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Income Tax Appellate Tribunal, “H”,
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
CO No.20/Mum/2012 Laxmiben N Kakad This is an appeal filed by the Revenue and Cross objection by assessee against the order of CIT(A)-29, Mumbai dated 24/02/2011 for A.Y.2004-05 in the matter of order passed 143(3) r.w.s.147 of the IT Act.
Rival contentions have been heard and record perused.
Facts in brief are that case of assessee was reopened by issue of notice u/s.148. The Assessing Officer stated that the assessee filed original return of income disclosing long term capital gain of Rs.552791/- on the sale of property situated at Ghatkopar It was also claimed that the gain was exempt u/s.54EC. During scrutiny proceedings for this year the Assessing Officer had referred the matter to DVO on 2.11.2006 and has report from DVO was not received till 31.12.2006. The Assessing Officer proceeded to complete time barring assessment. The report from DVO was received on 5.12.2008 stating the value of the property as under:- Value as on 1,4.1981 Rs.8.10,290/- Assessee's share 43% Rs..3,48,425/- Value as on 4.9.2003 Rs.6,74,78,000/- Assessee's share 43% Rs.2,90,03,540/- 4. The Assessing Officer stated that Authorised Representative of the appellant was asked if he had any objection to adopt the value of the DVO. The Assessing Officer stated that according to the Authorised Representative although he has reservations the value adopted by the DVO can be taken for computation of capital gain. Accordingly, the Assessing Officer proceeded to calculate long term capital gain at Rs.2,73,04,333/- on these figures.
CO No.20/Mum/2012 Laxmiben N Kakad 5. During assessment proceedings, the Assessing Officer stated that appellant filed a letter dated 24.12.2009 stating that appellant has wrongly shown the sale of property in capital account. However, it was argued that the true nature of transaction was only retirement of partners from partnership firm. The assessee drew attention to the deed of retirement dated 4.9.2003 wherein the amount of Rs.60,00,000/- had been paid by the continuing partners to the retiring partners towards their capital, share of profit to the date of retirement and right of the retiring partners in all the assets of the firm mainly immovable property situated at Rajewadi, Ghatkopar (East). The amount of Rs.60 lacs it was argued by the appellant before the Assessing Officer, has been paid to the retiring partners by the continuing partners directly and the same were deposited by the retiring partners in their account. The appellant's representative also filed various judicial pronouncements in support of his claim.
The Assessing Officer proceeded to analyse the sequence leading to the issue under examination. The Assessing Officer stated that assessee was a partner in the firm M/s.Kakad Constrcution Co. alongwith Smt. Hardevi P Karia since 1984 with a profit ratio of 76% to 24%. The said firm was in possession of a property situated at Ghatkopar from which the firm was deriving rent. The existing partners vide agreement dated 15.6.2002 brought in two new partners. After this induction the share ratio in the firm was reallocated as under: Smt.Laxmiben Kakad 43% Smt.Hardevi P Karia 17% CO No.20/Mum/2012 Laxmiben N Kakad Shri Anand M Thakkar 20% Shri Mulraj P Thakkar 20% 7. Subsequently, vide agreement dated 4.9.2003 the first two partners Smt. Laxmiben Kakad and Smt. Hardevi P Karia retired from the partnership and the remaining partners continued as partners in the firm. The Assessing Officer stated that all these things happened within a period of 15 months. The Assessing Officer stated that all this exercise to bring new partners and subsequent retirement of existing partners have been adopted to transfer the right in the said property without actually selling the same. The Assessing Officer also argued that the assessee has offered long term capital gains for AY.2004-05. The claim of the appellant that the said transaction does not come in the purview of capital gain cannot be considered and the appropriate action for the assessee should have been revised the return of income. The Assessing Officer also argued that the assessee has complied with the details called for by the DVO and his claim that the transaction was on retirement and not on sale of property was not contested. The Assessing Officer stated that at the end there was actually a transfer of right in the property for which money has been paid by the continuing partners in the shape of retirement. The Assessing Officer stated that long term capital gains will arise even in case of transfer of right in the property. Accordingly LTCG amounting to Rs.2,59,02,333/- has been computed and taxed.
By the impugned order CIT(A) deleted the addition after observing as under:-
CO No.20/Mum/2012 Laxmiben N Kakad 5. I have carefully considered the facts of the case, arguments of the Assessing Officer and the written submissions of the Authorised Representative of the appellant. The issue to be adjudicated is whether there was a transfer of an immovable property and if so whether the provisions of 50C can be applied to substitute the value of the property with that of the valuation done by district valuation officer. As per the facts of the case there can be no addition made by substituting the value of actual consideration with that of the value determined by the district valuation officer, for the following reasons. 1) The transaction under consideration is not a sale of property. It can at best be considered the transfer of right to the new partners. This right includes all the interest in the partnership firm including that of the ownership of the property. The retirement deed dated 4th September 2003 has been filed before the Assessing Officer during assessment proceedings. The deed clearly mentions that the retiring partners have expressed the desire to retire from the firm with effect from 11th June 2003 on certain terms and conditions. The old partnership firm shall continue to be carried on in the name of Kakad Construction Co by the continuing partners. The partnership shall continue to carry on business at principal place of business that is at 4 Parul, New Maneklal Estate, Ghatkopar(W), Mumbai 400086. The partnership between continuing partners takes over all the assets including the property No.1052, survey No.78, not No.1, Ghatkopar. The business of the firm will be that of maintaining the assets of the firm and to conduct such other business as the partners mutually agree from time to time. The new partnership will be between Shri Anand Mulraj Thakkarand Shri Purushottam Mulraj Thakkar. 2) Clause 14(a) of the retirement deed mentions that the retiring partners have been paid Rs.60 lakhs by the continuing partners, towards their capital, share of profit to the date of retirement and a right of the retiring partners in all the assets of the firm, mainly immovable property situated at Rajawadi Ghatkopar(East). There are several other clauses which will not be relevant for the issue under consideration. The deed has been signed by Shri Anand Mulraj Thakkar and Shri Purushottam Mulraj Thakkar. Hence as can be seen, the transaction under question is not a transfer of immovable property per se. It is only transfer of interest in the partnership firm. In such a case the value of interest in partnership firm which have been agreed upon by partners through a deed cannot be very re-determined or rewritten. 3) However the other question is whether the consideration is adequate. In case the consideration is not adequate the assessing officer will be duty bound to go beyond the agreement and find out the true worth of transaction. In this case the valuation made by the district valuation officer has made a huge value for the property transferred. Therefore there is a prima facie case that the retirement consideration could have CO No.20/Mum/2012 Laxmiben N Kakad been undervalued. However even for that conclusion further evidence beyond the value of district valuation officer is required. 4) There is no evidence that extra money has passed hands between the partners for the transfer of interest in the partnership firm.
5) In fact the stamp duty valuation of the very property has been done on 3rd August 2004 at Rs..20,23,646/-. 6) This property has been actually transferred by the continuing partners by an agreement for sale on 3rd August 2004 to M/s.Silver Land Developers Pvt Ltd for a consideration of ^.40 lakhs. The details of payments made by the purchasing company are also available on the sale deed. The details of cheque numbers etc are also available on the last page. This is a third party evidence and cannot be disregarded. 7) The question is what could be the reason for such a difference between the value adopted by district valuation officer and the value of stamp duty authorities and actual consideration of sale at a later date. This calculation is also available in the worksheet for determining stamp duty valuation. In the stamp duty valuation it has been calculated that gross value of the property at the rate of Rs.17,100/- multiplied by 3252.68 will amount to ?. 5,56,20,828/-. However cost of construction for providing alternative accommodation to tenants for an area of 4715.52 m2 at the rate of Rs.6500 will work out to Rs.3,06,50,880/-. From this has been reduced the cost for purchase of TDR etc. It is concluded in the stamp duty calculation that total deduction will be more than the gross value. Therefore for the purposes of stamp duty the market value of the property has been taken by grossing up the rental value to Rs.20,23,646/-. It can be seen that the sale deed itself contains the names of numbers of tenants in various buildings. Building No.1 has 33 tenants, Building No.2 has 32, Building No.3 has 33, Building No.4 has 26, and Building No.5 has 25 tenants. The cost of providing alternative accommodation to the tenants has to be reasonably reduced from the gross value. That is why stamp duty authorities have taken the value of the property at Rs.20,23,646/- only. . 8} It can also be pointed out that there is no provision to substitute the value of the consideration in the case of transfer of an immovable property being in the nature of a capital asset except for the provisions of section 50C. Even according to the provisions of section 50C, between the value( determined by the DVO and the stamp duty authorities, the value adopted by stamp duty authorities have to be chosen. In any case, in the case under consideration it is only transfer of an interest in partnership firm and not transfer of immovable property. 9) Now the only issue to be adjudicated is whether the claim of the appellant that the amount received on transfer of interest in partnership CO No.20/Mum/2012 Laxmiben N Kakad firm was not taxable. The claim of the appellant is not tenable for two reasons. The appellant has relied upon the decision of Supreme Court's in the case of Mohanbhai Pannabhai 165 ITR 166 where in Supreme Court held that amount received by the partner on retirement would not be taxable. He has also relied upon the order of Chennai Tribunal in the case of a CIT Vs. Goel Dresses (2009) 30 DTR 70. However it is important to note that such a claim is not correct. Delhi High Court in the case of Bishanlal Kanodia Vs CIT 257 ITR 449 has held that the excess over and above the amount standing to the account of the partner would be liable to tax as capital gains in case of a transfer of such interest. It will be transfer within the meaning of section 2(47) of the IT act. In this case Delhi High Court has considered Supreme Court's decision in the case of Mahabhai Pannabhai 165 ITR 166 (SC). Secondly, appellant himself had offered it as capital gains and now any revised claim cannot be made without filing a revised return of income as per that the season of Supreme Court in the case of Goetze India Ltd. Therefore the gain of the appellant has to be taxed as capital gains only. Considering the above, the value adopted by the DVO cannot be substituted for the consideration amount received by the appellant for the transfer of interest in the partnership firm. Therefore the determination of capital gain by the Assessing Officer by substituting the value of property by the value determined by the DVO cannot be sustained and is deleted.
However, the CIT(A) has confirmed the reopening of assessment u/s.147.
Against the above order of CIT(A), Revenue is in further appeal before us and assessee has also filed cross objection challenging the reopening of assessment. 11. We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that assessee has got money on her retirement from the partnership firm. Clause 14(a) of the retirement deed mentions that the retiring partners have been paid Rs.60 lakhs by the continuing partners, towards their capital, share of profit to the date of retirement and a right of the retiring partners in all the CO No.20/Mum/2012 Laxmiben N Kakad assets of the firm, mainly immovable property situated at Rajawadi Ghatkopar(East). Hence, the transaction under question is not a transfer of immovable property per se. It is only transfer of interest in the partnership firm. In such a case the value of interest in partnership firm which have been agreed upon by partners through a deed cannot be very re-determined or rewritten. There is no evidence that extra money has passed hands between the partners for the transfer of interest in the partnership firm. 12. We also observe that this property has been actually transferred by the continuing partners by an agreement for sale on 3rd August 2004 to M/s.Silver Land Developers Pvt Ltd., for a consideration of Rs.40 lakhs. The details of payments made by the purchasing company are also available on the sale deed. The details of cheque numbers etc are also available on the last page. This is a third party evidence and cannot be disregarded. We also found that CIT(A) has dealt in great detail the reasons for such a difference between the value adopted by the DVO and value adopted by the Stamp Duty Authorities vis-à-vis annual consideration sale at a later date vide para 7 of his order. The detailed finding given by the CIT(A) are as per material on record. We support the conclusion that the material gain determined by the AO by substitute value of property by the value determined by the DVO was not sustainable in law. The finding so recorded has not been controverted by learned DR by bringing any positive material on record. Accordingly, we