M/s. Gurunanak Bakers & Fast Food, Ujjain V. The I.T.O., Ratlam

ITA 161/IND/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9640 (ITAT-INDORE)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR MITRA
• Assessee Lawyers: S C GOYAL
• Keywords: Capital asset; Depreciation; Fair market value; Capital Gains
• Section: 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C.SHARMA, ACCOUNTANT MEMBER PAN NO. : AAFFG9675E I.T.A.NO. 161/IND/2010 A.Y. : 2005-06 M/S. GURUNANAK BAKERS & FAST FOOD, INCOME-TAX OFFICER, WARD 1, RATLAM. VS RATLAM, (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. C. GOYAL, ADVOCATE RESPONDENT BY : SHRI PRADEEP KUMAR MITRA, SR. DR O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), UJJAIN, DATED 24.02.2010 FOR THE ASSESSM ENT YEAR 2005-06 IN THE MATTER OF ORDER PASSED U/S 143(3) /1 47 OF THE INCOME-TAX ACT, 1961. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUS ED. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERSH IP FIRM ENGAGED IN MANUFACTURING AND SALE OF BREAD AND BISC UIT. -: 2: - 2 DURING THE YEAR UNDER CONSIDERATION, THERE WAS A DI SSOLUTION OF THE PARTNERSHIP FIRM, ACCORDING TO WHICH THREE P ARTNERS RETIRED AND FOURTH PARTNER TOOK OVER THE ENTIRE ASS ETS AND LIABILITIES OF THE FIRM. WHILE FRAMING ASSESSMENT, THE AO FOUND THAT THE MARKET VALUE OF THE STOCK AS AT THE END OF THE YEAR WAS MORE THAN THE COST PRICE SHOWN IN THE BALANCE S HEET AND TRADING ACCOUNT. ACCORDINGLY, HE BROUGHT TO TAX DIF FERENCE BETWEEN THE COST PRICE AND MARKET PRICE AMOUNTING T O RS. 1,70,617/-. BY THE IMPUGNED ORDER, THE LD. CIT(A) C ONFIRMED THE ACTION OF THE AO AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 5. FROM THE RECORD, WE FOUND THAT THERE WAS DISSOLUTIO N OF THE ASSESSEE FIRM DURING THE YEAR UNDER CONSIDERATI ON. AS PER SPECIFIC CLAUSE 3 OF DISSOLUTION DEED DATED 31 ST MARCH,2005, THE PARTNERSHIP FIRM WAS DISSOLVED BY MUTUAL CONSEN T ON AND FROM 31 ST MARCH, 2005, AND ALL THE ASSETS AND LIABILITIES OF THE PARTNERSHIP FIRM EXISTING ON THAT DATE WAS TAKEN OV ER BY THE PARTY OF THE FOURTH PART I.E. SHRI SUNIL KUMAR CHHA BRA. ON THE -: 3: - 3 BASIS OF THIS CLAUSE IN THE PARTNERSHIP DEED, THE A O HAS ASSUMED THAT THE STOCK WAS ALSO TRANSFERRED TO ONE OF THE FOUR PARTNERS, WHO WAS CONTINUING TO CARRY ON THE SAME B USINESS. THEREFORE, HE VALUED THE CLOSING STOCK OF RS. 6,82, 470/- AT A MARKET PRICE, WHICH WAS 25 % ABOVE THE COST PRICE. ACCORDINGLY, THE ADDITION OF RS. 1,70,617/- WAS MAD E. THE LD. AUTHORIZED REPRESENTATIVES RELIANCE BEFORE US WAS ON THE DECISION OF M/S. SHAKTI TRADING COMPANY, WHEREIN