Dr. Anwar Basith, Bangalore V. DCIT, Bangalore

ITA 147/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0695 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-10-2009
• Assessment Year: 1997-1998
• Appeal Filed On: 24-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Reassessment proceedings; Set aside; Capital Gains
• Section: 143(3); 234B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.145 TO 149/BANG/2009 ASSESSMENT YEARS : 1995-96 TO 1997-98 & 1999-2000 TO 2000-01 DR. (MRS.) ANWAR BASITH, NO.16, DR. OMAR SHARIEFF ROAD, BASAVANGUDI, BANGALORE 560 004. : APPELLANT VS. THE DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), BANGALORE. : RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI SHRI JASON P. BOAZ O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER IN THESE FIVE APPEALS, THE ASSESSEE - AN INDIVIDU AL - HAS OBJECTED TO THE ORDER OF THE LD. CIT (A)-II, BANGALORE, FOR THE ASSESSMENT YEARS 1995- 96, 96-97, 97-98, 99-00 AND 00-01. 2. THE GROUNDS RAISED IN THESE APPEALS ARE IDENTICA L. OUT OF SIX GROUNDS, GROUND NO.1 IS GENERAL AND NOT SPECIFIC WH ICH, IN OUR CONSIDERED VIEW, DOESNT SURVIVE FOR ADJUDICATION. THE REMAIN ING GROUNDS ARE, FOR THE ITA NO. 145 TO 145/B/09 PAGE 2 OF 17 SAKE OF CONVENIENCE, REFORMULATED IN CONCISE MANNER S WHICH ARE LISTED OUT AS UNDER: (I) THE REASSESSMENT WAS BAD IN LAW AND VOID- AB-INITIO FOR WANT OF REQUISITE JURISDICTION, ESPECIALLY, THE MANDATORY R EQUIREMENTS TO ASSUME JURISDICTION U/S 148 OF THE ACT DID NOT EXIS T AND HAVE NOT BEEN COMPLIED WITH AND CONSEQUENTLY, THE RE-ASSESSM ENT REQUIRES TO BE CANCELLED; (II) WITHOUT PREJUDICE, THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN ASSESSING THE ENTIRE RENTAL INCOME AND SERVICE CHAR GES RECEIVED BY THE ASSESSEE AND OTHER CO-OWNERS FROM THE PROPERTY (NO.29, CUNNINGHAM ROAD) IN THE HANDS OF THE ASSESSEE HOLDI NG THAT THE ASSESSEE WAS THE OWNER OF THE SAID PROPERTY; - THE ASSESSEE WAS ONLY A CO-OWNER HAVING 1/5 TH SHARE AND INTEREST IN THE SAID PROPERTY AND, THEREFORE, ASSE SSING OF THE ENTIRE INCOME IN HER HANDS WAS TOTALLY UNJUSTIFIED IN VIEW OF THE FACT THAT THE DEPARTMENT HAD ACCEPTED FOR THE A YS 93-94 AND 94-95 AS THE ASSESSEE WAS A CO-OWNER, HAVING 1/ 5 TH SHARE IN THE SAID PROPERTY; - WITHOUT PREJUDICE, THE AUTHORITIES BELOW WERE NOT J USTIFIED IN ASSESSING THE INCOME OF THE MINOR CHILDREN OF THE A SSESSEE BEING THEIR 1/5 TH SHARE IN THE RENTAL INCOME/SERVICE CHARGES RECEIVED FROM THE SAID PROPERTY IN THE HANDS OF THE ASSESSEE PROTECTIVELY; (III) THE ASSESSEE DENIES HERSELF LIABLE TO BE CHARGED TO INTEREST U/S 234B OF THE ACT; & (IV) THE APPEALS MAY BE ALLOWED AND JUSTICE RENDERED AND THE ASSESSEE MAY BE AWARDED COSTS IN PROSECUTING THESE APPEALS A ND ALSO ORDER FOR THE REFUND OF THE INSTITUTION FEES AS PART OF C OSTS. 3. AS THE ISSUES RAISED IN THESE APPEALS ARE SIMILA R, FOR THE SAKE OF CONVENIENCE, THEY ARE CONSIDERED TOGETHER AND DISPO SED OFF IN THIS COMMON ORDER. 4. THE FACTS OF THE ISSUES, IN BRIEF, ARE THAT ITA NO. 145 TO 145/B/09 PAGE 3 OF 17 (I) THE ASSESSEE AND HER HUSBAND WHO WERE LIVING PREVIO USLY IN KUWAIT WERE MADE TRUSTEES OF NAYEEMA KHAN TRUST ON 25/1/1996 [AUTHORED BY DR.