Income Tax Appellate Tribunal - Bangalore
S.K. Ravi Kumar, Bangalore vs Assessee on 9 April, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA No. 984/Bang/2007
Assessment year : 2001-02
Sri S.K. Ravikumar,
Partner,
M/s. Srinivas Enterprises,
655/656, Tank Road,
Doddaballapur - 561 203. : APPELLANT
Vs.
The Income Tax Officer,
Ward 8(4),
Bangalore. : RESPONDENT
Appellant by : Shri K. Nagaraj
Respondent by : Smt. Jacinta Zimik Vashai
ORDER
Per A. Mohan Alankamony, Accountant Member
This appeal is directed against the order of the Ld.CIT (A)-IV dated:
5/4/2007 for the assessment year 2001-02.
2. The assessee firm - M/s.Srinivasa Enterprises [represented by S.K.Ravikumar, Partner] - has raised five exhaustive and elaborate grounds. On a perusal, ground Nos: 1, 4 and 5 are not directed against any specific issues and general in nature and thus dismissed as non- ITA No.984/Bang/07 Page 2 of 18 consequential. In the remaining grounds, the crux of the issue is largely confined to -
(i) the CIT(A) erred in confirming the addition made by the AO in respect of CG without applying the s.2(47) of the Act which defines the word 'transfer';
- he failed to observe that the property bearing No.V.S. 655/656 was neither in the name of the firm nor in the names of the partners at the time of dissolution of the firm and the sale of property;
- he failed to notice that the property was not in the name of the existing partners as vouched by the Town Municipal Commissioner [TMC];
- The sub-Registrar had rejected the partners' application for registration of the property and khata;
- Rely on the Privy Council's ruling in the case of Prabodh Kumar Das v. Dantmora Tea company Limited
- S.45(1) of the Act doesn't applicable to the firm - Srinivasa Enterprises.
3. Before looking into the issues, we would like to point out that this appeal was, initially, dismissed by the Hon'ble Tribunal on 26/9/2008 on the sole ground that there was no representation, in spite of the assessee was apprised of the date of hearing. However, the Hon'ble Tribunal, vide its order dated: 9/4/2009, was pleased to recall its earlier order dated:
26/9/2008 and restored the appeal after due consideration of the assessee's Misc. Petition dt:9/3/2009 accompanied by an affidavit wherein it was explained the reason for non-representation of the case when it was rescheduled for hearing on 18.9.2008. Thus, the restored appeal was directed to be taken on record for adjudication.ITA No.984/Bang/07 Page 3 of 18
4. During the course of assessment proceedings, the assessee was required to furnish the break-up of the land, building in respect of the theatre sold and also evidence in support of the addition to the movable assets to ascertain the CG arising out of the sale of the theatre. As there was no compliance, the value of the land at Rs.33 lakhs and the building at Rs.11.7 lakhs was obtained from the Sub-Registrar, Doddaballapura. Accordingly, the assessee was informed the proposal to compute the LTCG in respect of land at Rs.23.25 lakhs and the STCG of the building inclusive of fixtures and furniture at Rs.10.10 lakhs. After due consideration of the contentions and the objections put-forth by the assessee and also rejecting the loss claim of Rs.1.4 lakhs in the absence of details to verify the veracity of its claim, the AO went ahead to conclude the assessment as proposed.