TH E HON'BLE SUPREME COURT HAS HELD THAT WHEN THERE IS A DISSOLU TION OF THE FIRM ON THE DEATH OF ONE OF THE PARTNERS, WHICH IS RECONSTITUTED WITH THE REMAINING PARTNER WITH DISCO NTINUANCE OF BUSINESS, THE CLOSING STOCK OF THE FIRM IS TO BE VALUED AT COST OR THE MARKET PRICE, WHICH EVER IS LOWER. IT APPEAR S THAT WHILE TAKING THE MARKET VALUE OF STOCK INSTEAD OF COST PR ICE, THE AO HAS RELIED ON THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF 189 ITR 285, M/S. A.L.A. FIRM, A.P.HIGH COU RT IN THE CASE OF RAJLAXMI TRADING COMPANY, 250 ITR 581, THE KERALA HIGH COURT IN THE CASE OF POPULAR WORKSHOP, 166 ITR 348. HOWEVER, AS PER OUR CONSIDERED VIEW, THE LATTER DEC ISION OF THE HON'BLE SUPREME COURT IS TO BE APPLIED. IN THE INST ANT CASE, AS -: 4: - 4 ON THE DATE OF DISSOLUTION, THERE WAS NO SALE OF CL OSING STOCK, WHICH WAS TRANSFERRED TO THE CONTINUING PARTNER. TH E QUESTION OF ACCRUAL OF PROFIT ON SUCH STOCK WILL ARISE ONLY WHEN SAME IS SOLD IN THE MARKET. TAXING THE ASSUMED PROFIT IN RE SPECT OF STOCK IN TRADE, WHICH HAS NOT BEEN SOLD, WILL AMOUN T TO BRINGING THE NOTIONAL PROFIT TO TAX, WITHOUT ITS AC CRUAL OR ARISEN. THE STOCK RETAINED BY THE CONTINUING PARTNE R, WHEN SOLD IN THE SUBSEQUENT OCCASION, THE SAME HAS ALREA DY BEEN OFFERED AND BROUGHT TO TAX IN THE YEAR OF SALE BY T HE DEPARTMENT. TAXING SUCH PROFIT ON DISSOLUTION OF FI RM WILL AMOUNT TO DOUBLE TAXATION OF THE SAME PROFIT. IN TH E INTEREST OF JUSTICE, WE RESTORE THIS GROUND BACK TO THE FILE OF THE AO WITH THE DIRECTION TO REDUCE THE PROFIT EARNED AND DISCL OSED ON SUCH SALE OF STOCK, WHICH HAS BEEN CHARGED IN THE HANDS OF THE FIRM, AS WORKED OUT BY THE ASSESSING OFFICER AMOUNTING TO RS. 1,70,617/-. ACCORDINGLY, THE ADDITION SHOULD BE RES TRICTED TO THE EXTENT OF SUCH DIFFERENCE ONLY. WE DIRECT ACCOR DINGLY. 6. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO TAXING TH E CAPITAL GAIN ON TRANSFER OF BUILDING. THE AO FOUND THAT AS PER THE CLAUSE OF DISSOLUTION DEED, LAND AND BUILDING O F THE FIRM -: 5: - 5 WAS TRANSFERRED TO THE CONTINUING PARTNER, WHICH IS LIABLE TO TAX U/S 45(4) OF THE INCOME-TAX ACT, 1961. ACCORDIN GLY, THE AO WORKED OUT THE W. D. V. OF THE BUILDING AND AFTER R EDUCING THE ACTUAL SALE PRICE REALIZED BROUGHT A SUM OF RS. 16, 49,054/-TO CAPITAL GAIN TAX. SIMILARLY, IN RESPECT OF PLOT OF LAND ON WHICH SUCH BUILDING WAS CONSTRUCTED, THE AO AFTER ALLOWIN G INDEXATION OF THE COST OF LAND, BROUGHT TO TAX A SU M OF RS. 39.55 LAKHS AS CAPITAL GAINS U/S 45(4) OF THE INCOM E-TAX ACT, 1961. 7. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO AFTER DISCUSSING VARIOUS CASE LAWS CITED BY THE LD. AUTHORIZED REPRESENTATIVE BEFORE HIM. 8. CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE BEF ORE US WAS THAT THERE WAS NO TRANSFER OF LAND, IN SO FA R AS THE LAND WAS PURCHASED BY ALL THE FOUR PARTNERS IN THEIR IND IVIDUAL CAPACITY IN THE ASSESSMENT YEAR 2000-01. THE COST O F THE PLOT SO INDIVIDUALLY PURCHASED BY ALL OF THEM IS DEBITED IN SEPARATE ACCOUNT NAMED AS PLOT ACCOUNT VALUING RS. 8,17,200/ -. 9. ON THE SAID PLOT, A BUILDING HAS BEEN CONSTRUCTED BY THE FIRM FROM A.Y. 2001-02 BY MAKING TOTAL INVESTMENT OF -: 6: - 6 RS. 2418816/ -. IN IT, THE DEPRECIATION OF THE YEAR IS BEING DEBITED AND THE COST OF THE SAME AS 2005-06 IS SHOWN AT RS. 1616146/-. 10. HE FURTHER CONTENDED THAT THE BUILDING HAS BEEN CONSTRUCTED BY THE SAID FIRM FROM THEIR OWN FUNDS WHICH ARE DEBITED IN THE BOOKS AND THE COST OF THE PLOT O N WHICH THE SAID BUILDING IS CONSTRUCTED, IS BEING PURCHASED BY PARTNERS INDIVIDUALLY IN THEIR OWN ACCOUNT AND THEY HAVE PERMITTED TO HAVE THE CONSTRUCTION OF BUILDING THOUGH RETAINING THE RIGHT ON PLOT. AS PER LD. AUTHORIZED REPRESENTATIVE ITO HAS COMPLETELY ERRED IN LAW IN STATING THAT ON DISSOLUT ION OF FIRM AS ON 31.3.95 THE BUILDING AND THE PLOT IS BEING TRANSFERRED IN THE FORM OF ASSETS OF THE FIRM. ACTU ALLY IT IS NOT, SO FAR AS PLOT IS CONCERNED BECAUSE THE OWNERS HIP OF THE PLOT STILL REMAINS WITH THESE ERSTWHILE PARTNER S IN THEIR RESPECTIVE SHARES AND THEY ARE STILL THE OWNERS OF THE SAME. THEREFORE, TO CONCLUDE THAT THIS PLOT IS ALSO BEING TRANSFERRED HAS NO SUBSTANCE. SEPARATE PURCHASE DEE D IN -: 7: - 7 RESPECT OF THE PLOT HAS ALREADY BEEN FILED IN THE P APER BOOK FROM PAGE 27 TO 68. EVEN THE MUNICIPAL TAX IS BEING PAID BY SHRI RAJIV KUMAR BEING THE RETIRING PARTNER IN SUBSEQUENT YEARS VIZ. 2006-07 AND 2007-08 SHOWN ON PAGE 24 & 25. LOAN HAS ALSO BEEN RAISED SUBSEQUENTLY FROM S ATPURA NARBADA REGIONAL GRAMIN BANK BY THE INDIVIDUAL AFTER THE DISSOLUTION OF THE FIRM AND SO FAR AS FURNISHING OF SECURITY IS CONCERNED, IT IS PROVIDED BY ALL THE 4 PARTNERS INDIVIDUALLY I N THEIR OWN NAME. THUS, THE PLOT REMAINS WITH THESE INDIVIDUAL PARTNERS AND ACTUALLY , THERE IS NOTHING TO SAY THAT IT HAS BEEN ALSO TRANSFERRED ON 31.3.95. STRENGTH HAS BEEN DERIVED BY THE A.O. AND CITA ON T HE MEMORANDUM OF DISSOLUTION OF PARTNERSHIP EXECUTED O N 31.3.05. IN THE SAID MEMORANDUM OF DISSOLUTION OF PARTNERSHIP, THINGS HAVE BEEN MADE VERY CLEAR THAT WHAT IT CONTAINS, IS THE IMMOVABLE PROPERTY OF THE SAID BUS INESS. FOR EXAMPLE, - -: 8: - 8 'WHEREAS THE PARTY HERETO HAS BEEN CARRYING ON BUSINESS OF