(MRS) NAYEEMA KHAN, ASSESSEES SIST ER] WITH CORPUS OF 25000 KUWAITI DINARS FOR THE BENEFIT OF T HEIR THREE CHILDREN A DAUGHTER AND TWO SONS; (II) A PARTNERSHIP FIRM M/S.I.N.J.ENTERPRISES IN WHI CH THE ASSESSEE AND HER HUSBAND WERE FULL-FLEDGED PARTNERS WITH THE IR CHILDREN ENTITLED TO ONLY THE BENEFITS OF PARTNERSHIP WAS CO NSTITUTED IN KUWAIT ON 15/11/1986. - THE PURPOSE OF CONSTITUTING THE FIRM WAS TO CONSTRU CT, DEVELOP AND EXPLOIT PROPERTIES BY SALE/LEASE ESPECIALLY THE PROPERTY SITUATED AT NO.29, CUNNINGHAM ROAD, THE OWNERSHIP O F WHICH VESTED WITH THE ASSESSEE. THE SAID PROPERTY WAS CO NTRIBUTED BY THE ASSESSEE TO THE FIRM AS HER CAPITAL VALUE AT RS .1.5 LAKHS AT THE TIME OF CONSTITUTION. THE REMAINING PARTNERS W ERE TO CONTRIBUTE RS.50000/- EACH BY WAY OF CAPITAL. - THE FIRM HAD BORROWED THE ENTIRE CORPUS OF THE SAID TRUST ON INTEREST AT 21% PER ANNUM AND COMPLETED THE CONSTRU CTION OF THE PROPERTY. - THE FIRM WAS DISSOLVED ON 11/7/89 [ FOLLOWING THE C OMPLETION OF THE CONSTRUCTION ON 15/3/89] AND THE BUILDING WA S TAKEN OVER BY EACH PARTNER AS A CO-OWNER IN THE RATIO OF 1/5 TH ; - THE CO-OWNERS WERE CLAIMING DEDUCTION U/S 24 IN RES PECT OF PAYMENT OF INTEREST ON THE LOAN TO THE SAID TRUST F ROM THE INCOME RECEIVED FROM THE PROPERTY. 4.1. THE ASSESSMENTS MADE ON 31/3/2003 U/S 143(3) R WS 147 OF THE ACT WERE SUBSEQUENTLY SET-ASIDE BY THE HONBLE TRIBUNAL VIDE ITS ORDERS IN ITA NOS:1023 TO 1027/B/2004 DT: 4.8.2006. WHILE SETTIN G ASIDE THE ASSESSMENT ORDERS, NOW UNDER DISPUTE, THE HONBLE TRIBUNAL, IN CONFORMITY WITH ITS SIMILAR FINDING IN THE ASSESSEES OWN CASE FOR THE AY 98-99 IN ITA NO:669/B/02 DT: 21.12.2004, HAD OBSERVED THAT 17. IN THE INSTANT CASE, IT WAS PROVIDED THAT PAR TNERSHIP WAS FOR 10 YEARS AND THEREAFTER IT WILL BE TERMINATED WITH MUT UAL CONSENT. HOWEVER, AS A MATTER OF FACT, THE PARTNERSHIP FIRM WAS DISSOLVED AFTER THE CONSTRUCTION OF THE BUILDING. THE DISSOL UTION TOOK PLACE ON 15 TH MAR, 89. THE AO IS THEREFORE REQUIRED TO EXAMINE THE CASE IN VIEW OF THE OBSERVATION OF THE WORTHY SUPREME COURT IN THE CASE OF ITA NO. 145 TO 145/B/09 PAGE 4 OF 17 KARTIKEYA A SARABHAI (SUPRA). MOREOVER, IT IS ALSO SETTLED POSITION OF LAW THAT A FIRM IS CONSTITUTED FOR THE PURPOSE O F CARRYING ON OF BUSINESS. IN THE INSTANT CASE, THE FIRM HAS BEEN C ONSTITUTED ON 26 TH DEC.86 AND DISSOLVED ON 15 TH MAR, 89. THE PROPERTY AT CUNNINGHAM ROAD WAS SPECIALLY DESCRIBED IN THE SCHE DULE OF PARTNERSHIP DEED. THE AO WILL HAVE TO EXAMINE THE FACT AS TO WHETHER THE FIRM WAS GENUINELY CONSTITUTED FOR CARR YING OUT BUSINESS OR WAS USED AS DEVISE TO TRANSFER RENTAL INCOME FRO M SUCH PROPERTY FROM THE HANDS OF THE ASSESSEE TO HER HUSBAND AND H ER MINOR CHILDREN. WE WERE INFORMED DURING THE COURSE OF PR OCEEDINGS THAT ASSESSMENT ORDER WAS SET ASIDE FOR THE ASSESSMENT Y EAR 1998-99 HAS STILL NOT BEEN COMPLETED. SINCE THE ASSESSMENT FOR THE ASSESSMENT YEAR 1998-99 HAS ALREADY BEEN SET ASIDE, THEREFORE, WE FEEL IT PROPER TO SET ASIDE THIS ASSESSMENT ORDER TO BE MADE AFR ESH AFTER CONSIDERING ALL THE RELEVANT FACTS. SECTION 45(4) RAISES A PRESUMPTION THAT CAPITAL GAIN IS CHARGEABLE ON THE FIRM, WHICH DISTRIBUTES ITS ASSET ON THE DISSOLUTION. IT IS BE ING CONTENDED BEFORE THE AO SUCH DISTRIBUTION HAS NOT TAKEN PLACE. THE A O MAY CONSIDER TO EXAMINE THE ISSUE AS TO WHETHER THERE HAS BEEN D ISTRIBUTION OR NOT. THE FIRM IS LIABLE FOR CAPITAL GAIN TAX IN TH E YEAR IN WHICH THERE IS DISTRIBUTION OF ASSET IN VIEW OF SEC.45(4) OF TH E INCOME-TAX ACT. KEEPING IN VIEW THE ABOVE DISCUSSION, THE ASSESSMEN T ORDERS ARE SET ASIDE TO BE MADE AGAIN. 4.2. CONSEQUENT ON THE DIRECTIONS OF THE HONBLE T RIBUNAL REFERRED SUPRA, THE AO HAD CONCLUDED THE ASSESSMENTS AFRESH FOR THE AYS UNDER DISPUTE U/S 143(3) R.W.S.147 AND 254 OF THE ACT ON 20/12/2007. WHILE DOING SO, THE AO HAD MADE THE FOLLOWING OBSERVATION S WHICH ARE NOW DISPUTED BY THE ASSESSEE: (I) NO EVIDENCE WAS FURNISHED TO SUGGEST THAT THE PARTN ERSHIP FIRM HAVING CARRIED ON ANY BUSINESS IN TERMS OF ITS PART NERSHIP DEED; (II) NO RELEVANT PROOF OR COPIES OF BANK STATEMENTS WERE PRODUCED TOWARDS CONTRIBUTION TO THE FIRMS CAPITAL BY THE P ARTNERS OTHER THAN THE ASSESSEE. NO PROOF WAS PRODUCED IN RESPEC T OF THE CLAIM THAT THE ASSESSEES CHILDREN HAD CONTRIBUTED RS.500 