5. Agitated, the assessee took up the issue before the CIT(A) with a request to assail the stand of the AO.
5.1. The history of the case, in brief, is that the assessee firm came into existence on 5/9/1976 in the name of 'Gopal Brothers' with fourteen partners and the business of which was running a cinema theatre. The theatre was constructed on a land bearing Nos:V.S. 655/656 in Doddaballapur by its owners N.A.Venugopal and N.A.Rajagopal in 1973 under the name of "Gopal Theatre". By virtue of a partnership deed (the instrument of partnership executed on 7.6.1973 and was dissolved w.e.f. 5/9/1976) on 26/11/1976 with fourteen partners, the subject property was transferred to the assessee firm - Srinivasa Enterprises - and that the ITA No.984/Bang/07 Page 4 of 18 contribution of the partnership capital, the deed stipulated that "N.A.Venugopal and N.A.Ravigopal shall contribute to the partnership their interest in the theatre "Gopal Theatre" situated at No.655/656, Tank Road, Doddaballapur as their capital contribution in the partnership, the aggregate value of which is deemed to Rs.3,80,000/- (Rupees three lakhs eighty thousands only" [ on page 9 of PB of A.R]. Thus, the erstwhile partners (N.A.Venugopal and N.A.Ravigopal) have contributed their shares - the property named Gopal Theatre - which was valued at Rs.3.80 lakhs. This value has been mentioned in the subsequent partnership deeds. Thus, there was no material change in the status of the erstwhile partners and, subsequently, creditors till the dissolution of firm which took place on 14.2.2001 [ on page 29 of PB of AR]. Thus, these two owners of the subject property were being shown as creditors. 5.2. By virtue of Indemnity Bond [on page 5 of PB - D.R ] executed between N A Venugopal and N A Ravigopal and twelve others (as mentioned in the I.D), it has been mentioned that -
"(on page 2 of the I.D.) Whereas, the said parties of the First Part have expressed their desire to retire from partnership under the deed of retirement dated 26/1/1977; and having received from M/s. Sreenivasa Enterprises sums totaling Rs.3,80,000/- (rupees three lakhs and eighty thousand only) which the said party of the First Part is not in a position to repay at present.
WHEREAS, as desired by the party of the second part the party of the first part has agreed to concede the ownership rights in the said Theatre and its appurtenances in favour of the Second Part and the Party of Second Part has accepted the same as the property of the partnership in lieu of the amount obtained by the party of the First Part; and the party of the second has desired the party of the First Part to execute this deed of Indemnity and accordingly the party of the First Part out of their free volition executes this Deed of Indemnity."ITA No.984/Bang/07 Page 5 of 18
5.3. After analyzing the sequences as narrated supra and also the contentions of the assessee, the Ld. CIT(A) has observed thus -
"(On page 4) it is seen that the firm is enjoying the possession of the property named as Gopal Theatre which is mentioned in all the partnership deed starting from 1976 to 2000. as to the objection raised in (a) above, it may be pointed out that Sec.2(47) of I.T.Act has been widened to cover within the meaning of transfer all such cases when a partner brings his personal assets into the firm as his contribution as share capital. In all such cases the consideration for transfer is the right of a partner during the subsistence of the partnership to get his share of profits from time to time and after the dissolution of the partnership or with his retirement from the partnership assets as on the date of dissolution or retirement after deduction of liabilities and prior charges. Probably for this reason, the erstwhile partners had been made parties to sale deed dated 14/2/2001 along with other existing five partners of the appellant firm and given a part of sale consideration. This confirms the fact also that the appellant firm was the real and beneficial owner of Gopal Theatre on the date of sale and they made he erstwhile partners to participate in the sale process through which they wanted to liquidate the consideration. Thus the objection that consideration had not been paid and therefore there was no transfer falls to ground. As to the objection raised at (b) above, that for transfer of immovable property registration is indispensable is only a general truth but does not fit into the scheme of I.T.Act and Indian partnership Act. The whole concept partnership is to embark upon a joint venture and for that purpose, to bring in as capital money or even property including immovable property. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in - it would be trading asset of the partnership in which all partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would therefore not be able to claim or exercise any exclusive right over the partnership property. In this case, the erstwhile partners brought the property named Gopal theatre into the partnership firm as partners and thus lost their exclusive right over the property. This further made the transfer pucca by their release and relinquishment deed dated 6/6/1978. This was also confirmed by the continuing partners who continued to enjoy the property and showing the erstwhile partners as the creditors of the firm. There was no necessity of registration of the release deed for bringing it into the ambit of transfer as defined in sec.2(47) of the I.T. Act. It has been held in DCIT v. S. Rajamannar (2006) 6 SOT 91 Bangalore that the definition of the word 'transfer' ITA No.984/Bang/07 Page 6 of 18 has been widened in sec.2(47) to include any agreement or any arrangement whereby such person acquires any right in any building which is either constructed or which has to be constructed and transactions of such nature are not required to be registered under the Registration Act and such arrangements confer the privileges of ownership without transfer of title. Thus without the registration of release deed even, in this case, the appellant firm had become the owner of the immovable property located at Gopal theatre. This view is corroborated by the fact that this property had been mortgaged to Canara Bank, Avenue Road by the firm Gopal Brothers' constituted on 7/6/1973 which was later on taken over the appellant firm on 5/9/76 also changing the firm's name to M/s.
