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TMI Blog2023 (10) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... in the claim of reinvestment on residential flats is an allowable claim deduction under section 54F of the Act. Therefore the disallowance made by the Lower Authorities are hereby set aside. Thus the grounds raised by the Assessee is hereby allowed. - Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri M.K. Patel, A.R. For the Revenue : Shri Ashok Kumar S uthar, Sr.D .R. ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the appellate order dated 16.03.2018 passed by the Commissioner of Income Tax (Appeals), Gandhinagar arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the Assessment Year (A.Y) 2013- 14. 2. The brief facts of the case is that the assessee is an individual and was a Partner in the Partnership Firm M/s. Jyoti Quarry Works engaged in Quarry business. For the Assessment Year 2013- 14, the assessee filed his Return of Income admitting total income of Rs. 59,93,510/- after claiming deduction under chapter VIA of Rs. 91,743/- and deduction u/s. 54F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new flat of Rs. 26,52,850/- is added as the income of the assessee. 3. Aggrieved against the same, the assessee filed an appeal before the Ld. CIT(A) who also dismissed the assessee appeal observing as follows: .4.2 I have considered the facts of the case, submission made by the appellant and the order of the AO. In this case, during the year under consideration, the appellant had claimed deduction u/s 54F of the Act amounting to Rs.26,52,850/-. It had been stated that he had received an amount on account of relinquishment of right in firm which was a capital asset and was invested in purchasing the flat, and therefore, he was entitled to the said deduction. The AO disagreed with his view and disallowed the amount of Rs.26,52,850/- claimed u/s. 54F of the Act. During the appellate proceedings, the appellant has reiterated the stand taken before the AO and has also relied on some case laws on the issue of extinguishment of rights in a firm. I find from a perusal of the submissions made and the case laws relied on by the appellant that these are based on an entirely different set of facts. In the case laws relied upon by the appellant, the extinguishment of rights was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of business or profession. Thus the Assessing Officer misconstrued the above provisions of law and the Ld. Counsel strongly relied upon Hon ble Supreme Court Judgment in the case of CIT Vs. Mansukh Dyeing and Printing Mills reported in [2022] 145 taxmann.com 151 (SC) and Hyderabad Tribunal decision in the case of Smt. Girija Reddy P. Vs. ITO (in ITA No. 297/Hyd/2012) dated 25.05.2012. Thus the Ld. Counsel submitted that the Lower Authorities are not correct in denying the benefit of deduction u/s. 54F of Rs. 26,52,850/- which is also arising out of the capital gain on relinquishment of right from the partnership firm. Therefore the appeal filed by the assessee is to be allowed. 6. Per contra, the Ld. Sr. D.R. Shri Ashok Kumar Suthar appearing for the Revenue supported the order passed by the Lower Authorities and prayed the same does not require any interference and the assessee liable to be dismissed. 7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book and case laws filed by the assessee. It is seen from the computation of income by the Assessing Officer that the receipt of Rs. 70,38,450/- received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal, assets so revalued and credited to capital accounts of respective partners could be said to be transfer' which would fail in category of 'otherwise' and provision of section 45(4) would be applicable - Held, yes [Paras 7.3 and 7.5] [In favour of revenue] 7.2. The Hon ble Supreme Court has affirmed that the decision of the Bombay High Court in the case of CIT Vs. A.N. Naik Associates 265 ITR 346 (Bom) wherein it was held as follows: .7.4 However, in view of the amended section 45(4) of the Income-tax Act inserted vide Finance Act, 1987, by which. OR OTHERWISE is specifically added, the aforesaid submission on behalf of the assessee has no substance. The Bombay High Court in the case of 4.N. Naik Associates (supra) had an occasion to elaborately consider the word OTHERWISE used in section 45(4). After detailed analysis of section 45(4), it is observed and held that the word OTHERWISE used in section 45(4) takes into its sweep not only the cases of dissolution but also cases of subsisting partners of a partnership, transferring the assets in favour of a retiring partner. While holding so, it is observed in paragraphs 14, 21, 22 and 24 as under:- 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead ejusdem generis with dissolution of partner or body of individuals and for that purpose reliance was placed on a judgment of the Division Bench in (Commissioner of Income-Tax, Bombay City II v. Trustees of Abdulcadar Ebrahim Trust). 1975 (100) LTR. 85. Section 45 is a charging section. The purpose and object of the Act of 1988 was to charge tax arising on distribution of capital assets of firms which otherwise was not subject to taxation. If the language of sub-section (4) is construed to mean that the expression otherwise has to partake in the nature of dissolution or deemed dissolution, then the very object of the amendment could be defeated by the partners, by distributing the assets to some partners who may retire. The firm then would not be liable to be taxed thus defeating the very purpose of the Amending Acts. Prior to the Finance Act, 1987 in case of a partnership it was held that the assets are of the partners and not of the partnership. Therefore if on retirement a partner receive his share of the assets, may be in the form of a single asset, it was held that there was no transfer and similarly on dissolution of the partnership. Another device resorted to by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omes within the expression otherwise as the object of the amending Act was to remove the loophole which existed whereby capital gain tax was not chargeable. In our opinion, therefore, when the asset of the partnership is transferred to a retiring partner the partnership which is assessible to tax ceases to have a right or its right in the property stands extinguished in favour of the partner to whom it is transferred. If so read it will further the object and the purpose and intent of amendment of section 45. Once, that be the case, we will have to hold that the transfer of assets of the partnership to the retiring partners would amount to the transfer of the capital assets in the nature of capital gains and business profits which is chargeable to tax under section 45(4) of the 1.T. Act. We will, therefore, have to answer question No. 3 by holding that the word otherwise takes into its sweep not only the cases of dissolution but also cases of subsisting partners of a partnership, transferring assets in favour of a retiring partner. 7.3. Further the Co-ordinate Bench of the Hyderabad Tribunal in the case of Smt. Girija Reddy P. (cited supra) held as follows: 49. Thus, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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