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TMI Blog2024 (6) TMI 1273X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee before AO, stands unproved. It seems that realizing this eventuality, the assessee has himself mentioned on Page No. 2 of the application under Rule 29 family arrangement or partition , Family Settlement . Needless to mention that the Ld. AR, during hearing before us, has also not made any pleading qua the claim of partition of HUF . We may also mention here that even if we assume that there was a partition of HUF then also the exclusion from transfer u/s 47(i) is available only to HUF at the time of distribution of assets to its members on partition; the said exclusion is not available to a member who transfers his share/right in divided or undivided property. The act of transferring any share/right in property by a member to other members would be a posterior event to the partition of HUF and such act does not fit in section 47(i). Therefore, the assessee s claim of partition of HUF and thereby exclusion from taxation is an unproved claim besides being untenable in section 47(i); we are rejecting the same. Assessee executed sale-deed as part of family settlement and family settlement is not taxable under Income-tax - We find that the assessee has never claimed before lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f firm and remained unaffected by the transaction of sale made in-between the assessee and his brothers. Assessee as seller and his 3 brothers as purchasers have acted upon the sale-deed and essentially the assessee s right became right of brothers for a consideration. Therefore, when a de facto transaction of sale by assessee has been made and the assessee has received a hefty consideration of Rs. 1,80,00,000/- for transfer of his right, it would attract taxability and it is nothing to do with the provisions of section 14 of the Indian Partnership Act. The department is not asking to pay tax on any kind of notional transfer, the revenue s case is such that the assessee has made an actual sale which is taxable. Needless to mention that the assessee is also claiming to have utilized the sale consideration of Rs. 1,80,00,000/- for making investments in newer properties (it is a different point that the assessee claimed exemption u/s 54/54F on the basis of those newer investments but the AO has disallowed exemption on a different premise). Therefore, we do not find any merit in the second claim of assessee argued by Ld. AR too. - Decided against assessee. Unexplained cash deposits in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his interest in the property inherited by him viz., share in his father s interest in the partnership firm M/s. Bhagirath and Brothers, which devolved upon him as a result of death of his father on 12.6.1990, treating such right as transfer of his share in the immovable property belonging to the partnership firm and subjecting it to the capital gain in spite of the admitted factual position that the property in question belonged to the partnership firm of M/s. Bhagirath and Brothers and further, invoking the provisions of section 50C and treating the stamp duty value (Guideline price) as deemed full value of consideration for such alleged sale of property. 2. That, the Ld. CIT (A) has erred in law in confirming the addition in respect of cash deposits of Rs. 33,27,700/- as unexplained investment under section 69 of the Income Tax Act. 4. The background facts leading to present appeal are such that the assessee-individual filed original return of income of AY 2012-13 on 29.03.2013 declaring a total income of Rs. 2,87,160/- from salary and other sources which was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS system and statutory notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties, therefore the assessee would be entitled to exemption u/s 54/54F which would also reduce taxable gain to Rs. Nil. The AO considered assessee s reply in Para 6 to 9 of assessment-order and upon consideration rejected the same. He observed that the assessee received impugned property from his father in individual capacity. He noted that the assessee also made sale in individual capacity which is evident from sale-deed wherein the assessee s individual name and PAN have been mentioned and there is no mention of assessee s HUF or HUF s PAN. Therefore, the capital gain was earned by assessee in individual capacity and taxable in his individual assessment. The AO rejected assessee s claim of benefit of section 47(i) available to partition of HUF. The AO also invoked section 50C and adopted full value of consideration at Rs. 2,61,83,000/- (stamps authority valuation) for computation of capital gain as against the actual sale consideration of Rs. 1,80,00,000/- declared in sale-deed. The AO also rejected assessee s claim of exemption u/s 54/54F. Ultimately, the AO made addition by concluding thus in assessment-order: 7. During first-appeal, the CIT (A) upheld AO s order by obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 3 brothers]. Ld. AR that the sale-deed itself clearly mentions the status of property i.e. the property was actually owned by firm M/s Bhagirath Brothers and not by assessee s late father. The assessee s father only had 1/3rd undivided share in the property of firm which upon his death devolved upon 6 legal heirs (including assessee). Ultimately, the assessee executed sale-deed to transfer/relinquish his own undivided share in father s 1/3rd undivided share in the property owned by firm. Ld. AR submitted that although a sale-deed has been executed by assessee with his individual name and PAN but there is no taxable income earned by assessee-individual because of two alternative reasons mentioned below: (i) The first reasoning advanced by Ld. AR is such that the impugned sale-deed had been executed by assessee as a part of a family settlement agreed between assessee and his family members, therefore it was not a sale in fact. To prove existence of family settlement , Ld. AR drew our attention to a Memorandum of Family Settlement dated 30.05.2011 on stamp paper of Rs. 100/- made between all 6 legal heirs (including assessee), which is filed by assessee as an additional evidence und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to personality for all purposes and also for the settlement of the claims of the partners inter se. The law in India is not different. Secs. 14 and 15 of the Indian Partnership Act, 1932, speak about what would constitute the property of a firm and declare that such property shall be held and utilized for the purpose of the partnership thereby indicating that so long as the partnership continues no part of the assets of a partnership assets could be utilized for a purpose other than that of the partnership. A partner, therefore, seeking to get his share could not get his share in species in the movable and immovable properties but only after the assets have been converted into money, debts and liabilities discharged and it is only in the residue that he could get his proportionate share. The statute enjoins this process being gone through before a partner gets a share in the assets of the partnership and it is governed by Secs. 46,48 and 49 of the Partnership Act. It would, therefore, follow that a partner cannot predicate of a definite share in immovable property which he could transfer or give up. The concept of realty distinguished from personally under the English Law and by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner in partnership assets comprising of movable as well as immovable property should be treated as movable or immovable property for the purposes of s. 17(1) of the Registration Act, 1908. 