Srinivasa Enterprises. The relevant portion of the deed is reproduced below:
WHEREAS, the theatre called Gopal Theatre at V.S.655/656 Tank Road, Doddaballapur, shall be the assets of the partnership. The land and building theatre have been pledged with the Canara Bank, Avenue Road, Bangalore, and loans have been obtained by the earlier partnership which liability has been taken over by the parties of the first and second part hereto. It has been agreed that the parties of the third to fourteen parts hereto shall in no way be responsible for the discharge of the liability against the theatre property due to the Canara Bank, which the party of the first and second parts specifically under-take to discharge fully with all the interest and other expenses due thereon and assure the other said parties to fully pay this liability and release the documents from the Bank to enable this partnership to vest with the rights of the theatre property fully without any encumbrances".
The above shows that the erstwhile partners took upon themselves to repay the loan taken from Canara Bank fully so as to enable the appellant firm vest with the rights of theatre property fully without any encumbrance. So on 5/9/1976, the appellant firm had become the real owner of the immovable property located at Gopal Theatre and continued to remain the owner till it was sold on 14/2/2001. the fact that sale was executed by two separate registered deed, one for property at No.V.S.656 and another for V.S.655 do not make any difference as to the fact of ownership by the appellant firm. The case laws cited by the authorized representative are not relevant as they pertain to Transfer of Property Act.
In toto, the appellant firm was the owner of the immovable property and it earned capital gains by selling the property on 14/2/2001, assessing officer's action is held justified in determining the Long Term and Short Term Capital Gain thereon.............."ITA No.984/Bang/07 Page 7 of 18
6. Disillusioned with the finding of the Ld.CIT(A), the assessee has come up with the present appeal. During the course of hearing, the Ld. A R reiterated more or less what has been contended before the first appellate authority. Buttress his reiteration; he had come up with a lengthy submission backed with numerous copies of dissolution deed, instrument of partnership, deed of release, dissolution deed etc. in the form of paper books. For the sake of convenience and precision, the various submissions of the Ld. A R are summarized as under:
(i) the assessee - a partnership firm - was carrying on the business of running a cinema theatre in the name of Gopal theatre. The capital asset was not in the newly constituted firm of Srinivasa Enterprises or the partners of the said firm, but, it was in the erstwhile partners - NA Venugopal and NA Ravigopal of the firm
- Srinivasa Enterprises. Evidences such as records of rights issue by the Sub-Registrar of Doddaballapur in respect of subject property was produced before the CIT(A);
(ii) the newly constituted firm - Srinivasa Enterprises - had approached the City Municipal Council for transfer of katha which was turned down on the ground that the said property was not registered in the newly created partnership firm and its partners;
- reliance is placed on the finding of Privy Council in the case of Prabodhkumar Das v. Dant Mora Tea Co. Ltd. Wherein it was mentioned that the equity of the part performance was not an active equity. It does not give any right of action to the transferee who is in possession of the property under an unregistered contract;
- therefore, s.53A of the Transfer of property Act does not give any right of action to the transferee;
(iii) the land in question was purchased by Venugopal and Ravigopal during 1973. they were the actual owners of the land and the schedule property and also erstwhile partners of Srinivasa Enterprises;
- these partners have made release / relinquishment deed in favour of the assessee firm in 1978 but the release deed was not executed by the erstwhile partners;
ITA No.984/Bang/07Page 8 of 18
(iv) while selling the land and the building, by way of abundant caution, the existing partners were also joined as parties to the sale deed executed by the owners of the land - Venugopal and Ravigopal - though they were not the partners of the firm since they retired much earlier, the existing partners joined hands with them for sale and the assessee firm was dissolved on the very same day;
