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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI AMARJIT SINGH & MS. KAVITHA RAJAGOPAL
O R D E R PER AMARJIT SINGH, A.M. : This appeal filed by the assessee against the order of Commissioner of Income Tax (Appeals)-24, Mumbai Dt.18.09.2019 for the Assessment Year 2016-17 u/s.143(1) of the Income Tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal :
“ 1. Because ld. CIT(A) erred in law and on facts in not applying the provisions of section 45(3) of the Act thereby taking the taking the value of land contributed at stamp duty value of Rs. 9,11,10,000/- adopted by stamp authorities as against Rs. 4,95,00,000/- taken by the appellant.
2. BECAUSE M. CITIA) erred in law and on facts in affirming the addition made by the AO by asserting that in respect to transfer of capital asset being land and building in determining the full value of consideration the provisions of section 50C will be applicable in defiance to the provisions contained in section 45(3).
3. BECAUSE CITIA) erred in law and on facts in not adjudicating the computation of cost of acquisition in true letter and spirit and directing AO to verify and compute the correct cost of acquisition when the cost details were already available with AO at the time of assessment proceedings and has already been verified.”
The facts in brief are that the assessee has filed Return of Income declaring loss of Rs.4,64,69,139 on 17.10.2016. The Return of Income was subject to scrutiny assessment and notice u/s.143(2) of the Act was issued on 19.9.2017 to the assessee. During the course of assessment, the Assessing Officer noticed that the assessee had shown long term capital loss of Rs.4,64,69,139 on sale of immovable property other than the residential house and claimed cost of acquisition at Rs.9,59,69,139.
Further the Assessing Officer noticed from the registered agreement that the assessee had transferred land of value of Rs.4,95,00,000 whereas the Registrar had adopted the sale consideration at Rs.9,11,10,000 for the purpose of stamp duty. On querry, the assessee explained that the said land was transferred to the partnership firm as contribution towards share capital and as per the provisions of section 45(3) of the Act, the amount recorded in the books of accounts of the company/firm shall be deemed to be the full value of consideration receive on such transfer of capital asset.
The assessee further submitted that the provision of section 50C is not applicable to such kind of transfer to which specific provisions of section 45(3) is applicable. The Assessing Officer has not agreed with the submission of the assessee and he was of the view that on transfer of land or building or both if the consideration received is less than the value adopted by the authorities of the state government for the purpose of payment of stamp duty, then the provisions of section 50C are applicable to determine the deemed value of consideration on transfer of capital asset.
The Assessing Officer also observed that provision of section 45(3) is not a non-obstante clause and it does not talk anything about the non- applicability of provisions of section 50C of the Act to capital assets under transfer to a firm etc., the Assessing Officer also observed that section 50C of the Act is as special provision whereas section 45(3) is a general provision. The Assessing Officer also relied on the decision of ITAT, Chennai in the case of Carlton Hotel Pvt. Ltd. reported in 722 TTJ 515.
During the course of assessment proceedings, the assessee also placed reliance on the decision of DCIT Vs. Amartara (P) Ltd. Vide (Mumbai Tribunal). The Assessing Officer has not agreed with the aforesaid judicial pronouncement relied on by the assessee on the reason that the Revenue had filed appeal against the said order of the ITAT, Mumbai before the Hon’ble Bombay High Court. Consequently, the Assessing Officer computed the value on transfer of the impugned assets at Rs.9,11,10,000 as per deemed value computed for the purpose of payment of stamp duty. The Assessing Officer had adopted cost of acquisition of the transferred land at Rs.3,43,12,394 as against Rs.4,60,75,840 claimed by the assessee. Therefore Long Term Capital Gain was assessed at Rs.1,96,42,374 as against loss claimed by the assessee at Rs.4,60,74,840.
Aggrieved by the order of Assessing Officer, the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee.