00/- EACH AS THEIR CAPITALS; - NO PROOF WAS FURNISHED EVEN AT THE TIME OF REASSESSMENT PROCEEDINGS TO JUSTIFY HER CLAIM; ITA NO. 145 TO 145/B/09 PAGE 5 OF 17 - THE ONLY CLAIM MADE BY THE PARTNERS WAS THAT THE IN TEREST INCOME WAS ASSESSED IN INDIVIDUAL HANDS OF THE BENE FICIARIES OF THE SAID TRUST; (III) THE ALLEGED CLAIM OF BORROWALS OF THE ENTIRE CORPUS OF THE TRUST BY THE PARTNERSHIP FIRM FOR CONSTRUCTION PURPOSE WAS R ATHER QUITE UNUSUAL; - THOUGH IT WAS ASSERTED IN THE PARTNERSHIP DEED THAT THE LONGEVITY OF THE FIRM WAS TEN YEARS AND THAT ITS CONTINUANCE OR OTHERWISE WOULD BE DECIDED ONLY THEREAFTER, IT WAS DISSOLVED ABRUPTLY WITHIN YEARS AND, SURPRISINGLY, NO SOONER THE CONSTRUCTION OF THE PROPERTY WAS COMPLETED; & - THAT THE ASSETS OF THE FIRM, ON ITS SO-CALLED DISSO LUTION, WERE NOT DISTRIBUTED AMONG THE PARTNERS. 4.3. KEEPING THE ABOVE OBSERVATIONS IN VIEW, THE AO HAD HELD THA T THE WHOLE SCHEME WAS A LEGAL VEIL CREATED BY THE ASSESS EE TO SPLIT THE RENTAL INCOME AMONGST THE PARTNERS AND THAT THE FORMATION AND DISSOLUTION OF THE PARTNERSHIP IN THE MANNER DESCRIBED SUPRA AND WAS O NLY A FAADE FOR THE INTENTION AS BROUGHT OUT ABOVE, PARTICULARLY BECAUS E NO BUSINESS WAS CARRIED ON BY THE FIRM AS ENVISAGED IN THE PARTNERS HIP DEED. THE AO HAD ALSO REJECTED THE ASSESSEES CONTENTION THAT THE AS SESSMENTS BRINGING TO TAX THE 1/5 TH SHARE OF THE OTHER PARTNERS IN THEIR INDIVIDUAL HA NDS WOULD ACT AS A BAR IN BRINGING TO TAX THE ENTIRE RENTAL INCOM E FROM THE PROPERTY IN THE HANDS OF THE ASSESSEE. THUS, THE AO HAD ADOPTED TH E INCOME FROM THE SAID PROPERTY, AS ASSESSED IN THE ASSESSMENT ORDERS DATED 31/3/2003, IN THE PRESENT ASSESSMENTS UNDER DISPUTE. HE HAD ALSO BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE ON PROTECTIVE BASIS THE SHARE INCOMES FROM THE HOUSE PROPERTY AND SERVICE CHARGES, OF THE ASSESSEE S MINOR CHILDREN. 5. THE WHOLE GAMUT OF THE ACTION OF THE AO WAS OBJE CTED TO BY THE ASSESSEE BEFORE THE LD. CIT (A). THE LD. CIT(A), A FTER DUE CONSIDERATION ITA NO. 145 TO 145/B/09 PAGE 6 OF 17 OF WRITTEN SUBMISSIONS AND THE EVIDENCE FURNISHED D URING THE COURSE OF HEARING, ELABORATELY ANALYZING THE CONTENTS OF THE PARTNERSHIP DEED OF INJ ENTERPRISES AND EXTENSIVELY QUOTING THE OBSERVATION S OF THE HONBLE SUPREME COURT IN THE CASE OF KARTHIKEYA V SARABHAI V. CIT REPORTED IN 156 ITR 509 ON WHICH THE HONBLE TRIBUNAL REFERRED SUPR A IN THE ASSESSEES OWN CASE HAD PLACED RELIANCE (AND SET ASIDE THE ASS ESSMENT ORDERS FOR FRESH CONSIDERATION WHICH ARE UNDER DISPUTE NOW). T HE OBSERVATIONS OF THE HONBLE SUPREME COURT AS QUOTED BY THE HONBLE TRIB UNAL IS BROADLY OUTLINED, FOR READY REFERENCE, AS UNDER: (I) WHETHER THE PARTNERSHIP FIRM WAS GENUINE FIRM OR NO T? (II) THE TRANSFER BY THE PARTNERS OF HIS/HER PERSONAL AS SET TO THE PARTNERSHIP FIRM WAS WITH GENUINE INTENTION TO CONT RIBUTE TO THE SHARE CAPITAL OF THE FIRM FOR THE PURPOSE OF CARRY ING ON THE PARTNERSHIP BUSINESS; (III) THE TRANSFER OF THE PERSONAL ASSET BY THE PARTNER T O PARTNERSHIP FIRM IN WHICH HE/SHE BECOMES A PARTNER WAS MERELY A S DEVICE OR RUSE OF CONVERTING THE ASSET INTO MONEY, WHICH WOUL D SUBSTANTIALLY REMAIN AVAILABLE TO HIS/HER BENEFIT WITHOUT THE LIA BILITY TO PAY INCOME-TAX ON CAPITAL GAINS; (IV) THE I.T. AUTHORITIES CAN GO BEYOND THE TRANSACTIONS AND EXAMINE WHETHER THE TRANSACTION OF CREATING THE PARTNERSHIP WAS GENUINE OR SHAM TRANSACTION; (V) THE AO WILL BE ENTITLED TO CONSIDER ALL THE RELEVAN T INDICIA IN THIS REGARD WHETHER THE PARTNERSHIP WAS FORMED BETWEEN T HE APPELLANT AND HER HUSBAND/CHILDREN; (VI) WHETHER THE PERSONAL ASSET WAS SOLD BY THE PARTNERS HIP FIRM SOON AFTER IT WAS TRANSFERRED BY THE APPELLANT; (VII) WHETHER THE PARTNERSHIP FIRM HAS NO SUBSTANTIAL OR REAL BUSINESS OR THE RECORD SHOWS THAT THERE WAS NO REAL NEED FOR THE PARTNERSHIP FIRM FOR SUCH CAPITAL CONTRIBUTION FROM THE APPELLANT; & ITA NO. 145 TO 145/B/09 PAGE 7 OF 17 (VIII) THE AO MAY CAUSE SCRUTINY OF THE TRANSACTIONS IN OR DER TO DETERMINE WHETHER A TRANSACTION IS A SHAM OR ILLUSO RY TRANSACTION OR DEVICE OR RUSE; HE IS ENTITLED TO PIERCE THE VEI L AND ASCERTAIN THE TRUTH. 