(v) the lower authorities have treated the same as the sale by the assessee firm and therefore invoked the provisions of s.45(4) of the Act;
(vi) To apply the provisions of s.45(4), the following facts are to be satisfied, viz;,
- Transfer, Of a capital asset, By way of distribution of capital asset & On the dissolution of the firm
- So far as the transfer is concerned, the lower authorities have erroneously held that the land and the building were transferred by the firm. While holding so, the authorities were of the view that the assessee firm was the owner of the land and the building'
- The land and the building belonging to Venugopal and Ravigopal and they have contributed their respective interest in the theatre as their capital contribution in the partnership, thus, they have passed on only their interest in the theatre and not the ownership;
- The land and the building were never treated as assets of the firm but only the valuation of Rs.3.80 lakhs was treated as the assets of the firm;
- Had the firm been the owner of the land and theatre, the firm on its own could have sold it without Venugopal and Ravigopal to execute the sale deed who have retired way back in 1978;
(vii) Based on the statement and also the release deed furnished by the brothers, the lower authorities have decided that the assessee firm is the owner of the subject property;
- in the absence of a registered release deed, there was no transfer as contemplated u/s 45(4) of the Act;
- the second requirement of s.45(4) - the contribution of the brothers were Rs.3.8 lakhs and this was the capital asset of the firm and not the land and the theatre. What was alleged to be transferred was the land and theatre which were not capital assets and therefore s.45(4) was not attracted; ITA No.984/Bang/07 Page 9 of 18
- the third requirement was that the gains shall arise from the transfer of capital asset by way of distribution of capital asset on the dissolution of a firm. Here, the alleged transfer was by way of distribution but by way of sale. That apart the alleged transfer was also not on the dissolution of the firm but prior to it and therefore s.45(4) has no application;
(viii) the lower authorities have applied the s.53A of the Transfer of property Act which had no role to play in the instant case as the facts of the case on the different footing;
(ix) as there was no transfer in favour of the firm and by the firm.
There was also no distribution of capital assets on dissolution of the firm and therefore determination of capital gains against the assessee firm was bad in law.
6.1. On the other hand, the Ld. D R was emphatic in her resolve that the authorities below have stood their ground in deciding the issue that the assessee firm was the owner of the schedule property in question which had earned capital gains on sale of the said property. Their decisions are the backing of the provisions of the Income-tax Act as well as the Transfer of Property Act. To substantiate her assertion, the Ld. D.R had placed reliance on a number of judicial pronouncements on the issue. During the course of hearing, she had furnished a paper books ( I & II) containing 1- 75 & 1 - 13 pages respectively which consist of, inter alia, copies of (i) letter of Venugopal and Ravigopal to the AO, (ii) indemnity bond; (iii) deed of release' Sale deed dt: 14.2.01 etc.,
7. We have carefully considered the rival submissions and also decisively perused the voluminous documents, various judicial precedents etc. furnished by either party.
ITA No.984/Bang/07Page 10 of 18 7.1. N.A.Venugopal and N.A.Ravigopal had purchased the land (half a portion each) under a registered deed 30/4/1973 and got registered in the Office of the Sub-Registrar, Doddaballapur. Both of them constituted a partnership firm - 'Gopal Brothers' - on 7/6/1973 and contributed the lands and incomplete structures as their capital and constructed a cinema theatre 'Gopal theatre'. They have subsequently dissolved the firm 'Gopal Brothers' on 5.6.1976 and constituted another firm 'Srinivasa Enterprises' consisting of fourteen partners which included Venugopal and Ravigopal and, thus, the firm 'Srinivasa Enterprises became the absolute owner of the land and building by a deed of partnership dated 26.11.1976. As per the Deed of Release dated 26.1.1977, Venugopal and Ravigopal retired from the partnership firm w.e.f. 6.6.1978 wherein it has been recorded that -
"1. That, the parties hereto as the first part shall retire from the partnership with effect from 6.6.1978.
