SRI.S.K.RAVIKUMAR V. THE INCOME TAX OFFICER

ITA/82/2010

AI Insights

The case revolves around the tax implications following the sale of a theatre and associated land by the partnership firm M/S. Srinivasa Enterprises. The original owners, Sri N.A. Venugopal and N.A. Ravigopal, had retired from the partnership and sold their interests in the property to the firm, which later sold the property to a third party. The Income Tax Department assessed capital gains tax on the sale, which the firm contested, leading to this appeal. The main legal questions pertained to the ownership of the property at the time of sale and the applicability of Section 45(4) of the Income Tax Act, 1961, which deals with the taxation of capital gains.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 755055 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 17-03-2010
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: PRIYA
• Keywords: Capital Gains; Fair market value; Income tax appeal; Ownership of property; Partnership firm
• Section: 148; 45(4); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 28TH DAY OF NOVEMBER, 2018 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH AND THE HON'BLE MR. JUSTICE K.NATARAJAN INCOME TAX APPEAL NO.82 OF 2010 BETWEEN: SRI S.K. RAVIKUMAR PARTNER M/S. SRINIVASA ENTERPRISES 655/656, TANK ROAD DODDABALLAPUR – 561 203 BENGALURU DISTRICT. … APPELLANT (BY MISS. PRIYA V., ADVOCATE FOR SRI G.K.V. MURTHY, ADVOCATE) AND: THE INCOME TAX OFFICER WARD 8(4), L.I.C. BUILDING SAMPIGE ROAD, MALLESWARAM, BENGALURU-560 003. …RESPONDENT (BY SRI K.V. ARAVIND, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 20.11.2009 PASSED IN INCOME TAX APPEAL NO.984/BNG/2007, FOR THE ASSESSMENT YEAR 2001-2002, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: 2 (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN INCOME TAX APPEAL NO.984/BNG/2007, DATED 20.11.2009, PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, “A” BENCH, BENGALURU. ***** THIS INCOME TAX APPEAL COMING ON FOR FINAL HEARING THIS DAY, RAVI MALIMATH, J. DELIVERED THE FOLLOWING: J U D G M E N T The assessee is a partnership firm in the name and style of “M/S.Srinivasa Enterprises”. Sri.N.A.Venugopal and N.A.Ravigopal were the owners of immovable properties situated at Doddaballapur. They had purchased the same under a separate Sale Deed in the year 1973. They constituted a partnership in the name of M/S.Srinivasa Enterprises along with 12 others in terms of the Partnership Deed dated 26.11.1976. A Theatre by name “Gopal Theatre” was constructed in the premises in question. Sri.N.A.Venugopal and N.A.Ravigopal retired from the partnership with effect from 6.6.1978. The partnership firm continued. It was reconstituted on several occasions. In the year 2001, four partners remained. The Theatre and the land 3 were sold to one Sri T.Prasanna Kumar by virtue of two separate registered sale deeds on 14.2.2001 by the partners as well as the erstwhile partners of the firm. The firm was also dissolved on the same day in terms of the Deed of Dissolution dated 14.2.2001. Certain amounts were paid to the four former partners including Venugopal and Ravigopal. 2. A notice under Section 148 of the Income Tax Act was issued to the assessee-firm, which was served on the Managing Partner. In response to the notice, the assessee filed the return of income declaring a loss of Rs.1,40,068/-. The assessee was asked to produce the details in support of the return filed and also a copy of the partnership deed at the time of constitution of the firm. Thereafter, books of account were produced. The assessee was asked to furnish the break- up of the value of the land, building etc., in respect of the Theatre sold and also evidences in support of the additions to the movable assets. The assessee did not furnish the details as sought for. Thereafter, the Sub-Registrar, Doddaballapura was requested to furnish the market value adopted, in respect of the theatre sold and the Sub-Registrar has given the valuation of the land at Rs.33 lakhs and building at Rs.11.70 4 lakhs. The assessee was intimated about the valuation and proposed to compute long term capital gains in respect of the land and short term capital gains in respect of the building including fixtures and furniture. Thereafter, the long term capital gains at Rs.23,25,600/- and short term capital gains at Rs.10,10,537/- were computed. Aggrieved by the same, the partners filed an appeal before the Commissioner of Income Tax (Appeals), which was dismissed. The appeal filed by the partners before the Income Tax Appellate Tribunal was also rejected. Hence, this appeal. 3. By the order dated 17.3.2010, the appeal was admitted to consider the following substantial questions of law: i) Whether, on the facts and circumstances of the case, the Tribunal is right in holding that the firm, M/s.Srinivasa Enterprises, was the owner of the capital asset viz. land and building comprised in Gopal theatre situated at Tank Road, Doddaballapur? ii) Whether on the facts and circumstances of the case, the Tribunal 5 is right in holding that the provisions of Section 45(4) of the Income Tax Act, 1961 are applicable to the facts of the present case? iii) Whether on the facts and circumstances of the case, the Tribunal is right in upholding the reliance placed by the Respondent on the report received from the jurisdictional Sub- Registrar to determine the fair market value of capital asset, inspite of the fact that as per the provisions of Section 45(4) of the Income Tax Act, 1961 the sale consideration received should be deemed to be the fair market value? iv) Whether on the facts and circumstances of the case, the Tribunal has erred in not appreciating the fact that the firm, M/S.Srinivasa Enterprises, is made liable to pay tax even on the part of the sale consideration received by four persons viz. N.A.Venugopal, N.A.Ravigopal, S.S.Puttaraju and S.S.Muralidhara, who were not its partners at the time of sale of the capital asset? 