PRODUCING AND DEALING IN ALL KINDS OF BAKERY ITEMS, CONFECTIONARY ITEMS AND FAST FOOD W.E .F. 11.5.99 AND WHEREAS AFORESAID PARTNERSHIP HAS BEEN DISSOLVED BY MUTUAL CONSENT AMONG THE PARTIES ON AN D FROM 31.3.2005 UPTO WHICH DATE, THE ACCOUNTS OF PARTNERSHIP HAVE BEEN FINALIZED AND SETTLED BY ALL THE PARTNERS AND THE ASSETS & LIABILITIES OF THE PARTNERSHIP FIRM EXISTING AS ON THE DATE, HAVE BEEN TAKEN OVER BY THE PARTY OF THE 4TH PART VIZ, SUNIL CHHABRA.' OUR ATTENTION WAS ALSO DRAWN TO CLAUSE (3) OF THE SAID DEED WHICH STATES AS UNDER : 'ALL THE ASSETS AND LIABILITIES OF THE DISSOLVED PARTNERSHIP FIRM AS APPEARING IN THE BALANCE SHEET DRAWN ON THE DATE OF DISSOLUTION HAVE BEEN TAKEN OVER BY THE PARTY OF THE 4TH PART VIZ. SUNIL CH HA BRA S/O SOHANLAL CHHABRA. IT WAS AGREED TO TAKE ALL ASSETS AND LIABILITIES OF THE PARTNERSHIP FIRM TO SATISFY ALL THE LIABILITIES OF THE -: 9: - 9 DISSOLVED PARTNERSHIP FIRM AS EXISTING ON THE DATE OF DISSOLUTION.' THUS, READING THE DISSOLUTION DEED BY ITSELF, WHAT HAS BEEN MADE SECURED OF THE 4TH PART IS THAT ALL ASSETS AND LIABILITIES OF DISSOLVED PARTNERSHIP FIRM IS TAKEN OVER AS ON 31.3.2005. IN IT, THE OWNERSHIP OF THE PLOT WHICH I S ALSO BEING CONSTITUTED OF 4 TH PART SEPARATELY, STILL REMAINS THE SAME AND HAVE NOT BEEN TRANSFERRED AND NO SEPARATE DEED OR A N AGREEMENT IS ENTERED FOR THAT PURPOSE, SINCE IT STA NDS AS IT IS, THE QUESTION OF TREATING THE LIABILITY OF CAPITAL G AINS ON THE SAID COST OF PLOT IS NOT CORRECT IN LAW AND IS VITIATED ON THE FACTS COMING FROM THE BOOKS OF ACCOUNT FROM A. Y. 2000-01 WHERE THE COST OF THE PLOT IS INDIVIDUALLY DEBITED TO ALL THE 4 PARTIES ACCOUNT. 11. IN VIEW OF THE ABOVE SUBMISSION, THE LD. AUTHORIZED REPRESENTATIVE STRONGLY CONTENDED THAT THERE IS NO LIABILITY OF CAPITAL GAINS ON THE SALE OF SAID PLOTS, AS IT WAS NOT TRANSFERRED TO CONTINUING PARTNER, WHO REMAINED OWNER OF THE FI RM AFTER DISSOLUTION. -: 10: - 10 12. FURTHER CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT THE BUILDING IS OWNED BY TH E FIRM, BUT NO TRANSFER DEED IS BEING EXECUTED SO FAR AS TH IS IMMOVABLE PROPERTY IS CONCERNED NOR IT IS BEING INT ENDED TO TRANSFER THE SAID BUILDING SINCE THE FOURTH PARTY VIZ. SUNIL CHHABRA IS ALSO THE OWNER OF THE SAID PLOT AN D HE CAN'T TRANSFER THE SAME TO HIMSELF. THE QUESTION OF ALLEGED TRANSFER OF THE COST OF BUILDING IN FAVOUR OF HIM D OESN'T STAND AND THEREFORE THE CAPITAL GAINS CALCULATED ON THE ABOVE NEEDS TO BE DELETED. LIKEWISE, THE OTHER THRE E PARTIES HAVE NOT TRANSFERRED THE OWNERSHIP OF PLOT . 