During the course of appellate proceedings, the learned counsel for the assessee referred provisions of section 45(3) of the Act and vehemently contended that since the impugned land was contributed in the form of capital in the partnership firm therefore said transaction fall under the ambit of section 45(3) of the Act. The learned counsel for the assessee also submitted that an identical issue on similar facts in the case of the assessee itself pertaining to Assessment Year 2012-13 has been adjudicated by the ITAT, Mumbai Bench in favour of the assessee vide dt.29.12.2017. The assessee has also placed the copy of the aforesaid pronouncement in the Paper Book at page Nos.124 to 132.
The learned counsel for the assessee also referred to page No.118 of the Paper Book pertaining to copy of Hon’ble Supreme Court decision in the case of Pr. CIT-1 Vs. Dr. D. Ramamurthy reported in 103 taxman.com 24 (SC) wherein held that for the purpose of computing capital gains u/s.45(3) of the Act, value of assets recorded in the books of firm on date of transfer would be deemed to be full value of consideration received or accrued as a result of transfer. The learned counsel for the assessee also referred to page 119 of the Paper Book pertaining to copy of the judicial pronouncement in the case of Pr. CIT, Coimbatore Vs. Dr. D. Ramamurthy 102 taxman.com 330 (Mad). The learned counsel for the assessee also submitted that as per decision of ITAT Mumbai in the case of ITO Vs. Chiraayu Estate & Dev. Pvt. Ltd. ITAT, Mumbai ‘C’ Bench vide dt.24.08.2011.
On the other hand, the learned Department Representative contended that the provisions of section 50C will be applicable in place of section 45(3) of the Act and he has placed reliance on the orders of authorities below.
Heard both the parties and perused the material available on record.
Without reiterating the fact as elaborated above, the assessee has contributed land as contribution towars capital in the partnership firm viz.
Well wishers properties at a value of Rs.4,95,00,000. The assessee claimed as per the provisions of section 45(3) of the Act, the amount recorded in the books of company/firm as the value of capital asset would be deemed to be the full value of consideration. However, the Assessing Officer has applied the provisions of section 50C of the Act and considered the assessable value at Rs.9,11,10,000. The only dispute is whether the provisions of section 50C can be applied when the capital contribution is made under the provisions of section 45(3) of the Act. The Assessing Officer has not disputed this fact that the assessee had purchased land at Varose Village, Rahatwade Taluka Khalapur Raigad District on 5.3.2017 of 2,78,009.76 sq. mts. for Rs.4,76,10,186. Out of this land admeasuring 27,100 sq. m. Was contributed by the assessee in the partnership firm M/s.
Well Wishers Properties at a valuation of Rs.4,95,00,000 as per the copy of the land contribution agreement dt.23.3.2016. The purchase cost of the said part of the land was determined at Rs.3,43,12,394 as against the purchase cost computed by the assessee at Rs.4,60,75,840. The assessee contended that the Assessing Officer had not taken into consideration, the improvement cost accepted by the revenue determined from year to year in the past while computing the proportionate cost of the land. The Assessing Officer had not considered the relevant evidences and documents furnished at the time of assessment proceedings. In this regard, we direct the Assessing Officer to follow the direction of the ld. CIT(A) to verify the sum capitalised by the assessee and considered the correct cost of acquisition as accepted by the Revenue in the preceding years and recompute the capital gains accordingly. Therefore Ground No.3 of the assessee is allowed for statistical purposes.
In respect of Ground Nos.1 & 2, regarding applicability of provisions of section 45(3) or provision of section 50C of the Act in the case of the assessee, we have gone through these provisions. Section 45(3) is the specific provision which states that profit or gain arising from the transport of the capital asset by a person to a firm or other association of persons or body of individual (not being a company or a co-operative society) in which he becomes a partner or member by way of capital contribution shall be chargeable to tax as his income for the previous year for which such transfer takes place. For the purpose of section 48, the amount recorded in the books of accounts of the firm as capital asset shall be deemed to be full value of consideration received or accrued as a result of the transfer of capital assets. We have also perused the judicial pronouncements relied upon by the learned counsel. The Hon’ble Supreme Court in the case of Pr. CIT Vs. Dr. Ramamurthy (supra) held that for the purpose of computing capital gain u/s.45(3) of the Act, value of assets recorded in the books of account of a firm on date of transfer would be deemed to be full value of consideration received or accrued as a result of transfer. The relevant portion of the pronouncement is as under :
“ Section 45 of the Income-tax Act, 1961-Capital gains Chargeable as (Firm/partner, in case of) Assesses, a proprietor, transferred, his assets to a partnership firm constituted on 1-4-2011 On or about 29.6.2011, partnership firm was converted into a private company limited by shares Before private limited company was constituted, assets of partnership firm were revalued-It was contention of revenue that assets were actually revalued before 1-4-2011 and value of assets was much higher on 1-4-2011 than what was shown in deed of partnership - Assessing Officer, thus, passed an order of assessment computing capital gains on basis of revalued value of assets Tribunal held that assessment had to be done on basis of value of assets as on 1-4-2011 when partnership firm was constituted and not on basis of revalued value of assets- High Court by impugned order held that for purpose of computing capital gains under section 45(3), value of assets recorded in books of firm on date of transfer would be deemed to be full value of consideration received or accrued as a result of transfer therefore, order passed by Tribunal was justified Whether Special leave petition filed against impugned order was to be dismissed-Held, yes Paras 8 and 91 n favour of assessee.” The ITAT, Mumbai in the case of ACIT Vs. Moti Ramanand Sagar vide ITA No.2049/Mum/2017 dt.28.2.2009 after following the co-ordinate Bench of ITAT in the case of DCIT Vs. Amartara Pvt. Ltd. Vide ITO Vs. Chiraayu Estate & Dev. Pvt. Ltd. (263/Mum/2010) and ITO Vs. Sheila Sain (ITA No.554/Kol/2016) held that as per provisions of section 45(3), particular of land recorded in the books is to be considered as received of full value of consideration.
8.1 In the case of DCIT Vs. Amartara Pvt. Ltd. (ITA No.6050/Mum/2016) it is held that profit or gains arising from the transfer of capital asset by a partner to a firm in which he become a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of accounts of the firm shall be deemed to be full value of consideration received or accrued as a result of transfer of capital asset.
The relevant part of the paragraph is reproduced as under :
9. Having heard both the sides, we find merit in the argument of the assessee for the reason that the provisions of section 45(3) deals with special cases of transfer of capital asset where the profits or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall be chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or accruing as a result of transfer. A plain reading of provisions of section 45(3) makes it clear that it comes into operation only in special cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as full value of consideration. Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer. The purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for computation mechanism of capital gain and also provides for consideration to be adopted for the purpose of determination of full value of consideration. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset. This legal proposition is further supported by the decision of Hon’ble Supreme Court in the case of CIT vs Moon Mills Ltd (supra) wherein it was observed that one deeming fiction cannot be extended by importing another deeming fiction. Therefore, we are of the considered view that the profits or gains arising from the transfer of a capital asset by a partner to a firm in which he is or becomes a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be full value of consideration received or accruing as a result of transfer of a capital asset. The AO cannot import another deeming fiction created for the purpose of determination of full value of consideration as a result of transfer of a capital asset by importing the provisions of section 50C of the Act. The CIT(A), without appreciating the facts, simply upheld addition made by the AO by following the decision of ITAT, Lucknow Bench in the case of ACIT vs Carlton Hotel Pvt Ltd (supra) where the ITAT has simply observed that the provisions of section 50C overrides the provisions of section 45(3) but not given a categorical finding. The ITAT has give its findigs under different facts considering the fact that when a document is registered under the Provisions of Registration Act, 1908, the value determined by the stamp duty authority shall be replaced to determine full value of consideration. Therefore, we reverse the finding of the CIT(A) and delete the addition made towards recomputation of long term capital gain on account of transfer of capital asset into partnership firm.
