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TMI Blog2015 (1) TMI 1509X X X X Extracts X X X X X X X X Extracts X X X X ..... individual property of partner. Tribunal was not justified in holding that the entire value of the building was assessable in the hands of the assessee, individual. We, accordingly, confirm the order of the learned CIT(A) on this issue and ground Nos. 1 and 2 are dismissed. Benefit of sec 54EC - There is no dispute on the legal position that the investment made by two partners on their individual names in the notified RECL bonds is otherwise eligible investment for getting the exemption from the taxable capital gain u/s 54EC of the Act as applicable to asst. yr. 2008-09. As per facts on record, the assessee-firm has been dissolved on 2nd April, 2008 and before the dissolution the professional assets i.e. hospital building and land were sold out. Admittedly the assessee-firm has claimed the depreciation on the hospital building and hence, s. 50 is applicable. In terms of s. 50 whatever capital gain is worked out on the depreciable asset then the same is treated as short-term capital gain. Whether the assessee-firm can claim the benefit of sec 54EC which is specified for the benefit of long-term capital gain? - This issue is decided in favour of the assessee by case of CIT vs. ACE Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building was taxable as short-term capital gains in the hands of the appellant-firm and not in the hands of the two partners, Dr. Mrinmay Chakrabarty and Dr. Mrs. Neela Chakrabarty. 2. The learned CIT(A) erred in holding that the above-referred capital gains were taxable in the hands of the firm as the property belonged to the firm and under s. 45(4) as this property was distributed amongst the partners. 3. Without prejudice, the learned CIT(A) failed to appreciate that the proportionate capital gains on sale of land was taxable as long-term capital gains. 4. Without prejudice, the appellant-firm be granted deduction under s. 54EC on account of investment in the bonds made by the partners from the capital gains taxed in its hands. We first take the appeal filed by the assessee-firm being ITA No. 2277/Pn/2012. The first issue which arises from grounds taken by the assessee-firm is whether learned CIT(A) erred in holding that the short-term capital gains on the sale of land and hospital building of Rs. 1,64,76,685 was taxable in the hands of the assessee-firm and not in the hands of the two ex-partners i.e. Dr. Mrinmay Chakrabarty and Dr. (Mrs.) Neela Chakrabarty. assessee-firm is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of land and building should be taxed in the hands of the firm. I have, therefore, reason to believe that a sum of Rs. 1,90,00,000 chargeable to tax for asst. yr. 2008-09 as stated above is an escapement of income being not offered in the return of income already filed. The case is therefore required to be reopened under s. 147 by issue of notice under s. 148. Issue notice under s. 148. 3. In sum and substance, it was noticed by the AO that the assessee-firm has sold the hospital building and land for the sale consideration of Rs. 1,90,00,000 in the financial year 2007-08 (asst. yr. 2008-09) and in the opinion of the AO the assessee-firm should have offered the short-term capital gain for tax. The assessee-firm had a hospital building and land situated at Cantonment excise area, Ahmednagar which was known as Chakraborty Medical Centre and said property was sold on 15th Nov., 2007 for a consideration of Rs. 1,90,00,000 to Dreamz Investments. The assessee-firm took the contention before the AO that the partners of the firm Dr. Mrinmay Chakrabarty and Dr. (Mrs.) Neela Chakrabarty have started construction of building in their individual capacity for running a nursing home as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain on the sale of the land and building of the hospital premises but without successes. Before the learned CIT(A) the assessee took the contention that there was 8 family arrangement between Dr. Mrinmay Chakrabarty and Dr. (Mrs.) Neela Chakrabarty and their son Dr. Sandeep Chakrabarty, who was also the partner of the assessee-firm. It is claimed that as per the family settlement he (son) would have no share in the ownership rights in the hospital building and land. It appears that to demonstrate that there was a family arrangement, Dr. Sandeep Chakrabarty filed his affidavit dt. 12th Sept., 2012 in support of a plea that he had no interest in the land and hospital building. The learned CIT(A) confirmed the action of the AO. Now, the assessee is in appeal before us. 5. We have heard the rival submissions of the parties and perused the record. The issue before us is in a narrow compass. The assessee-firm was having the three partners which are already mentioned hereinabove. The land and hospital building were owned by the two partners individually i.e. Dr. Mrinmay Chakrabarty and Dr. (Mrs.) Neela Chakrabarty, before the formation of the assessee-firm in 1992. Both these partners int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to constitute a valid transfer. It is undisputed that in the present case there was no instrument under which the assessee purported to convey the hotel building to the partnership firm. But the question is whether a partner can bring his individual immovable property into the stock or capital of the firm otherwise than by means of a registered instrument of conveyance. In Prem Raj Brahmin vs. Bhani Ram Brahmin (1946) ILR 1946 1 Cal 191, a Division Bench of the Calcutta High Court referred to s. 239 of the Indian Contract Act and s. 14 of the Indian Partnership Act and held that under the provisions of those two Acts for the purpose of bringing the separate properties of a partner into the stock of the firm it is not necessary to have recourse to any written document at all, that as soon as a partner intends that his separate properties should become partnership properties and they are treated as such, then by virtue of the provisions of the Contract Act and the Partnership Act, the properties become the properties of the firm and that this result is not prohibited by any provision in the Transfer of Property Act or the Indian Registration Act. 