2. AS PER LD. AUTHORIZED REPRESENTATIVE AN IMPORTANT C HANGE IS MADE IN THE SCHEME OF CAPITAL GAINS W.E.F. 1.4.1988 WHERE CLAUSE 3 AND 4 OF SEC. 45 IS BEING ADDED. CLAUSE 4 WHICH DEALS WITH THE LIABILITY OF CAPITAL GAINS IN CASE O F FIRM ON TRANSFER OF CAPITAL ASSETS STATES AS UNDER: THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASS ETS ON THE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF P ERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A -: 11: - 11 COOPERATIVE SOCIETY) OR OTHERWISE, SHALL BE CHARGEA BLE TO TAX AS THE INCOME OF THE FIRM, ASSOCIATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKE T VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHA LL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. LOOKED FROM THIS ANGLE, THE ITO HAS CALCULATED THE LIABILITY BY STATING THAT THIS CAPITAL ASSET OF BUI LDING IS BEING TRANSFERRED. KINDLY APPRECIATE THAT THE LIABI LITY OF CAPITAL GAINS ARISES FROM TRANSFER OF CAPITAL ASSET S BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON DISSOLUTIO N OF THE FIRM AND SHALL BE CHARGED TO TAX WHEN THE SAID TRANSFER TAKES PLACE. 13. FURTHER CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT WHILE COMPUTING CAPITAL GAI NS ON BUILDING, THE AO HAS NOT TAKEN INTO CONSIDERATION T HE PROVISIONS OF SECTION 50 INTRODUCED W.E.F. ASSESSME NT YEAR 1978-79 IN RESPECT OF DEPRECIABLE ASSETS ON WHICH A SSESSEE HAS CLAIMED DEPRECIATION. 14. ON THE OTHER HAND, THE CONTENTION OF THE LD. SR. DR SHRI P.K.MITRA WAS THAT THE AO HAS CORRECTLY BROUGH T TO TAX NET CAPITAL GAINS ARISING ON TRANSFER OF LAND AND B UILDING. HE -: 12: - 12 DREW OUR ATTENTION TO THE BUILDING ACCOUNT AS CONTA INED IN THE PAPER BOOK INDICATING THE SAME AS FIRMS ASSETS ON WHICH ASSESSEE FIRM HAS CLAIMED AND ALLOWED DEPRECI ATION. THE LAND WAS ALSO SHOWN IN THE ASSETS SIDE OF THE F IRM AND CORRESPONDING AMOUNT SPENT BY EACH OF THE PARTNER W ERE CREDITED IN THEIR CAPITAL ACCOUNT. ACCORDINGLY, HE SUBMITTED THAT IN TERMS OF CLAUSE (3) OF THE DISSOLUTION DEED DATED 31 ST MARCH, 2005, ENTIRE ASSETS AND LIABILITIES WERE TRA NSFERRED TO FOURTH PARTNER SHRI SUNIL KUMAR CHHABRA, WHO REMAIN ED EXCLUSIVE OWNER OF THE ASSETS AFTER SAID DISSOLUTIO N. 15. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. F ROM THE RECORD, WE FOUND THAT THE ASSESSEE FIRM WAS HAVING LAND AND BUILDING, WHICH WAS TRANSFERRED TO THE FOURTH PARTN ER SHRI SUNIL KUMAR CHHABRA AT THE TIME OF DISSOLUTION OF T HE PARTNERSHIP FIRM ON 31 ST MARCH, 2005. AS PER CLAUSE (3) OF THE DISSOLUTION DEED ALL THE ASSETS AND LIABILITIES OF THE FIRM EXISTING ON THAT DATE WAS TAKEN OVER BY SHRI SUNIL KUMAR