5.1. AFTER TAKING INTO ALL THESE ASPECTS INTO CONSIDERAT ION, THE LD.CIT(A) HAD CONCLUDED THUS 4.6HOWEVER, NO OTHER REASONS HAVE BEEN GIVEN TO PROVE THE GENUINENESS OF THE PARTNERSHIP A ND ITS BUSINESS IN THE RESPECTIVE YEARS. IN THIS CONNECTION, IT MAY B E MENTIONED THAT THE AO HAD NO OCCASION TO EXAMINE DURING THE ASSESS MENT PROCEEDINGS VARIOUS ASPECTS AS DISCUSSED IN THE PRE CEDING PARAS OF THIS ORDER. THEREFORE, THE ARGUMENT OF THE APPELLA NT ON THIS BASIS IS NOT SUSTAINABLE. MOREOVER, THE FACTS AND CIRCUMST ANCES OF THE CASE COME UNDER THE PARAMETER OF HONBLE ITATS OBSERVAT ION REPRODUCED ABOVE. THEREFORE, IN MY CONSIDERED OPI NION, THE ENTIRE RENTAL INCOME AS WELL AS SERVICE CHARGES DERIVED FR OM THE PROPERTY AT NO.29, CUNNINGHAM ROAD, IS ASSESSABLE IN THE HAN DS OF THE APPELLANT.. 6. NOT SATISFIED WITH THE OUTCOME OF THE FIRST APPELLA TE AUTHORITYS FINDING, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEALS. DURING THE COURSE OF HEARING, THE LD. A R REITERATED MORE OR L ESS WHAT HAS BEEN PUT- FORTH BEFORE THE FIRST APPELLATE AUTHORITY. TO FUR THER STRENGTHEN HIS ARGUMENTS, THE AR HAD FURNISHED A PAPER BOOK CONTAI NING 1 95 PAGES WHICH CONSIST OF, INTER ALIA, (I) COPIES OF ORDERS OF HONBLE TRIBUNAL IN THE ASSESSEES OWN CASE, (II) COPIES OF VARIOUS CORRESP ONDENCES MADE WITH THE AO ETC. HE HAS ALSO PLACED RELIANCE ON THE RULING OF THE HONBLE APEX COURT REPORTED IN 156 ITR 509, AND ALSO A NOTE ETC. 6.1. ON HER PART, THE FOCAL POINT OF ARGUMENT OF T HE LD. D.R WAS SQUARELY CENTRED ON THE WELL REASONING OF THE LOWER AUTHORIT IES AND VEHEMENTLY PLEADED THAT THE CONCLUSION ARRIVED AT BY THE LD. CIT(A) REQUIRES NO ITA NO. 145 TO 145/B/09 PAGE 8 OF 17 INTERFERENCE AT THIS STAGE AND, THEREFORE, THE CONT ENTIONS OF THE ASSESSEE REQUIRE TO BE REJECTED OUT-RIGHTLY. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS, PERUSED THE RELEVANT RECORDS AND ALSO THE VOLUMINOUS PAPER-BOOK FURNISHED BY THE LD. A.R. 7.1. AT THE OUT-SET, THE ASSESSEE HAD QUESTIONED TH E VERY ORDERS OF REASSESSMENTS TERMING THEM AS BAD IN LAW AND VOID-A B-INITIO FOR WANT OF REQUISITE JURISDICTION, ESPECIALLY, THE MANDATORY R EQUIREMENTS TO ASSUME JURISDICTION U/S 148 OF THE ACT WHICH DID NOT EXIST AND HAVE NOT BEEN COMPLIED WITH ETC., IN THIS CONNECTION, WE WOULD LIKE TO POINT OUT THAT A SIMILAR ISSUE WAS RAISED BEFORE THE HONBLE TRIBUNAL AND THE HONBLE TRIBUNA L IN ITS WISDOM IN ITA NOS: 1023 TO 1027/B/2004 (AYS 95-96, 96-97, 97-98, 99-00 & 00-01) DATED: 4/8/06 IN THE ASSESSEES OWN CASE, HAD UPHEL D THE ACTION OF THE AO IN OBSERVING THAT 12. BY FILING RETURN IN RESPECT OF NOTICE U/S 148, THE ASSESSEE WITHDREW THE EXCESS CLAIM OF DEDUCTION U/S 24 TOWARDS INTEREST ON BORROWED CAPITAL. THE RENT WAS SHOWN AT RE.1 PER M ONTH INSTEAD OF RS.85000/- IN THE ORIGINAL RETURN. THESE FACTS EST ABLISHED AT THE ACTION TAKEN BY THE AO UNDER SEC. 148 ARE CORRECT. LOOKING TO T HE SUBSEQUENT FILING OF THE RETURN, WE HOLD THAT THE AO HAS PROPERLY ASSUME D JURISDICTION U/S 148. IN CONSONANCE WITH THE FINDING OF THE HONBLE TRIBU NAL, WE ARE IN TOTAL AGREEMENT WITH THE ACTION OF THE AO IN ASSUMING THE JURISDICTION U/S 148 OF THE ACT. THUS, THE ASSESSEE FAILS ON THIS COUNT. 