2. That the parties hereto of the first part shall release and relinquish all their interest, rights and claims in the partnership business, its assets and liabilities in consideration of the amounts standing in their credit which shall include their share of profit till the date of release.
3. That, the parties hereto of the second part shall be allotted all the assets, and liabilities of the partnership business including the theatre 'gopal theatre', including its land, building, theatre projectors and other equipments and furniture situated at No.V.S. 655/656, Tank Road, Doddaballapur, and they shall be entitled to carry on the business in any manner that they may choose."
This deed of Release has been signed by all the executants in the presence of witnesses.
7.1.1. Subsequent to reconstitution, the partnership firm was reconstituted as per the Instrument of partnership dated 10.4.2000 [page ITA No.984/Bang/07 Page 11 of 18 20 of P.B - A R] with four partners, namely, Smt.S.M.Devaki, S.K.Ravikumar, S.K.Vasudeva and S.K.Ajaykumar and as per the Sale deed dated: 14.2.2001, the subject property was sold. 7.1.2. The bone of contention of the assessee is that the erstwhile partners - N.A.Venugopal and N.A.Ravigopal - were the actual owners of the said land as on 12.2.2001 and that the income assessed with the present firm - Srinivasa Enterprises - treating the building and other assets of the present firm as LTCG and STCG is to be deleted. 7.1.3. N.A.Venugopal and Ravigopal in their joint letter dated 28.11.2006 [on page 3 of Paper Book - D.R] to the assessing officer have asserted thus -
"1. We were the partners of the erstwhile partnership firm "M/s.Srinivasa Enterprises' at No.V.S. 655/656, Tank Road, Doddaballapur vide Instrument of Partnership dated 26.11.1976, wherein we had contributed towards our share of capital, the running cinema theatre by name 'Gopal Theatre', with land and building together with machinery, equipments and furniture. Hence, the partnership firm, 'M/s. Srinivasa Enterprises' has become the absolute owner of the above property since then.
2. We have retired from the said partnership firm "M/s.Srinivasa Enterprises' w.e.f. 6.6.1978 and also executed a Release Deed in favour of its continuing partners then along with Indemnity Bond (Photocopies enclosed).
3. Hence, we submit that we are not the owners of the said property since we have relinquished all the rights in the property very long back which can be verified by the documents submitted supra"
7.1.4. We have duly perused the Indemnity Bond [on pages 5 & 6 of PB - D.R ] ITA No.984/Bang/07 Page 12 of 18 "(on page 2 of the I.D.) Whereas, the said parties of the First Part have expressed their desire to retire from partnership under the deed of retirement dated 26/1/1977; and having received from M/s.Sreenivasa Enterprises sums totaling Rs.3,80,000/- (rupees three lakhs and eighty thousand only) which the said party of the First Part is not in a position to repay at present.
WHEREAS, as desired by the party of the second part the party of the first part has agreed to concede the ownership rights in the said Theatre and its appurtenances in favour of the Second Part and the Party of Second Part has accepted the same as the property of the partnership in lieu of the amount obtained by the party of the First Part; and the party of the second has desired the party of the First Part to execute this deed of Indemnity and accordingly the party of the First Part out of their free volition executes this Deed of Indemnity."
7.1.5. Thus, it makes it crystal clear that the said brothers have since retired from the partnership w.e.f. 1978 and relinquished their rights and conceded their ownership rights in the said theatre and its appurtenances in favour of the second part, namely, the twelve partners of the said firm.
7.1.6. With regard to the assessee's contention that the Release Deed and the indemnity Bond were not registered for their authentication, it may not be out of place to analyze the s.14 of Indian Partnership Act. 7.2. Let us have a glimpse of what s.14 of Indian Partnership Act says?