'A similar view was tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners of a firm can convert an immovable property belonging to the firm into personal property of any of them by means only of an instrument in writing, that mere entries in the books of account of the firm do not have the effect of converting such property of the firm into the personal property of any of the partners and that such property, therefore, continues to remain the property of the firm despite such entry. In the aforesaid case the question whether a partner can bring his immovable property as his contribution to the stock or capital of the firm without a registered instrument, did not arise for determination. Hence, that decision cannot be of any assistance to the learned standing counsel. The learned standing counsel next sought to derive support from the following observations of the Supreme Court in CIT vs. Hind Construction Ltd. 1974 CTR (SC) 157 : (1972) 83 ITR 211 (SC): 'Nor can a person by handing over his goods to a partnership of which he is a partner and that as his share of capital be considered as having sold the goods to the partnership. The aforesaid observations cannot, in our opinion, be understood as laying down the proposition that a partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the High Court or Tribunal whether introduction of any immovable property by the partners towards the capital contribution needs the registration under the Indian Registration Act. We do not find any merit in the contention taken by the assessee. We, accordingly, confirm the order of the learned CIT(A) on this issue and ground Nos. 1 and 2 are dismissed. 9. Now, the next issue is whether the assessee-firm can get the benefit of s. 54EC, even though an investment in respect of capital gain is made by the two partners individually in the notified securities i.e. bonds issued by the Rural Electrification Corporation Ltd. (RECL)? The sale consideration received on the sale of hospital building and land was directly credited to the bank accounts of the two partners i.e. Dr. Mrinmay Chakrabarty and Dr. (Mrs.) Neela Chakrabarty and there is no dispute about this fact. Both the partners made the investment in the notified bonds in terms of s. 54EC of the IT Act as then applicable. The alternate contention of the assessee is that as the firm was immediately dissolved subsequently and whatever is invested by the partners on their individual names is in fact from the funds of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the assessee is acceptable. 15.3 The Hon'ble Karnataka High Court in the case of Director of IT (International Taxation) vs. Mrs. Jennifer Bhide (supra) at para 7 of the order observed as under: '7. On careful reading of s. 54 as well as s. 54EC on which reliance is placed makes it clear that when capital gains arises from the transfer of long-term capital asset to an assessee and the assessee has within the period of one year before or two years after the date on which the transfer took place purchased or has within the period of three years after the date of construction of residential house then instead of capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the provision made under the section which grants exemption from payment of capital gains as set out thereunder. Therefore, in the entire s. 54, the purchase to be made or the construction to be put up by the assessee, should be there in the name of the assessee, in not expressly stated. Similarly even in respect of s. 54EC, the assessee has at any time within a period of six months after the date of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by two partners on their individual names in the notified RECL bonds is otherwise eligible investment for getting the exemption from the taxable capital gain under s. 54EC of the Act as applicable to asst. yr. 2008-09. As per facts on record, the assessee-firm has been dissolved on 2nd April, 2008 and before the dissolution the professional assets i.e. hospital building and land were sold out. As per the well-settled law, partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner though not specifically defined in terms of their shares. On perusal of the language used in s. 54EC, it is provided that the assessee has to make the investment within a period of six months in the notified securities after the date of transfer of capital asset. The words used in s. 54EC are-- the assessee has invested the whole or any part of capital gains in the long-term specified asset . As we have held that the property which was sold out, it was property of the assessee-firm and hence, the capital gain is taxable in the hands of the assessee-firm. At the same time even though the bonds are pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of an express provision contained in these sections that the investment should be in the name of the assessee only any such interpretation were to be placed, it amounts to Court introducing the said word in the provision which is not there. It amounts Court legislating when the Parliament has deliberately not used those words in the said section. That is the view taken by the Hon'ble Madras High Court and Hon'ble Punjab Haryana High Court and we respectfully agree with the view expressed in the aforesaid judgment. 12. In the present case, there is another angle to look into. Admittedly the assessee-firm has claimed the depreciation on the hospital building and hence, s. 50 is applicable. In terms of s. 50 whatever capital gain is worked out on the depreciable asset then the same is treated as short-term capital gain. The next question before us is whether the assessee-firm can claim the benefit of s. 54EC which is specified for the benefit of long-term capital gain. This issue is decided in favour of the assessee by the Hon'ble High Court of Bombay in the case of CIT vs. ACE Builders (P) Ltd. (2005) 195 CTR (Bom) 1 : (2006) 281 ITR 210 (Bom). We, accordingly, hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve basis. The learned CIT(A) deleted the addition as he upheld the addition in the hands of the firm on substantive basis. We have held that the capital gain is taxable in the hands of the firm upholding the order of the learned CIT(A) on substantive basis. Hence, the Revenue's appeals become infructuous and do not survive and hence, both the appeals of the Revenue are dismissed. 15. Now, we take up the cross-objections being CO. Nos. 68 and 69/Pn/2012. The assessee has taken the following ground which is common in both the cross-objections: On the facts and in law, 1. The respondent requests for deduction under ss. 54, 54F and 54EC from the long-term capital gains on sale of hospital land and building. 16. There is a delay in filing the cross-objection. The assessee has filed an affidavit explaining the delay. 17. We have heard the parties on the delay in filing the cross-objections. After considering the reasons given by the assessee as well as considering the complexity of the issue, we condone the delay. The assessee has claimed that the assessee may be given the benefit of ss. 54 and 54EC. Both the cross-objections are filed in individual cases of the partners. As we have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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