8.2 In the case of ITO Vs. Chiraayu Estate & Dev. Pvt. Ltd (ITA No.263/Mum/2010), ITAT Mumbai held that as per provisions of section 45(3) of the Act particulars of land recorded in the books joint venture is required to be considered as receipt of full value or consideration received or accrued as a result of transfer of capital assets. The relevant operating para is reproduced as under :
14. A plain reading of the said provision would reveal that the profits or gains arising from the transfer of a capital asset to another entity by way of capital contribution or otherwise shall be chargeable to tax. The profit or gain would arise only when the transfer has been made at a price which is more than the cost price and the difference between the cost price and amount at which transfer has taken place can be charged under section 45(3). In the instant case the purchase price of land as recorded in the transferor’s book and recorded in the books of the joint venture are the same. As per provisions of section 45(3) price of land recorded in the books of joint venture is required to be considered as receipt of full value of consideration received or accrued as a result of transfer of capital assets. Once the price recorded in the joint venture’s books is treated as full value of consideration, the provisions do not permit substitution of any value so as to make addition under section 45(3). In fact the approach of the A.O. is also not correct in the sense that under section 45(3) once the full value of consideration is taken as the amount recorded in the books of the joint venture, the capital gain can be worked out by reducing the cost of purchase as per the books of assessee. In case the A.O. substitutes the cost of purchase, by whatever means, then that cost price has to be adjusted in the capital gains. This may result in a loss of equal amount as the books of joint venture show the book value as consideration and substituted cost price( value determined by AO in the order) as a deduction. This working would result in a loss but not a gain. This simple arithmetic calculation was missed by the A.O. and he made the addition under section 45(3) which does not permit him to substitute the full value of consideration other than the amount recorded in the books of account of the joint venture. As the Assessing Officer’s action is not according to the provisions of Sec 45(3), there is no justification for upholding the contentions of Revenue. We uphold the order of the CIT(A) and reject the ground of appeal.
8.3 Further in the case of ITO Vs. Nirmalendu Sen vide the decisions of ITAT, Mumbai in the case of DCIT Vs. Amartara Pvt. Ltd. (supra) was followed. Further in other decisions, the ITAT in the case of DCIT Vs. Amartara Pvt. Ltd. (2021) 128 taxman.com 125 (Mum Trib) held that where assessee partner transferred land as capital contribution to its partnership firm and case of assessee falls under the scope of provisions of section 45(3) of the Act which itself is a deeming section, another deeming section provided by section 50C could not be extended to section 45(3) to determine full value of consideration accruing as a result of such transfer for computation of capital gain. The relevant operating part of the decision is reproduced as under :
“6. After considering the submissions made by the assessee, the A.O. worked out the LTCG amounting to Rs.28,09,992/- as against LTC loss computed by the assessee at Rs.(4,49,22,008)/-.
7. On similar reasoning, by substituting the value as per the provision of section 50C, the A.O. made the addition of Rs.96,31,700/- as against the long term capital gain computed by the assessee at Rs.5,94,57,338/- for A.Y. 2014-15.