Any immovable property held by any person can be contributed to the capital of a partnership firm at the time of constitution of the firm with a sole intention of treating the said property so contributed as the property of the firm. On such a contribution, the partner ceases his rights in respect of such property as sole and absolute owner thereof and he only has a shared ITA No.984/Bang/07 Page 13 of 18 interest in the property as a partner of such a firm. This is by virtue of s.14 of I.P.Act which reads as under:
"14. The property of the firm- subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired by purchaser or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm."
7.2.1. The highest judiciary of the land had an occasion to consider the provisions of s.14 of Indian Partnership Act in the case of Addanki Narayanappa v. Bhaskara Krishnappa reported in AIR 1966 SC 1300 and in its wisdom laid down the position of law thus -
"[A] The provisions of ss.14,15,29,32,37,38 and 48 - interest of partner in partnership property during subsistence of partnership and after its dissolution - nature of The provisions of sections 14,15,29,32,37,38 and 48 make it clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realization of this property, and upon dissolution of the property to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as falls to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm, which remain after satisfying the liabilities set out in cl.(a) and sub- cls.(i)(ii) and (iii) of cl.(b) of s.48. the whole concept of ITA No.984/Bang/07 Page 14 of 18 partnership is to embark upon a joint venture and for that purpose to ring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. it would e the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by s.29(1), that is to say, the right to receive the share of profits of the assigner and accept the account of profits agreed to by the partners.
7.2.2. The above mentioned legal position first explained by the Hon'ble Apex Court in the case referred supra has been followed in a large number of decisions even under the Income-tax Act, viz;
(i) CIT, M.P, Nagpur And Bhandara v Dewas Cine Corporation
68 ITR 240
(ii) CIT, W.B. v. Hind Constructions Ltd.
83 ITR 211
(iii) Malabar Fisheries Co. v. CIT, Kerala
120 ITR 49
7.2.3. Thus, under general law, the contribution of assets by a partner to the firm is well recognized and upon such a contribution being made, the partnership firm becomes the owner of the property so contributed u/s 14 of I.P.Act. the contribution of the property can even be oral in case of oral partnership or the same may be recorded in the deed of partnership entered into amongst the partners. As such, no specific deed of conveyance is necessary for contributing the immovable property to the firm virtue of s.14 of I.P. Act. Further, there is no prohibition under the ITA No.984/Bang/07 Page 15 of 18 Transfer of Property Act or the Registration Act to prohibit such contribution of separate property by a partner to the capital of a partnership firm.
7.2.4. The Hon'ble High Court of Madras in the case of Ramanatha Chettiar reported in 99 ITR 410 had held that there was no necessity for any document of transfer when a partner brings his separate property as property of the firm.
7.2.5. Turning to the position under the income-tax laws, the Hon'ble Supreme Court in the case of Karthikeya V.Sarabhai v. CIT reported in 156 ITR 509, had held that "where an assessee contributed his individual assets into that of a firm in which he was a partner by way of capital, the transaction amounted to a transfer of property in terms of s.2(47) of the Act.
7.2.6. 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 becomes the owner of the property u/s 14 of the Indian Partnership Act, for all intents and purposes.
7.3. Thus, the subject property became the property of the partnership firm and in other words, the firm becomes the owner of the said property as per the Instrument of Partnership executed on 26/11/1976 [page 5 of PB - A.R] 7.4. We shall now have a glance at the case laws on which the Revenue has placed reliance:
ITA No.984/Bang/07Page 16 of 18
(i) the Hon'ble High court of Delhi in the case of Addl. CIT v.
Manjeet Engineering Industries reported in (1985) 154 ITR 509 has held that -
"Contribution of building by the partner: The Building contributed by the partner to the firm without any registration did not result in contravention of the provisions of the Transfer of Property Act. Under s.14 of the Partnership Act, the contribution by a partner of his separate immovable property by throwing the same into the stock of the firm has the effect of transferring the partners' share therein into the firm."
