ITO, ALWAR vs. KUNDAN LAL BADSHAH, ALWAR

per the partnership deed and its books of accounts. As we have stated

above, once the land has been contributed by the assessee as his share

of capital contribution and acknowledged by the firm which is duly

evident by the partnership deed dated 19.07.2006, the said property

becomes the property of the firm and the transfer thereof is chargeable

to tax in the hands of the assessee by virtue of provisions of Section

45(3) of the Act. In case of Add. CIT Vs. Manjeet Engineering Industries

[154 ITR 509] (Del.) and in case of CIT vs. A.V. Bhanoji Rao [142 ITR

706] (AP), it is held that no particular mode or form is provided for

bringing in a separate property into the stock of the firm by a partner

and no deed whatsoever registered or otherwise is required to be

executed by the partner for doing so. In the present case, the facts are

on a stronger footing as the capital contribution is evidenced by a deed

of partnership and the same would be considered as a transfer in

relation to capital asset in terms of Section 2(47) read with section 45(3)

of the Act. Therefore, we agree with the finding of the ld CIT(A) that

the liability to pay tax on capital gains, if any, arises in the hands of the

25 ITA No.383/JP/2014 ITO, Ward-1(1) Vs. Kundan Lal Badshah, Alwar

appellant, when the property (purchased by the appellant) was

transferred to the books of the partnership firm. Thus, the capital gains,

if any, in the hands of the appellant would arise in FY 2006-07 under the

provisions of section 45(3) of the IT Act i.e. in the year when such

property is transferred to the books of the firm as capital contribution.

Act, the taxability will arise on such transfer in terms of sale deed dt.

12.05.2009 in case of dissolution of the firm and the issue has to be

examined by the concerned A.O having jurisdiction over the firm. It is

here that we do not agree with the finding of the Ld. CIT(A). Here it

would be relevant to refer to the decision of Hon’ble Bombay High Court

in case of CIT vs. A.N. Naik Associates 136 Taxman 107 (Bombay)

wherein the Hon’ble Court have examined the provisions of Section

45(4) of the Act. It held that the expression “otherwise” used in section

45(4) has to be read with the words transfer of capital assets by a

distribution of capital assets, if so read, it becomes clear even when a

firm is in existence and there is a transfer of capital assets, it comes

within the expression “otherwise” as the object of the amending Act was

to remove the loophole which existed whereby capital gain tax was not

chargeable. In the instant case, the firm continue to exist and the

26 ITA No.383/JP/2014 ITO, Ward-1(1) Vs. Kundan Lal Badshah, Alwar

subject land has been transferred by the firm (as we have held above) in

favour of one of the partners of the firm, Shri Ratan Singh. Therefore, it

is for the Revenue to decide whether such transfer in favour of Ratan

Singh is taxable in hands of the firm under section 45(4) of the Act or

not. To that extent, the above findings of ld CIT(A) stand modified.

of facts and circumstances of the case, it is the firm in whose name the

asset stood prior to the date of the transfer which has transferred the

asset (and not the assessee) vide the sale deed dated 12.05.2009.

Therefore, it is clear that the assessee cannot be brought to tax in

respect of such transfer.

In the result, appeal filed by the Revenue is disposed off with above directions.

Order pronounced in the open court on 10/03/2017.

Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 10/03/2017. *Sanjeev*. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- ITO, Ward-1(1), Alwar.

27 ITA No.383/JP/2014 ITO, Ward-1(1) Vs. Kundan Lal Badshah, Alwar 2. izR;FkhZ@ The Respondent- Sh. Kundan Lal Badshah, Plot No.-109, Anand Nagar, Khairthal, Alwar. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 383/JP/2014}.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत