R.K.Industries, CHENNAI V. ACIT, CHENNAI

ITA 2926/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7731 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 17-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 01-12-2014
• Court: TRIBUNAL
• Department Lawyers: M M BHUSARICIT
• Keywords: Capital asset
• Section: 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' #! ' $ . %& ' () BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2926 /MDS./2014 ( / ASSESSMENT YEAR :2011-12) M/S.R.K.INDUSTRIES , A7 & 8, TVK INDUSTRIAL ESTATE, GUINDY,CHENNAI 600 032. VS. ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE IV, CHENNAI 600 034. PAN AAAFR 3474 R ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) / APPELLANT BY : MR.PHILIP GEORGE,ADVOCATE / RESPONDENT BY : MR.MM BHUSARI,CIT, D.R / DATE OF HEARING : 17.02.2016 ! /DATE OF PRONOUNCEMENT : 18.03.2016 . / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)- V, CHENNAI DATED 07.10.2014 PERTAINING TO THE ASSESSMENT YEAR 2011-12. ITA NO2926./MDS/2014 2 2. THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD T O CONFIRM AN ADDITION OF ` 1,30,80,540/- U/S.45(4) OF ACT WHILE COMPUTING THE LONG TERM CAPITAL GAINS. 3.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE FILED ITS RETURN OF INCOME IN 30.3.2013 ADMITTING ITS INCOME OF ` 8,84,97,841/-. THE ASSESSEE DERIVED ITS INCOME FROM BUSINESS AND GAINS ON SALE OF IMMOVABLE PROPERTY.THE ASSESSEE FIRM HAS COMMENCED ITS BUSINESS IN THE YEAR 1974. THEREAFTER ON 11TH MARCH 1994, TW O OF ITS PARTNERS NAMELY SMT.PUSHPA K.AGARWAL AND SMT.MEENAKSHI R.SHA H PURCHASED THE LAND SITUATED AT NO.15, RACE COURSE R OAD, GUINDY, CHENNAI AND CONTRIBUTED THE SAME TO THE FIRM. THE F IRM HAS CONSTRUCTED THE FACTORY BUILDING THEREON THEREAFTER . IN BETWEEN CONSTITUTION OF THE FIRM CHANGED FROM TIME TO TIME. THE OUTGOING PARTNERS HAD TAKEN THE MONEY OUTSTANDING TO THEIR A CCOUNT AS ON DATE OF RETIREMENT AND INCOMING PARTNERS CONTRIBUTED THE CAPITAL. HOWEVER THE PARTNERS IN WHOSE NAME LAND WAS PURCHASED CONTI NUED TO BE PARTNERS TILL 31.3.2011. ON 31.3.2011 ONE OF THE PA RTNERS NAMELY SMT.MEENAKSHI R.SHAH WHO HAD CONTRIBUTED THE LAND, RETIRED ALONG ITA NO2926./MDS/2014 3 WITH OTHER 5 PARTNERS AND MINOR KUNAL AGARWAL WHO W AS ALSO CEASED TO BE ADMITTED TO THE BENEFITS OF PARTNERS ON RETI REMENT ONE OF THE PARTNER NAMELY RANVIR R.SHAH TOOK THE LAND AND BUIL DING AGAINST HIS CAPITAL OUTSTANDING AS ON 31.3.2011. ALL THE OTHER RETIRING PARTNERS HAVE TAKEN THE AMOUNT OUTSTANDING TO THE CREDIT OF THEIR ACCOUNT. THE CONTINUING PARTNERS KAMAL KISHORE AGARWAL, AJAY AGA RWAL AND SMT.PUSHPA K.AGARWAL TOOK OVER THE BUSINESS OF ERST WHILE FIRM AND THEY CONTINUED AND CARRIED ON THE BUSINESS THEREAFT ER. THUS THERE WAS NO DISSOLUTION OF THE FIRM. 3.2 DURING THE COURSE OF THE ASSESSMENT THE ASSESS ING OFFICER HAS NOTICED THAT SINCE ONE OF THE RETIRING PARTNER HAS TAKEN THE LAND AND BUILDING AGAINST HIS CAPITAL, SECTION 45(4) OF THE INCOME TAX ACT, 1961 IS ATTRACTED AND CAPITAL GAINS ARISING OUT OF THE S AID TRANSFER IS TO BE ASSESSED AS LONG TERM CAPITAL GAIN. THE ASSESSEE IN ITS LETTER ADDRESSED TO AO DATED 18.11.2013 HAS OBJECTED TO TH IS PROPOSAL IN VIEW OF THE VARIOUS DECISIONS OF HIGH COURTS AND TR IBUNALS, THE SAID TRANSACTION DOES NOT TAKE THE CHARACTER OF TRANSFER AND AS SUCH QUESTION OF LEVYING THE CAPITAL GAINS TAX THEREON D OES NOT ARISE. ITA NO2926./MDS/2014 4 HOWEVER, THE ASSESSING OFFICER HAS REJECTED THE ASS ESSEES SUBMISSIONS ON THE GROUND THAT THE DECISIONS RELIED UPON BY THE ASSESSEE, ON THE DECISION OF BOMBAY HIGH COURT IN T HE CASE OF CIT VS. A.N.NAIK ASSOCIATES(265 ITR 346) AND DECISION OF KARNATAKA HIGH COURT RENDERED IN THE CASE OF C.I.T. VS GURUNA TH TALKIES (328 ITR 59) WERE NOT CONSIDERED. IN THESE DECISIONS THE HIGH COURTS OF BOMBAY &KARNATAKA HELD THAT PROVISIONS OF SECTION 4 5(4) OF THE ACT ARE APPLICABLE ON DISTRIBUTION OF CAPITAL ASSET AT THE TIME OF RETIREMENT. THE ASSESSING OFFICER HAS HOT CONSIDERE D THE ARGUMENT OF THE APPELLANT THAT IN THE EVENT OF CONFLICTING DECI SIONS OF VARIOUS HIGH COURTS AND IN THE ABSENCE OF ANY DECISION ON THE PO INT BY A JURISDICTIONAL HIGH COURT, THE DECISION OF THE HIGH COURT WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE FOLLOWED. THUS THE ASSESSING OFFICER HAS ADDED A SUM OF ` 1,30,80,540/- IN THE LONG TERM CAPITAL GAINS AND LEVIED THE TAX AND INTEREST UNDER SECTION 234A AND 234B OF THE INCOME TAX ACT, 1961. AGAINST THIS ASSESSEE WAS IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. AGAINST THE ORDER OF THE LD.CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO2926./MDS/2014 5 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS SQUARELY COV ERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS.A.N. NAIK ASSOCIATES REPORTED IN 265 ITR 346(BOM.) WHEREIN HELD THAT:- THE DOCUMENTS WOULD CLEARLY SHOW THAT BEFORE THE CO NTINUING PARTNERS RETIRED THERE WAS AN INDUCTION OF A NEW PARTNER IN THE MORNING OF THE SAID DAY AND OUTGOING PARTNERS RETIRED AT THE CLOSING OF BUSINESS HOURS ON THAT DAY. IN OTHER WORDS, THE PARTNERSHIP SUBSISTED BUT WITH TWO PARTNERS AND THE BUSINESS ALSO CONTINUED. THAT WOULD, THEREFORE, NOT AMOUNT TO DISSOLUTION OF THE FIRM. THERE WAS NO DENIAL THAT T HERE WERE FAMILY DISPUTES AMONGST THE PARTNERS AND THE GENESIS OF TH E FAMILY ARRANGEMENT WAS NOT DISPUTED. THE ARRANGEMENT BY WAY OF DIVISIO N OF THE ASSETS AND BUSINESS INTERESTS WAS CLEARLY DEFINED AND WAS NOT AN ISOLATED TRANSACTION IN RESPECT OF THE FIRMS. THE FINDING BY THE INCOME-TAX APPELLATE TRIBUNAL THAT THE DEED OF RECONSTITUTION BY INDUCTING A PARTNER IN THE ASSESSEE-FIRM WAS NOT A DEVICE TO AVOID TAX HAD TO BE UPHELD. HOWEVER, THE TRANSFER OF ASSETS OF THE PARTNERSHIP TO THE RETIRING PARTNERS WOULD AMOUNT TO THE TRANSFER OF THE CAPITAL ASSETS IN THE NATURE OF CAPITAL GAINS AND BUSINESS PROFITS WHICH WERE CHARGEABLE TO TAX UNDER SECTION 45(4) . SAME VIEW TAKEN BY THE KERALA HIGH COURT IN THE CAS E OF CIT VS. SOUTHERN TUBES REPORTED IN 306 ITR 216(KERALA). 5. IN VIEW OF THIS, WE ARE OF THE OPINION THAT TH E PROVISIONS OF THE SECTION 45(4) OF THE ACT IS SQUARELY APPLICABLE IN THIS CASE AND SINCE THERE IS A DISTRIBUTION OF CAPITAL ASSET AMONG THE PARTNERS ON ITA NO2926./MDS/2014 6 RETIREMENT AND RECONSTITUTION OF THE PARTNERSHIP. BEING SO, WE HAVE NO HESITATION IN CONFIRMING THE ORDER OF THE LD.CIT (A). 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMISS ED. ORDER PRONOUNCED ON FRIDAY, THE 18 TH OF MARCH,2016 AT CHENNAI. SD/- SD/- ' # $ . % & ' ( DUVVURU RL REDDY ) ) ( ( ( ) * + ) ) ' CHANDRA POOJARI ', JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 18 TH MARCH,2016 . K S SUNDARAM. -.,, /0,10 /COPY TO: , 1. /APPELLANT 2. /RESPONDENT 3. , 2,'' /CIT(A) 4. , 2 /CIT 5. 034, 5 /DR 6. 4,6 /GF