CHHABRA. THUS, HE BECAME ABSOLUTE OWNER OF THE ASSE TS, -: 13: - 13 WHICH WERE EXISTING IN THE BALANCE SHEET OF THE FIR M IN THE FORM OF STOCK, LAND AND BUILDING. AS PER CLAUSE (4) OF SECTION 45, THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON T HE DISSOLUTION OF A FIRM, SHALL BE CHARGEABLE TO TAX A S THE INCOME OF THE FIRM, OF THE PREVIOUS YEAR IN WHICH T HE SAID TRANSFER TAKES PLACE AND FOR THE PURPOSE OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSETS ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF TRANSFER. THUS, ON DISSO LUTION OF THE ASSESSEE FIRM, ALL THE ASSETS AND LIABILITIES W ERE DISTRIBUTED, ACCORDING TO WHICH THE CONTINUING PART NER SHRI SUNIL KUMAR WAS TO ENJOY ALL THE ASSETS OF THE FIRM AND ALSO AT THE VERY SAME TIME OBLIGED TO PAY THE LIABILITIE S OF THE FIRM EXISTING AS ON 31 ST MARCH, 2005. CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE THAT PLOT WAS PURCHASED B Y THE INDIVIDUAL PARTNER IN THEIR OWN NAME, THEREFORE, TH ERE WAS NO TRANSFER OF SUCH PLOT OF LAND IN FAVOUR OF CONTI NUING PARTNER SHRI SUNIL KUMAR, HAS NO MERIT IN SO FAR AS COST OF -: 14: - 14 PLOT WHEN PURCHASED, EVEN THOUGH IN THE INDIVIDUAL NAME OF PARTNERS, BUT DULY BROUGHT TO THE ASSETS OF THE FIR M AND THE CORRESPONDING AMOUNT SPENT FOR SUCH PLOT WAS DULY C REDITED IN THE CAPITAL ACCOUNT OF EACH OF THE PARTNER AS IS CLEAR FROM THE COPY OF PLOT ACCOUNT PLACED IN THE PAPER BOOK. WE ALSO FOUND THAT TOTAL COST INCURRED ON PURCHASE OF PLOT BY ALL THE INDIVIDUAL PARTNERS AMOUNTING TO RS. 8,17,200/-. TH IS COST WAS DEBITED IN THE FIRMS ACCOUNT UNDER THE HEAD P LOT ACCOUNT. CORRESPONDING CREDIT WAS GIVEN TO THE CAP ITAL ACCOUNT OF ALL THE RESPECTIVE FOUR PARTNERS BY THE EXACT AMOUNT SPENT BY THEM ON PURCHASE OF PLOT. THUS, INTRODUCTION OF PLOT IN THE FIRM AS CAPITAL, AMOUNT S TO TRANSFER OF PLOT BY ALL THE FOUR PARTNERS IN THE NA ME OF THE FIRM. MERE PAYMENT OF ANY CHARGES BEING LEVIED ON S UCH PLOT BY INDIVIDUAL PARTNERS, WILL NOT GIVE THEM OWNERSHI P RIGHT OVER THE PLOT WHICH HAS BEEN DULY TRANSFERRED IN FA VOUR OF THE FIRM BY INTRODUCING THE SAME AS FIRMS ASSETS I N ITS BALANCE SHEET. CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE THAT SINCE THE PLOTS WERE PURCHASED BY -: 15: - 15 INDIVIDUAL PARTNERS, THE SAME REMAINED IN OWNERSHIP RIGHT OF THE INDIVIDUAL PARTNER AND WAS NOT TRANSFERRED T O THE FIRM, THEREFORE, THERE IS NO QUESTION OF SUBSEQUENT TRANS FER OF PLOT IN THE NAME OF FIRM ON DISSOLUTION OF PARTNERSHIP F IRM UNDER WHICH ALL THE ASSETS AND LIABILITIES WERE DISTRIBUT ED AMONG THE CONTINUING AND RETIRING PARTNERS. WE