8. Upon the assessee’s appeal, in indicial year, the ld. CIT(A) referred to the order of the ITAT in assessee’s own case and decided the issue in favour of the assessee by holding as under: 6.1.3 I have considered the submissions made by Appellant and the material available on record. The Hon'ble Mumbai Bench of the ITAT in Appellant's own case in for assessment year 2012-13 vide Order dated 29.12.2017 has held as follow:- "Having heard both the sides, we find merit in the argument of the assessee for the reason that the provisions of section 45(3) deals with special cases of transfer of capital asset where the profits or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall be chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or accruing as a result of transfer. A plain reading of provisions of section 45(3) makes it dear that it conies into operation only in special cases of transfer between partnership firm and partners and in such Circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as full value of consideration. Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created b\j the statue by way section 45(3) to deal with special cases of transfer. Vie purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for computation mechanism of capital gain and also provides for consideration to be adopted for the purpose of determination of full value of consideration. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset. This legal proposition is further supported by the decision of Hon'ble Supreme Court in the case of CIT vs Moon Mills Ltd (supra) wherein it was observed that one deeming fiction cannot be extended by importing another deeming fiction. Therefore, we are of the considered view that the profits or gains arising from the transfer of a capital asset by a partner to a 'firm in which lie is or becomes a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account affirm shall be deemed to befall value of consideration received or accruing as a result of transfer of a capital asset. The AO cannot import another deeming fiction created far the purpose of determination of full value of consideration as a result of transfer of a capital asset by importing the provisions of section 50C of the Act, The CIT(A), without appreciating the facts, simply upheld addition made by the AO by following the decision of ITAT, Lucknow Bench in the case of ACIT vs. Carlton Hotel Pvt. Ltd (supra) where the ITAT has simply observed that the provisions of section overrides the provisions of section 45(3) but not given a categorical finding. The ITAT has given its findings under different facts considering the fact that when a document is registered under the Provisions of Registration Act 1903, the value determined by the stamp duty authority shall be replaced to determine full value of consideration, Therefore, we reverse the finding of the CIT(A) mid delete the addition made towards computation of long terms capital gain on account of transfer of capital asset into partnership firm. In the result, appeal filed by the assessee's is allowed" 6.1.4. The Hon'ble Tribunal has accordingly held that the deeming section provided in Section 50C cannot be extended to another deeming section created by the statue by Section 45(3). The Tribunal has noted that since the Act itself has provided for deeming consideration to be adopted for the purpose of Section 48 of the Act, another deeming section provided by Section 50C cannot be extended to compute deemed full value of consideration accruing as a result of transfer of capital assets by partner in a firm as capital contribution. The Hon'ble Tribunal has relied upon the decision of the Supreme Court in CIT v. Moonmill Ltd (59 ITR 574) for the proposition that one deeming section cannot be extended by importing another deeming section. Accordingly, the Hon'ble Tribunal has held that the profits and gains arising from transfer of a capital asset by a partner to a firm by way of capital contribution recorded in the books of account of the firm (i.e. Rs.7,50,00,000 in this case) shall be deemed to be the full value of consideration for the purpose of computing capital gain. 6.1.5. It is observed that the AO, in para 5.4 of his order has relied on a decision of the Lucknow Bench of the Tribunal in the case of Carlton Hotel Pvt. Ltd. (122 TTJ 515). It is observed that the Hon'ble Bombay Tribunal while deciding the case of the Appellant has duly considered the said Lucknow Bench decision and has distinguished the same. 6.1.6. Respectfully following the decision of the Bombay Bench of the Tribunal in the Appellant's own case, the addition made by the AO amounting to Rs.3,68,60,462/- while computing long term capital gain is hereby deleted and the appeal of the assessee of this ground is allowed.
9. Against the above order, the Revenue is in appeal before us.
None appeared for and on behalf of the assessee despite notice sent. We have heard the ld. Departmental Representative (ld. DR for short) and perused the records. The assessee has submitted written submissions.
Upon careful consideration, we find that the issue is covered in favour of the assessee by the ITAT decision for the A.Y. 2012-13 as referred by the ld. CIT(A) in his order as above. The ld. DR did not disputed the above proposition and no contrary facts for the current assessment year has been brought to our notice. Hence, respectfully, following the precedent as above, we uphold the order of the ld. CIT(A) and delete the disallowance.”
Following the decision of the co-ordinate bench (supra) on identical facts on similar issue, there is nothing before us on hand differs from the issues raised in the cases cited supra so as to take a different view on this issue.
Therefore since the issue on hand being squarely covered, following the principle of consistency, we find merit in the submission of the assessee and allow the Ground Nos.1 & 2 in favour of the assessee.
In the result, Ground Nos.1 & 2 of the appeal are allowed and Ground No.3 of the appeal is allowed for statistical purposes.
Order pronounced in the open Court on 14th July, 2022.