7.2. TURNING TO THE OTHER GROUND(S), ON A CLOSE PER USAL OF THE IMPUGNED ORDERS OF THE AO, WE FIND THAT IN VIEW OF THE DIREC TIONS OF THE HONBLE ITA NO. 145 TO 145/B/09 PAGE 9 OF 17 TRIBUNAL REFERRED SUPRA, THE ASSESSEE WAS REQUIRED TO FURNISH NECESSARY EVIDENCE TO PROVE THAT THE PARTNERSHIP FIRM WAS GEN UINELY CONSTITUTED FOR CARRYING OUT THE BUSINESS ENSHRINED IN THE DEED OR WAS IT USED AS A DEVICE TO TRANSFER RENTAL INCOME FROM SUCH PROPERTY FROM T HE HANDS OF THE ASSESSEE TO HER HUSBAND AND HER CHILDREN. IN THIS REGARD, THE ASSESSEE WAS POINTEDLY REQUIRED TO ADDUCE SUFFICIENT PROOF W ITH REGARD TO THE BUSINESS CARRIED ON BY THE FIRM I.N.J. ENTERPRISE S - AND ALSO DOCUMENTARY PROOF FOR CONTRIBUTION BY THE PARTNERS OF THE SAID FIRM ETC. APART FROM REITERATING THE DESCRIPTION OF THE BUSINESS IN THE PARTNERSHIP FIRM, THE AR OF THE ASSESSEE HAD NOT ABLE TO ADDUCE ANY PROOF OF TH E REAL BUSINESS BEING CARRIED OUT BY THE SAID FIRM. PERHAPS, THE AR OF T HE ASSESSEE HAD CONCEDED HIS INABILITY TO FURNISH EVEN THE COPIES O F THE NECESSARY BANK STATEMENTS OR ANY OTHER RELEVANT EVIDENCE WITH REGA RD TO CAPITAL CONTRIBUTIONS OF THE OTHER PARTNERS OTHER THAN THE ASSESSEE. THE ONLY ARGUMENT PUT FORTH BY THE LD. AR IS THAT THE FIRM H AD CONSTRUCTED THE BUILDING AND IT AMOUNTS TO AN ACTIVITY IN THE NATUR E OF BUSINESS. IN OUR OPINION, THE LONE ACTIVITY OF CONSTRUCTION OF A BUI LDING NOT COUPLED WITH ANY OTHER ACTIVITY IN THE NATURE OF TRADE, COM MERCE OR BUSINESS WILL NOT AMOUNT TO BE AN ACTIVITY OF BUSINESS. THUS, NO INFORMATION WORTH THE NAME TO CONTROVERT THE STAND OF THE AO WHO HAD CONCLUDED THE ASSESSMENTS ON 31.3.2003 WAS FORTH-COMING EXCEPT TH AT THE INTEREST PAYMENT WHICH WAS CLAIMED BY THE PARTNERS OF THE FI RM HAVE BEEN ASSESSED TO TAX AS INTEREST INCOME IN THE HANDS O F THE BENEFICIARIES OF THE TRUST M/S.NAYEEMA KHAN TRUST. ITA NO. 145 TO 145/B/09 PAGE 10 OF 17 7.3. ON A CONCISE PERUSAL OF THE INSTRUMENT OF PAR TNERSHIP DATED 26/12/1986 [ON PAGE 33 OF THE PAPER BOOK (PB)], THE FOLLOWING POINTS ARE EXTRACTED WHICH, IN OUR CONSIDERED VIEW, ARE SIGNIF ICANT TO DECIDE THE ISSUE ON HAND: (I) MRS. ANWAR HASITH, WIFE OF MAQSOOD AHMED, HEREINAFT ER REFERRED TO AS THE FIRST PARTY OR PARTY NO:1 AND MR.MAQSOOD AHMED, HEREINAFTER REFERRED TO AS THE SECOND PARTY OR PARTY NO:2 IS AS FOLLOWS: (A) WHEREAS THE PARTIES REFERRED TO ABOVE HAVE FORMED THEMSELVES INTO PARTNERSHIP ORALLY ON AND FROM THE 15TH DAY OF NOVEMBER, 1986 TO CARRY ON THE BUSINESS OF CONSTRUC TION, DEVELOPMENT AND EXPLOITATION OF PROPERTIES EITHER B Y SALE, EXCHANGE, LEASE OR OTHERWISE, ESPECIALLY THE PROPER TY BEARING NO-29, CUNNINGHAM ROAD, CORPORATION DIVISION NO.44, BANGALORE, MORE FULLY DESCRIBED IN THE SCHEDULE HEREUNDER HEREINAFTER REFERRED TO AS THE SCHEDULE PROPERTY WHICH BELONGS TO PARTY NO.1. (B) WHEREAS THE FIRST PARTY, ON THE FORMATION OF THE PA RTNERSHIP ORALLY AS AFORESAID, HAS AGREED TO CONTRIBUTE AND H AS CONTRIBUTED THE SCHEDULE PROPERTY WITH THE EXISTING ENCUMBRANCES RIGHTS AND PRIVILEGES, TOWARDS HER CAP ITAL WITH AN INTENTION OF TREATING HE SAME AS THE PROPERTY OF THIS PARTNERSHIP FIRM AT A MUTUALLY AGREED VALUE AND ACC ORDINGLY THE SCHEDULE PROPERTY HAS ALREADY BECOME THE PROPER TY OF THE FIRM AS CONFIRMED AND CONSTITUTED BY THIS DEED OF P ARTNERSHIP; AND (C) WHEREAS THE PARTIES REFERRED TO ABOVE AFTER FORMING THEMSELVES INTO PARTNERSHIP AS AFORESAID HAVE AGREE D TO ADMIT AND HAVE ADMITTED THE FOLLOWING MINORS TO THE BENEF IT OF PARTNERSHIP: (1) MASTER MOHAMMED IQBAL, MINOR BORN ON 28/3/1969 (2) MISS NADIA AHMED, MINOR BORN ON 4/10/1978 (3) MASTER MOHAMED JASIM, MINOR BORN ON 12/10/82 ALL CHILDREN OF THE PARTIES HERETO AND RESIDING WITH TH EM; AND .. ITA NO. 145 TO 145/B/09 PAGE 11 OF 17 NOW THIS DEED OF PARTNERSHIP WITNESSETHS AS FOLLOWS: 1. 