DO NOT FIN D ANY SUBSTANCE IN THIS ARGUMENT, AS THE PLOT HAD ALREADY BEEN TRANSFERRED TO THE FIRM BY CREDITING IN RESPECTIVE CAPITAL ACCOUNT OF THE PARTNER, AND SINCE THEN PLOT WAS APP EARING IN THE BALANCE SHEET OF FIRM AS ITS ASSETS. ON THIS LA ND FIRM HAS ALSO CONSTRUCTED BUILDING WHICH WAS USED BY THE FIR M FOR ITS BUSINESS. NO DOCUMENTARY EVIDENCE WAS PLACED BEFORE US TO SUBSTANTIATE THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE THAT TILL TODAY ALL THE RETIRING PAR TNERS ARE OWNERS OF THE PLOTS AND THE SAME HAD NOT BEEN TRANS FERRED TO THE FIRM. ALL THE ASSETS OF FIRM INCLUDING THE P LOT ON WHICH BUILDING WAS CONSTRUCTED WAS TRANSFERRED TO THE CON TINUING PARTNER AS PER DISSOLUTION DEED, THEREFORE, THERE I S NO QUESTION OF TRANSFER OF MERE BUILDING WITHOUT LAND. AT THE -: 16: - 16 VERY SAME TIME, WE FOUND THAT TO THE EXTENT THE CON TINUING PARTNER WAS OWNER OF THE PLOT AMOUNTING TO RS. 1,57 ,000/-, WHICH REMAINED HIS ASSETS EVEN AFTER RETIREMENT, TH ERE IS NO QUESTION OF TRANSFER OF HIS SHARE OF PLOT, WHICH HE CONTINUED TO OWN EVEN AFTER DISSOLUTION OF THE FIRM. ACCORDIN GLY, WE DIRECT THE AO TO RECOMPUTE THE CAPITAL GAIN ON THE PORTION OF THE PLOT WHICH BELONGED TO THE RETIRING PARTNER AND EXCLUDE THE SAME FROM TOTAL CAPITAL GAINS COMPUTED BY HIM. WE DIRECT ACCORDINGLY. 16. IN RESPECT OF THE BUILDING, SINCE RETIRING PARTN ER SHRI SUNIL KUMAR CHHABRA WAS HAVING HIS RIGHT EQUAL TO H IS SHARE SPECIFIED IN THE PARTNERSHIP DEED I.E. 30 %, THERE IS NO TRANSFER OF THIS PART OF THE BUILDING, WHICH REMAIN ED TO BE ENJOYED BY SHRI SUNIL KUMAR EVEN AFTER DISSOLUTION OF THE FIRM. THUS, WE DIRECT THE AO TO EXCLUDE 30 % OF THE CAPITAL GAINS ON THE BUILDING. 17. SO FAR AS, THE LD. AUTHORIZED REPRESENTATIVES CONTENTION TO THE EFFECT THAT SECTION 50 IS CLEARLY APPLICABLE TO THE BUILDING ON WHICH ASSESSEE HAS CLAIMED AND A LLOWED -: 17: - 17 DEPRECIATION, WHICH FORMS PART OF THE BLOCK OF ASSE TS, THE PROVISIONS OF SECTIONS 48 & 49 WILL BE EQUALLY APPL ICABLE. WE ARE IN AGREEMENT WITH THE LD. AUTHORIZED REPRESENTA TIVE THAT SINCE BUILDING WAS FORMING PART OF BLOCK OF ASSETS ON WHICH ASSESSEE FIRM HAS CLAIMED AND ALLOWED DEPRECIATION, THE PROVISIONS OF SECTION 50 ARE CLEARLY APPLICABLE TO IT WHILE COMPUTING CAPITAL GAINS THEREON. ACCORDINGLY, WE RE STORE THE MATTER WITH REGARD TO COMPUTATION OF CAPITAL GAINS ON TRANSFER OF BUILDING, IN TERMS OF OUR ABOVE OBSERVA TION. WE DIRECT ACCORDINGLY. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 4 TH FEBRUARY, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 4 TH FEBRUARY, 2011. CPU* 202542