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TMI Blog2015 (1) TMI 1510X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer of Property Act, 1882 and Sec. 17(1)(b) of the Registration Act, 1908 and held that the partner can bring his immovable property into the stock or capital of the firm otherwise than by means of a registered instrument of conveyance. And as 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. Whether the assessee firm can get the benefit of Sec. 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 assessee firm has been dissolved on 02-04-2008 and before the dissolution the professional assets i.e. hospital building and land were sold out - On perusal of the language used in Sec. 54EC, it is provided that the assessee has to make the investment within a period of six months in the notified securities after the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two partners. The partners have also filed Cross Objections in the appeals filed by the Revenue, challenging the impugned orders of the Ld. CIT(A)-I, Pune dated 30-092012 for the A.Y. 2008-09. As the facts and issues are interlined, hence, these appeals are disposed of by this common order for the sake of convenience. The assessee has taken the following revised grounds in place of original grounds: 1. The learned CIT(A) erred in holding that the capital gains of Rs. 1,64,76,685/- on sale of hospital land and 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 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 u/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 u/s 54EC on account of investment in the bonds made by the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng depreciation. Further, it is seen that when the assets were sold the firm was still in existence. These facts clearly go to show that the capital gain arising from sale 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 A.Y. 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 u/s 147 by issue of notice u/s 148. Issue notice u/s 148. 4. In sum and substance, it was noticed by the Assessing Officer that the assessee firm has sold the hospital building and land for the sale consideration of Rs. 1,90,00,000/- in the F.Y. 2007-08 (A.Y. 2008-09) and in the opinion of the Assessing Officer 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 15-11-2007 for a consideration of Rs. 1,90,00,000/- to Dreamz Investments. The assessee firm took the contention before the Assessing Officer that the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- rejecting the contention of the assessee firm that the capital gain cannot be brought to tax in the hands of the firm as the assessee firm was not the owner of the property. The assessee challenged the action of the Assessing Officer bringing to tax the capital gain on the sale of the land and building of the hospital premises but without successes. Before the Ld. CIT(A) the assessee took the contention that there was a 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 dated 12-09-2012 in support of a plea that he had no interest in the land and hospital building. The Ld. CIT(A) confirmed the action of the Assessing Officer. Now, the assessee is in appeal before us. 6. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise than by means of a registered instrument of conveyance. The operative part of the decision is as under: If the hotel building was transferred by the assessee to the partnership firm under an instrument of conveyance, such instrument should have been registered under the Registration Act 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . One of the questions that arose for determination in that case was whether a property admittedly once owned by the firm as such, ceased to be so owned by it by reason of certain entries made in the account books of the firm. A Division Bench of this Court took the view that 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 accounts 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. (1972) 83 ITR 211 (SC) : Nor can a person by handing over h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p because of section 14 of the Partnership Act. In our opinion the said decision is not helpful but goes against the assessee. In other two decisions, the issue was not before the High Court or ITAT 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 Ld. CIT(A) on this issue and Ground Nos. 1 and 2 are dismissed. 10. Now, the next issue is whether the assessee firm can get the benefit of Sec. 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 Sec. 54EC of the Income-tax Act as then applicable. The alternate contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is beneficial to the assessee we find the alternate contention of the learned counsel for the assessee is acceptable. 15.3 The Hon ble Karnataka High Court in the case of DIT (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 arise 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 purchase 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 A.Y. 2008-09. As per facts on record, the assessee firm has been dissolved on 02-04-2008 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 Sec. 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 transferred of capital asset. The words used in Sec. 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. 13. 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, Sec. 50 is applicable. In terms of Sec. 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 Sec. 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. 281 ITR 210. We, accordingly, hold that even though the assessee firm has claimed the depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer made the addition of Capital Gain on protective basis. The Ld. 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 Ld. 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. 16. Now, we take up the Cross Objection being CO Nos. 68 69/PN/2012. The assessee has taken the following ground which is common in both the Cross Objection. On the facts and in law, 1. The respondent request for deduction u/s. 54, 54F and 54EC from the long term capital gains on sale of hospital land and building. 17. There is a delay in filing the Cross Objection. The assessee has filed an affidavit explaining the delay. 18. 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 Sec. 54 and 54EC. Both the Cross Objections are filed in individual cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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