into unsecured loans in respective names of the share holders of the Private Limited Company. 3. With this factual back ground, while passing the assessment order, the Ld Assessing Officer held that M/s. Yougstar Infracon Pvt. Ltd. and M/s. Chanakya Infracon Pvt. Ltd. allotted shares worth Rs. 12 lakhs and Rs. 35 lakhs respectively to the Assessee herein. The shares were allotted out of the amount credited in the Capital Account with the erstwhile Partnership firm; therefore the Respondent/Assessee had utilized the profit on revaluation credited to his account for purchase of shares. The assessee's contention that it is only a book entry and not actual profit was not accepted by the AO and thereby he held that the Respondent/assessee earned income on revaluation of land; but he did not follow the provisions prescribed u/s. 47(xiii)(b) at the time of conversion of the Firm into Company; thus the assessee earned Rs. 39,00,109/- and Rs. 5,12,62,479/- from the above mentioned companies respectively and therefore the total of the said sums amounting to Rs. 5,51,62,588/- was being assessed as casual and non-recurring income in view of Section 2(24) read with secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no disputing the fact that the receipt arose from carrying on the business. Thus, even if the receipt is to be treated as income, it has to be done so under the head income from business. Therefore, I am not in agreement with the AO's finding that the receipt is assessable as casual and non-recurring income. As regards the assessability of the receipt u/s. 28 as business income, it is to be noted that the land was the stock-in-trade of the firm. On revaluation of the land, entries were passed in the books of accounts. Since, there was no sale of stock-in-trade, it cannot be said that the income arose. Even if it was to be held that the income arose on revaluation, the income is assessable in the hands of the firm to which the land belongs. Further, as contended by the Ld. A.R., the share of income received by partner from a firm is exempt u/s.10(2A) of the Act. Since the limited question for consideration in this appeal is regarding the assessability in the hands of the partner, without going into issue of assessability of the receipt in the hands of the firm, it can be safely concluded that the share from said receipt is not assessable in the hands of the partners. Regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. 1.2 The decision of the Ld.CIT(A) is vague and not specific on the treatment of asset being revalued land. There is no finding that the firm has accounted for this gain and offered for tax. Mere claim of exemption u/s 10(2A) by the appellant partner is not acceptable. 2. It is therefore, prayed that the order of the CIT(A) be set aside and that of the Assessing Officer be restored to the above extent. 6. The Grounds of Appeal raised by the Revenue in ITA No. 1682/ Ahd/2012 in the case of Shri Narendrabhai D Kanani reads as follows: 1. The Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 5,51,62,588/- made by the Assessing Officer being difference between the costs of lands and revalued amounts credited to the Appellant's capital account in the partnership firm. 1.2 The decision of the Ld.CIT(A) is vague and not specific on the treatment of asset being revalued land. There is no finding that the firm has accounted for this gain and offered for tax. Mere claim of exemption u/s 10(2A) by the appellant partner is not acceptable. 2. It is therefore, prayed that the order of the CIT(A) be set aside and that of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that time entire Capital and Reserves were not converted into equity of the company, but rather the Revaluation Reserve was converted into unsecured loans in the hands of share holders namely erstwhile Partners. It is further seen that after merger from five different companies, no revaluation has been done either in the hands of erstwhile companies or in the hands of M/s. Takshashila Gruh Nirman Pvt. Ltd. The merger was approved by the Hon'ble High Court of Gujarat vide order dated 30-03-2012 in Company Application no. 263 of 2011 under section 391 to 394 of the Companies Act, 1956 from the appointed date, namely 01-04- 2010 and the effective date of 25-05-2012. The transfer and vesting at para 3 clearly pointed out that the undertaking of the transferor companies shall be transferred to and vested in the transferee company as a going concern and undertaking was to include all assets and interest of the transferee companies further all debts, liabilities, contingent liabilities and obligations of every kind of the transferor companies were now to be discharged by the transferee company. Based on the above facts the Ld CIT (Appeals) deleted the additions on account of capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court for a fresh decision on the following substantial questions of law in accordance with law. 1) Whether the Income Tax Appellate Tribunal is right in law and on the facts of the case in holding that revaluation of the assets of the assessee firm and subsequent conversion of the firm into Limited Company under Chapter IX of the Companies Act who has taken over such assets at the enhanced value will not result into any capital gain liability under the IT Act ? 2) Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in holding that there is no transfer involved when the assessee gets itself registered under Para IX of the Companies Act, 1957 ? 3)Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in holding that the assessee is not liable to any capital gain tax either u/s. 45(1) or 45(4) of the IT Act ? 4)Whether the Income Tax Appellate Tribunal is right in law and on facts of the case in directing to delete the addition of Rs. 1,28,13,831/- ? 3. The facts of the present case are that the respondent-assessee was a partnership firm. On 30th August, 1995, it filed its original return of income in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership deed. The only change that has taken place on the respondent being transformed into a company was that the shares of the partners were reflected in the form of share certificates. Beyond that, there was no physical distribution of assets in the form of dividing them into parts, or allocation of the same to the respective partners or even distributing the monetary value thereof. In our view, the judgment of the Bombay High Court squarely covers the facts of the case and the orders passed by the Appellate Commissioner and the Tribunal accords, with the same. The appeal is accordingly dismissed." 7. All these four questions are governed by the below mentioned decisions which are applicable in all force as discussed hereinbelow. 8. Mr. Divetia has also relied on the decision of the Bombay High Court in the case of Commissioner of Income Tax vs. Texspin Engineering and Manufacturing Works, reported in (2003) 263 ITR 345 and the decision of the Punjab & Haryana High Court in the case of Commissioner of Income Tax v. Rita Mechanical Works, reported in [2012] 344 ITR 544 (P&H), which also takes us to take the same view regarding capital gain. The decision of the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoking sub-section (2) to section 45 would not arise. Sub-section (4) of section 45 provides that the profits or gains arising from the transfer of a capital assets by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. The inquiry that is now required to be made is as to whether the ingredients of section (4) of section 45 are satisfied in the present case. [Para 18] * The primary requirement for invoking the sub-section (4) is that there has to be distribution of capital assets, which factor is totally missing in the present case as there is no distribution of capital assets either by way of dissolution of the firm or otherwise. [Para 19] * In view of aforesaid, it is held that Tribunal was justified in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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