2. THE BUSINESS OF THE FIRM SHALL CONTINUE TO BE THAT OF ACQUISITION, CONSTRUCTION, DEVELOPMENT AND EXPLOITA TION OF PROPERTIES AS PART OF THE BUSINESS OF THE FIRM. THE FIRM MAY CARRY ON ANY OTHER BUSINESS/ES AS THE PARTIES M AY FROM TIME TO TIME MUTUALLY AGREE UPON. 3.(A)THE CAPITAL OF THE FIRM SHALL BE RS.3,50,000/ - (INDIAN RUPEES) AND THE SAME SHALL BE CONTRIBUTED BY THE PA RTIES AS UNDER:- AMOUNT FIRST PARTY: MRS.ANWAR BASITH IN THE SHAPE OF CONTRIBUTION OF THE SCHEDULE PROPERTY AS HER CAPITAL WHICH IS VALUED AT 1,50,00 0 SECOND PARTY MR.MAQSOOD AHMED 50,000 MINORS ADMITTED TO THE BENEFITS OF PARTNERSHIP: (1 MASTER MOHAMMED IQBAL 50,000 (2) MISS NADIA AHMED 50,000 (3) MASTER MOHAMMED JASIM 50, 000 TOTAL 3,50,000 .. 4. THE DURATION OF THE PARTNERSHIP SHALL BE FOR A PERI OD OF 10 YEARS AND THEREAFTER-WARDS IT SHALL BE ONE AT WILL. .... ITA NO. 145 TO 145/B/09 PAGE 12 OF 17 7.4 THE RELEVANT PORTION OF THE DEED OF CONFIRMATION OF DISSOLUTION OF THE FIRM DATED: 11/7/1989 [ ON PAGE 55 OF PB] IS EXTRACTED AS UNDER: . ACCORDINGLY NOW THIS DEED WITNESSETH AS FOLLOWS:- 1. THE PARTNERSHIP SUBSISTING AMONG T HE PARTIES NO.1 TO NO.3 TO CARRY ON THE BUSINESS UNDER THE NAME AND STYLE O F M/S.I.N.J. ENTERPRISES INTO WHICH PARTIES NO.4 AND NO.5 WERE A DMITTED TO THE BENEFITS OF PARTNERSHIP STOOD DISSOLVED AND TER MINATED WITH EFFECT FROM 15 TH DAY OF MARCH, 1989. THE PARTIES HERETO HEREBY CO NFIRM THAT THEY ARE NO MORE PARTNERS. . . 7.5. ON A CAREFUL SCRUTINY OF THE ABOVE AGREEMENTS (I) THE INSTRUMENT OF PARTNERSHIP EXECUTED ON 26/12/1986 AN D (II) THE DEED OF CONFIRMATION OF DISSOLUTION DATED 11/7/1989, THE FO LLOWING CRUCIAL AND SIGNIFICANT FEATURES ARE EMERGED: (I) THE LAND WHICH BELONGED TO THE ASSESSEE WAS SOUGHT TO BE DEVELOPED THROUGH THIS PARTNERSHIP FIRM IN WHICH AL L THE PARTNERS WERE THE ASSESSEES FAMILY MEMBERS; (II) THE DEVELOPMENT OF THE LAND AND CONSTRUCTION OF THE SCHEDULE PROPERTY WAS CARRIED OUT WITH THE BORROWED FUNDS FR OM THE FAMILY TRUST NAYEEMA KHAN TRUST AND WITH THE SHARE CAP ITAL OF THE PARTNERSHIP FIRM OF RS.2 LAKHS I.E., RS.50000/EACH OF FOUR PARTNERS OTHER THAN THE ASSESSEE; ITA NO. 145 TO 145/B/09 PAGE 13 OF 17 (III) NO DOCUMENTARY EVIDENCES ARE FORTH-COMING TO SUGGES T THAT RS.50000/EACH WAS ACTUALLY CONTRIBUTED BY THE CHILD REN OF THE ASSESSEE; (IV) THE FAMILY TRUST HAD ADVANCED ITS ENTIRE CORPUS FU ND TO THE PARTNERSHIP FIRM FOR THE CONSTRUCTION OF THE SCHEDU LE PROPERTY ANY TRUST (FOR THAT MATTER) ADVANCING ITS ENTIRE CO RPUS FUNDS AS LOAN TO OTHERS IS UNHEARD OF ; - THE TRUST ITSELF WAS BEING ADMINISTERED BY THE ASSE SSEE AND HER HUSBAND AND THAT M/S.I.N.J.ENTERPRISES THE PARTN ERSHIP FIRM WAS FORMED BY NONE OTHER THAN THE ASSESSEE, HER HUS BAND AND HER THREE CHILDREN WHICH HAD BORROWED THE ENTIRE CORPUS OF THE FAMILY TRUST; (IV) NO SOONER THE SCHEDULE PROPERTYS CONSTRUCTION WAS COMPLETED, THE PARTNERSHIP FIRM WAS GOT DISSOLVED, EVEN THOUGH THE CLAUSE (4) OF INSTRUMENT OF PARTNERSHIP DATED: 26/12/1986 HAD EMPHATICALLY ASSERTED THAT 4. THE DURATION OF THE PARTNERSHIP SHALL BE FOR A PERIOD OF 10 YEARS AND THEREAFTER-WARDS IT SHALL BE ONE AT WILL. O N THE ALLEGED DISSOLUTION OF PARTNERSHIP FIRM, THE ASSETS OF THE PARTNERSHIP FIRM HAVE NOT BEEN FACTUALLY DISTRIBUTE D. INSTEAD, IT WAS CLAIMED IN CLAUSE 11 OF THE DISSOLUTION DEED TH AT IT WAS AGREED THAT PROPER BOOKS OF ACCOUNTS SHALL BE MAINT AINED IN THE NORMAL COURSE OF MANAGEMENT OF THE PROPERTY HELD AS TENANTS-IN- COMMON WITH BILLS, VOUCHERS, INVOICES ETC., AND THE BOOKS OF ACCOUNTS SO MAINTAINED SHALL BE ANNUALLY CLOSED ON 31 ST DAY OF MARCH OF EVERY YEAR OR ANY OTHER DATE CONVENIENT TO THE CO- OWNERS AND THE NET INCOME OR LOSS FROM THE CO-OWNED PROPERTY SHALL BE DIVIDED AND DISTRIBUTED AMONG THE CO-OWNER S EQUALLY; 7.6 THE ABOVE SEQUENCES CLEARLY VINDICATE THE ASSES SEES