4. Direct cases upon this point of the courts in India are few but before we examine them it would be desirable to advert to the provisions of the Partnership Act itself bearing on the interest of partners in partnership property. Section 14 provides that subject to contract between the partners the property of the firm includes all property originally brought into the stock of the firm or acquired by the firm for the purposes and in the course of the business of the firm. Section 15 provides that such property shall ordinarily be held and used by the partners exclusively for the purposes of the business of the firm. Though that is so a firm has no legal existence under the Act and the partnership property will, therefore, be deemed to be held by the partners for the business of the partnership. Section 29 deals with the rights of a transferee of a partner's interest and sub-s. (1) provides that such a transferee will not have the same rights as the transferor partner but he would be entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make up deficiencies of capital, shall be applied in the following manner and order :- (i) in paying the debts of the firm to third parties: (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner rateable what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing, to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners. There are not many decisions of the High Courts on the point in the few that there are the preponderating view is in support of the position which we have stated. 8. We may also refer to the decision of a Full Bench in Ajudhia Pershad Ram Pershad v. Sham Sunder Ors. in which Cornelius J., has discussed most of the decisions we have earlier referred to in addition to several others and reached the conclusion that while a partnership is in existence no partner can point to any part of the assets of the partnership as belonging to him alone. Thus, Ld. AR contended that the law of partnership is very clear. Even the Hon ble apex Court has interpreted and held that a partner does not have any right in any specific asset of partnership firm; the partner s right extends only to share profits during continuity of firm and to share residual assets in the event of dissolution. Therefore, according to Ld. AR, the assessee s father late Shri Bhagirath Sharma did not have any right or interest in the impugned property which in law was owned by firm. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee as seller in his individual name and individual PAN, and (iii) the assessee received a total consideration of Rs. 1,80,00,000/- from 3 brothers (Rs. 60,00,000/- from each one). There can hardly be any dispute on the point that if a person sells a property/right in divided or undivided property for a consideration, the resultant gain is taxable. But, in the present case, the assessee is claiming certain factual-cum-legal propositions to plead that the transaction done by him did not give rise to any taxable income. We would discuss those propositions one by one in subsequent paras. 12. Initially, the assessee claimed before AO that the property belonged to HUF, that it was a case of partition of HUF and the distribution of assets by a HUF to its members on partition of HUF is excluded from transfer u/s 47(i). Taking cognizance of this claim of assessee before AO, then Bench of ITAT, Indore, asked the assessee to file document to prove the partition of HUF. The assessee filed additional evidences under an application in terms of Rule 29 of Income-tax (Appellate Tribunal) Rules, 1963 on 21.06.2017; we re-produce below the application filed by assessee alongwith Annexure-B and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from making any pleading qua partition of HUF claimed by assessee before lower authorities. Instead, Ld. AR harped on family settlement . We may mention that in the reply filed to AO, the assessee mentioned that it was a case of forced sale to his family members but there also the assessee did not talk of family settlement , the assessee only tried to get out of taxability by claiming income of HUF or claiming partition of HUF. Now in such a situation, if we allow the claim of family settlement at this stage, it would amount to upsetting the whole proceeding done by lower-authorities and giving concession to assessee to set up a new case. We are afraid that we can do this. Therefore, without going into the merit of the additional evidence titled Memorandum of Family Settlement filed by assessee, we are straightaway rejecting the assessee s claim of family settlement itself. Rejected thus. 14. So far as the second claim argued by Ld. AR that the assessee s father/assessee did not have any right in the property which was owned by partnership firm and therefore there is no income earned by assessee even if a sale-deed has been executed, the bench instantly enquired from Ld. AR as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and for the reasons stated therein, the Ground No. 1 raised by assessee is found to be devoid of any merit and the same is hereby dismissed. Ground No. 2: 16. In this ground, the assessee challenges the addition of Rs. 33,23,700/-made by AO on account of unexplained cash deposits in bank a/c and upheld by CIT (A). 17. Ld. AR submitted that the AO has made this addition, vide a small Para 10 of assessment-order, on the premise that the assessee did not explain the source of cash-deposits made in bank a/c. During first-appeal, the CIT (A) has merely confirmed AO s observation in his own wording. Ld. AR submitted that during assessment-proceeding, when the AO questioned the assessee on this issue vide notice dated 16.03.2015 u/s 142(1), the assessee filed a cogent reply with a copy of cash-book. The assessee s reply is filed at Page No. 154 of the Paper-Book and copy of cash-book is also filed at Page No. 158-162 of Paper-Book. The cash-book contains all entries of inflow and outflow which also includes many entries of cash withdrawals from bank as well as salary/funds received by assessee from M/s Bhagirath Coach (another firm where assessee was an employee). Thus, the entries of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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