6 v) Whether on the facts and circumstances of the case, the Tribunal has erred in upholding the levy of tax on the value of plant and furniture which were not the subject matters of sale? 4. Miss.Priya V., learned counsel for the appellant submits that the Tribunal has committed an error in passing the impugned order. The material on record would clearly indicate that part of the sale consideration was paid to the erstwhile partners, therefore, that amount cannot be taxed in the hands of the assessee since the sale has been effected by the erstwhile partners. Therefore, it cannot be considered that the property stood in the name of the partnership firm. That the computation of the capital gains is erroneous. 5. The same is disputed by the counsel for the revenue. 6. Heard learned counsels. 7. The contention of the assessee is that the erstwhile partners namely Venugopal and Ravigopal were the only owners of the land and therefore the income that is assessed in the name of the firm, requires to be deleted. However, the 7 material on record would indicate that both of them had furnished a joint letter dated 28.11.2006 wherein they stated that they had contributed their share as capital towards the partnership firm, running Gopal Theatre along with land and building. Therefore, the partnership firm, namely, M/S.Srinivasa Enterprises has become the absolute owner since that date, namely, 26.11.1976. Venugopal and Ravigopal have retired from the partnership firm with effect from 6.6.1978 and they have also executed a Release Deed in favour of the continuing partners of the firm. Therefore, they are not the owners of the property and have relinquished all the rights and interest of the property as indicated by them. 8. Based on the submissions made by them, it is crystal clear that the partners retired from the partnership firm and the ownership of the property remained with the partnership firm. Therefore, the partnership firm has been rightly assessed. 9. The contention of the partners that the property continued to remain under the ownership of the erstwhile partner, therefore cannot be accepted, nor is there any 8 material to support such a contention. However, it is being contended that the said letter issued by the partners jointly runs contrary to the sale deed. It is contended that in the sale deed effected by the firm and the partners in favour of the purchasers dated 14.2.2001, it is mentioned in page 10 of the said document that in order to avoid the dispute and settle the matter, the share of the vendor in the schedule property is determined as Rs.1,00,000/- to vendor No.1 and Rs.1,00,000/- to vendor No.2 and that they agreed to relinquish their rights by executing the deed. It is therefore contended that the letter runs contrary to the deed of sale dated 14.2.2001. 10. In terms of the letter written by the partners, they were no more the owners of the property in question from the date of retirement namely 6.6.1978. Therefore, merely because they have stated in the sale deed that they have relinquished their right does not pre-suppose that any right existed in them as on that date. The partners could relinquish only which they possess. The sale deed was executed on 14.2.2001. The partners retired on 6.6.1978. Therefore, they had no right at all which they could relinquish. Therefore, in 9 the absence of possessing any legal right, the question of relinquishment does not arise for consideration. Therefore, such a contention cannot be accepted. 11. It is also indicated at page No.10 of the deed that, the so called settlement was arrived at in view of the pending suit. It is pleaded that a suit in O.S.No.210 of 1992 was filed before the Court of Additional Munsiff, (Jr.Dn.), Doddaballapur, for implementation of the Release Deed claiming their right and disputing their relinquishment of the rights in the said lands. The said suit was dismissed. A Miscellaneous Petition was filed for restoration, which was pending for consideration. 12. Yet another reference is made in page No.14 of the deed with regard to O.S.458 of 1996 filed by vendors 7 and 8 claiming their right over the schedule property. In order to avoid the dispute in this suit, vendors 7 and 8 have come forward to sell their right in the schedule property in favour of the purchaser. Therefore, so far as the earlier suit in O.S.No.210 of 1992 is concerned, there is no material to show as to what was the dispute which was required to be settled 10 and between whom. Therefore, the finding recorded by the Tribunal that the assessee was the owner of the land and building, is just and proper. It is also justified in holding that the provisions of Section 45(4) of the Income Tax Act are applicable to the facts of the case. 13. So far as placing reliance by the respondent on the report received from the jurisdictional Sub-Registrar is concerned, the same is in accordance with law. That the fair market value of the capital asset has been determined based on the rules as specified by the Sub-Registrar. Even when repeated requests were made, there was no valuation furnished by the assessee. Therefore, the Assessing Officer had no other option but to obtain the fair market value from the jurisdictional Sub-Registrar who was authorised to furnish the same. 14. So far as the sale is concerned, whether the entire consideration were received in the hands of the assessee or not becomes a secondary question. It is only an adjustment by the assessee with the other persons. The same can be ascertained from the recitals in the sale deed, which would 11 indicate that in order to settle certain disputes, the shares have been given to the said persons. Therefore, the assessee alone is liable to pay tax on the sale consideration. Therefore, the contention of the assessee on that issue also, cannot be accepted. 15. We are also of the view that even so far as upholding of the levy of tax insofar as the furniture and fixtures are concerned, is also in accordance with law and does not call for any interference. 16. For the aforesaid reasons, we find no reasons to interfere. The substantial questions of law are answered in favour of the revenue and against the assessee. The order of the Tribunal is therefore upheld. SD/- SD/- JUDGE JUDGE *ap/- "