(ii) In the case of CIT v. Amber Corporation reported in 127 ITR 29, the Hon'ble High Court of Rajasthan was very specific in its endeavour while ruling that -
"All property and rights and interests which the partners may have brought into the common stocks as their contribution to the common business are parts of the partnership property. Even, if a property contributed by one partner be an immovable property, no document registered or otherwise, is required for the property to the partnership."
(iii) The Hon'ble High Court of Allahabad in the case of K.D.Pandey v. CIT reported in (1977) 108 ITR 214 had held that -
"The Tribunal was not justified in holding that the business assets consisting of the hotel could be transferred to the partnership only by a registered deed and that in the absence of such deed the building remained the individual property.........."
(iv) the Hon'ble jurisdictional High Court in its ruling in the case of Suvardhan v. CIT reported in (2006) 287 ITR 404 has held that -
"A reading of the provisions of s.45(4) would show that the profits or gains arising from transfer of capital assets by way of distribution of capital assets on dissolution of a firm shall be chargeable to tax as income of the firm in the light of transfer that has taken place. Sec.47(ii) was omitted by the Finance Act 1987 w.e.f. 1.4.88. therefore, any transaction resulting in distribution on dissolution of a firm has to be considered as 'transfer' in term of s.2(47). In the light of omission of cl.(ii) of s.47 w.e.f. 1.4.88, it ITA No.984/Bang/07 Page 17 of 18 cannot be said that s.45 is inapplicable to the facts in the case on hand. When the Parliament in its wisdom has chosen to remove a provision, which provided 'no transfer' there is no need for any further amendment to s.2(47). Despite no amendment to s.2(47) in the light of removal of cl.(ii) to s47, transaction certainly would call for tax at the hands of the authorities."
(v) "Transfer of immovable property is complete for the purpose of Income-tax once possession is handed over and the amount has been paid, even though deed is not registered" as ruled by the Hon'ble High Court of Rajasthan (Jaipur Bench) in CIT v. Rajasthan Mirror Manufacturing Co. reported in (2003) 260 ITR
503. 7.4.1. With regard to the fair market value, the Hon'ble High Court of Andhra Pradesh in its wisdom in the case of Rajlaxmi Trading Co. v. CIT reported in (2001) 250 ITR 581, had observed that -
"On distribution of capital assets, as a result of the dissolution of the firm for the purpose of s.48, the fair market value of the asset on the date of such transfer shall e deemed to be the full value of the consideration received or accruing as a result of the transfer. This deeming or fictional fair market value was not there in s.2 (22B). what is fair market value was defined in s.2(22B). it is clear that the value of the capital asset, on transfer as a result of dissolution of the firm, should be the fair market value and not the written down value or any other value. The provisions of s.45(4) themselves are very clear that it is the fair market value of the asset on the date of transfer, on dissolution of the firm, which should e taken as the full value of the consideration received or accruing and, therefore, the authorities as well as the Tribunal was right in computing the market value as determined by the District Registrar, which was not even disputed........"
7.5. In an overall consideration of the facts and circumstances of the issue and also respectfully following the rulings of the judiciary referred supra, we are of the unanimous view that -
(i) the lower authorities were justified in applying the provisions of s.45(4) of the Act and assessing the capital gains on transfer of the theatre building on the dissolution of the ITA No.984/Bang/07 Page 18 of 18 partnership in the hands of the firm - Srinivasa Enterprises; and
(ii) the AO was justified in adopting the fair market value as furnished by the Sub-Registrar as the AO's stand is in conformity with the ruling of the Hon'ble High Court of AP referred supra.
8. In the result, the assessee's appeal is dismissed.
Pronounced in the open court on this 20th day of November, 2009.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV ) (A. MOHAN ALANKAMONY )
Judicial Member Accountant Member
Bangalore,
Dated, the 20th November, 2009.
Ds/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file (1+1)
By order
Assistant Registrar
ITAT, Bangalore.