INTENTION THAT THE ENTIRE ARRANGEMENT HAD BEEN CARRIED OUT IN A SY STEMATIC AND WELL CARVED OUT MANNER THROUGH A LEGAL VEIL SO AS TO ENA BLE THE ASSESSEE TO SPLIT ITA NO. 145 TO 145/B/09 PAGE 14 OF 17 THE RENTAL INCOME INTO FIVE HANDS, NAMELY, IN THE HANDS OF THE ASSESSEE, HER HUSBAND AND THEIR THREE CHILDREN. THE SO CALLE D CREATION OF THE PARTNERSHIP FIRM WITH THE FAMILY MEMBERS AS ITS PAR TNERS AND ITS SUBSEQUENT DISSOLUTION AND THE CO-OWNERSHIP OF THE SCHEDULE PR OPERTY IN THE HANDS OF THE ASSESSEE, HER HUSBAND AND THEIR THREE CHILDREN WAS NOTHING BUT A CLEAR CASE OF SHAM TRANSACTION. 7.7. WITH DUE REGARDS, WE QUOTE FROM THE RULING OF THE HONBLE SUPREME COURT IN THE CASES OF SUNIL SIDDHARTHBHAI V . CIT, AHMEDABAD (CIVIL APPEAL NO.1841 OF 1981) AND KARTIKEYA V.SARA BHAI V. CIT (CIVIL APPEAL NO.1977) REPORTED IN (1985) 156 ITR 509. T HE HIGHEST JUDICIARY IN THE COUNTRY IN ITS WISDOM, HAD HELD THUS IF THE TRANSFER OF THE PERSONAL ASSET BY THE ASSES SEE TO A PARTNERSHIP IN WHICH HE IS OR BECOMES A PARTNER IS MERELY A DEVICE OR RUSE FOR CONVERTING THE ASSET INTO MONEY WHICH WOULD SUBSTANTIALLY REMAIN AVAILABLE FOR HIS BENEFIT WITH OUT LIABILITY TO INCOME-TAX ON A CAPITAL GAIN, IT WILL BE OPEN TO TH E INCOME-TAX AUTHORITIES TO GO BEHIND THE TRANSACTION AND EXAMIN E WHETHER THE TRANSACTION OF CREATING THE PARTNERSHIP IS A GENUIN E OR A SHAM TRANSACTION AND, EVEN WHERE THE PARTNERSHIP IS GENU INE, WHETHER THE TRANSACTION OF TRANSFERRING THE PERSONAL ASSET TO T HE PARTNERSHIP FIRM REPRESENTS A REAL ATTEMPT TO CONTRIBUTE TO THE SHAR E CAPITAL OF THE PARTNERSHIP FIRM FOR THE PURPOSE OF CARRYING ON THE PARTNERSHIP BUSINESS OR IS NOTHING BUT A DEVICE OR RUSE TO CONV ERT THE PERSONAL ASSET INTO MONEY SUBSTANTIALLY FOR THE BENEFIT OF T HE ASSESSEE WHILE EVADING TAX ON A CAPITAL GAIN. THE INCOME-TAX OFFI CER WILL BE ENTITLED TO CONSIDER ALL THE RELEVANT INDICIA IN TH IS REGARD, VIZ., WHETHER THE PARTNERSHIP IS FORMED BETWEEN THE ASSES SEE AND HIS WIFE AND CHILDREN OR SUBSTANTIALLY LIMITED TO THEM, WHET HER THE PERSONAL ASSET IS SOLD BY THE PARTNERSHIP FIRM SOON AFTER IT IS TRANSFERRED BY THE ASSESSEE TO IT, WHETHER THE PARTNERSHIP FIRM HA S NO SUBSTANTIAL OR REAL BUSINESS CAPITAL CONTRIBUTION FROM THE ASSESSE E. ALL THESE AND OTHER PERTINENT CONSIDERATIONS MAY BE TAKEN INTO RE GARD WHEN THE INCOME-TAX OFFICER ENTERS UPON A SCRUTINY OF THE TR ANSACTION, FOR IN THE TASK OF DETERMINING WHETHER A TRANSACTION IS A SHAM OR AN ILLUSORY TRANSACTION OR A DEVICE OR RUSE, HE IS ENT ITLED TO PENETRATE THE VEIL COVERING IT AND ASCERTAIN THE TRUTH .. ITA NO. 145 TO 145/B/09 PAGE 15 OF 17 7.8. ARMED WITH THE RULING OF THE HONBLE APEX COU RT REFERRED SUPRA, THE AO WENT TO THE ROOT OF THE ISSUE AND CAM E OUT TO A CONCLUSION IN A COMPREHENSIVE MANNER THAT THE SO CALLED TRANSFER OF THE PERSONAL ASSET BY THE ASSESSEE TO A PARTNERSHIP IN WHICH SHE ALONG WITH HER HUSBAND AND THEIR THREE CHILDREN BECOME PARTNERS WAS MERELY A D EVICE AND THE TRANSACTION OF CREATING SUCH A PARTNERSHIP WAS A SH AM TRANSACTION. TO ILLUSTRATE FURTHER, IN CLAUSE 2 OF THE PARTNERSHIP DEED IT WAS MENTIONED THAT THE BUSINESS OF THE FIRM SHALL CONTINUE TO BE THAT OF ACQUISITION, CONSTRUCTION, DEVELOPMENT AND EXPLOITATION OF PROPE RTIES AS PART OF THE BUSINESS OF THE FIRM. THE FIRM MAY CARRY ON ANY OT HER BUSINESS/ES AS THE PARTIES MAY FROM TIME TO TIME MUTUALLY AGREE UPON. O N THE CONTRARY, NO SOONER THE SCHEDULE PROPERTY WAS CONSTRUCTED, THE P ARTNERSHIP FIRM WAS DISSOLVED PREMATURELY WITHOUT ADDUCING ANY REASONAB LE CAUSE WHICH GOES TO PROVE BEYOND DOUBT THAT THE TRANSFER OF THE PE RSONAL ASSET BY THE ASSESSEE TO THE SO CALLED PARTNERSHIP FIRM WAS A DE VICE AND NOTHING-ELSE. 7.9. THE LD. CIT(A) IN HIS IMPUGNED ORDER WHICH IS UNDER DISPUTE, HAD BROUGHT OUT ALL THE FACTS WHICH HAVE BEEN ANALYZED IN DETAIL. AFTER CONSIDERING THE PROS AND CONS OF THE ISSUE EXHAUSTI VELY, HE HAD ARRIVED AT A CONCLUSION THAT THE ENTIRE RENTAL INCOME AS WELL AS SERVICE CHARGES DERIVED FROM THE SCHEDULE PROPERTY AT NO.29, CUNNINGHAM ROA D, WAS ASSESSABLE IN THE HANDS OF THE ASSESSEE. ITA NO. 145 TO 145/B/09 PAGE 16 OF 17 7.10. IN A SUBSEQUENT NOTE SUBMITTED BY THE LD. A.R , IT HAS BEEN CONTENDED THAT (I) ANY IMMOVABLE PROPERTY HELD BY ANY PERSON CAN CONTR IBUTE TO THE CAPITAL OF A PARTNERSHIP FIRM AT THE TIME OF CONSTI TUTION OF THE FIRM WITH AN INTENTION OF TREATING THE PROPERTY SO CONTR IBUTED AS A THE PROPERTY OF THE FIRM. UPON SUCH A CONTRIBUTION, TH E PARTNER ABANDONS HIS RIGHTS IN RESPECT OF SUCH PROPERTY AS SOLE AND ABSOLUTE OWNER THEREOF AND HE ONLY HAS A SHARED INT EREST IN THE PROPERTY AS PARTNER OF THE FIRM. THIS IS BY VIRTUE OF S.14 OF THE INDIAN PARTNERSHIP DEED; (II) RELIANCE PLACED IN THE CASE OF ADDANKI NARAYANAPPA V. V.BHASKARA KRISHNAPPA REPORTED IN AIR 1966 SC 1300 WHEREIN THE PROVISIONS OF S.14 OF INDIAN PARTNERSHIP ACT WE RE DELIBERATED UPON. ALSO IN THE CASES REPORTED IN (I) DEWAS CINE CORPORATION - 68 ITR 240 (SC); (II) HIND CONSTRUCTIONS 83 ITR 211 (SC); (III) MALABAR FISHERIES CO. 120 ITR 49 (SC); & (IV) R.M.R AMANATHAN CHETTIAR AND ANOTHER V. CONTROLLER OF ESTATE DUTY, MADRAS 99 ITR 410 (MAD) & (V) KARTHIKEYA V.SZARABHAI V. CIT 156 ITR 509 (SC) (III) AFTER THE PROVISIONS OF S.45(3)OF THE ACT HAVE COME INTO THE STATUTE, THERE WAS NO DIFFICULTY IN CHARGING CG TAX ON SUCH TRANSFERS ALTHOUGH THE LEGAL POSITION RELATING TO T RANSFER FOR THE PURPOSES OF THE ACT HAS NOT UNDERGONE ANY CHANGE. THIS WAS BECAUSE UNDER INCOME-TAX LAW, THE PARTNERSHIP FIRM WAS A SEPARATE ENTITY LIABLE FOR ASSESSMENT IN ITS NAME A ND THE SAME WAS DIFFERENT AND DISTINCT FROM THE PARTNERS WHO CONSTI TUTE THE FIRM; - THUS, HAVING REGARD TO THE AFORESAID RATIONALE AND ALSO HAVING REGARD TO THE PRINCIPLES IN GENERAL LAW, AFTER THE CONTRIBUTION OF THE PROPERTY TO THE PARTNERSHIP FIRM, THE FIRM B ECOMES THE OWNER OF THE PROPERTY U/S 14 OF THE PARTNERSHIP ACT FOR ALL INTENTS AND PURPOSES. THE INCOME OR GAINS FROM THE SAID PROPERTY GO TO THE FIRM AND NOT THE PARTNER WHO CON TRIBUTED THE SAID PROPERTY. DURING THE SUBSISTENCE OF THE F IRM NO PARTNER HAS ANY SPECIFIC RIGHT IN THE PROPERTY OF T HE FIRM AND HIS RIGHT IS CONFINED TO RECEIVING HIS SHARE IN THE PROPERTIES OF THE FIRM AT THE TIME OF DISSOLUTION. THE SUBSTANCE OF THE ABOVE NOTE HAS BEEN DULY CONSI DERED. 7.11. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND ALSO LEGAL PRECEDENTS AS DELIBERATED UPON IN THE FORE-GOING ITA NO. 145 TO 145/B/09 PAGE 17 OF 17 PARAGRAPHS, WE ARE OF THE UNANIMOUS VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN HIS ENDEAVOUR . IT IS ORDERED ACCORDINGLY. 8. THE NEXT GROUND IS CHARGING OF INTEREST U/S 234B OF THE ACT. CHARGING OF INTEREST U/S 234 OF THE ACT IS MANDATOR Y AND CONSEQUENTIAL IN NATURE. THIS GROUND IS, THEREFORE, DISMISSED AS NO T ENTERTAINABLE. 9. THE LAST GROUND BEING THAT THE ASSESSEE MAY BE A WARDED COSTS IN PROSECUTING THESE APPEALS AND ALSO REFUND OF THE IN STITUTION FEES AS PART OF THE COSTS. WE HAVE SINCE DECIDED THE ISSUES AGAINS T THE ASSESSEE FOR THE REASONS SET-OUT SUPRA, THIS GROUND BECOMES REDUNDAN T AND, ACCORDINGLY, DISMISSED WITHOUT GOING INTO THE MERIT OF THE ISSUE . 10. IN THE RESULT, THE ASSESSEES APPEALS FOR THE AYS 1995-96, 96-97, 97-98, 99-00 AND 00-01 ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF NOVEMBER, 2009. SD/- SD/- (GEORGE GEORGE K.) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 27 TH NOVEMBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.