K.R.MURALIDHAR,CHENNAI vs. ITO, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

The appeal and Stay Petition of the assessee are directed

against the order of the Commissioner of Income Tax (Appeals)-13,

Chennai, dated 23.3.2015 and pertain to assessment year 2009-10.

2 I.T.A. No.1097/Mds/15 S.P. No.338/Mds/15 2. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee,

submitted that the only issue arises for consideration is regarding

computation of capital gain in transfer of land. According to the Ld.

counsel, during the year under consideration, the assessee admitted long-term capital gain of `67,73,345/- on sale of factory

land and building at 141, Kottivakkam Village, Nehru Nagar,

Chennai, Kancheepuram District. The assessee also claimed

exemption in respect of long-term capital gain in view of the

investment in Rural Electrification Corporation Limited bonds and

investment in residential house property. The assessee also claimed short-term capital loss of `11,35,986/- on account of

extinction of Goodwill. However, the Assessing Officer disallowed

the claim of the assessee on the ground that the assessee became

the owner of the land in the assessment year 2007-08. The

Assessing Officer came to a conclusion that the land in question

was sold within a period of three years. Hence, it has to be treated

as short-term capital gain. According to the Ld. counsel, the land in

question stands in the name of partner and it was not transferred to

the partnership firm at all. The assessee continues to be the owner

of the land. According to the Ld. counsel, the assessee had taken

over only the building and other assets and excluded the landed

properties of the partnership firm. The Ld.counsel also placed his

3 I.T.A. No.1097/Mds/15 S.P. No.338/Mds/15 reliance on the judgment of Madras High Court in CIT v. S.

Rajamani & Thangarajan Industries (2000) 241 ITR 668 and

submitted that for transfer of landed property, the document shall be

registered. Since there is no registered document, according to the

Ld. counsel, there was no transfer of property to the partnership

firm, hence, the Assessing Officer is not justified in treating the

capital gain as short-term capital gain. The Ld.counsel also placed

his reliance on the decision of this Bench in Raja Fertilizers v.

Income Tax Officer (2013) 21 ITR (Trib.) 658.

Representative, submitted that “transfer” has been defined under

Section 2(47) of the Income-tax Act, 1961 (in short 'the Act').

Therefore, though registration of document is mandatory for transfer

of immovable property under the common law, Income-tax Act does

not require any registered document for transfer of immovable

property. According to the Ld. D.R., Income-tax Act, being a special

enactment, for assessment of total income for levy of tax and

collection thereof, it would prevail over the other enactments.

Therefore, even though there is no registered document for transfer

of property from the assessee to the partnership firm, it has to be

treated as transfer in the hands of the partnership firm. In fact, the

4 I.T.A. No.1097/Mds/15 S.P. No.338/Mds/15 property was shown as asset in the accounts of the partnership firm.

Therefore, the assessee became the owner on the date on which

the firm was dissolved. Therefore, the Assessing Officer has rightly

taken the gain as short-term capital gain.

perused the relevant material on record. The only issue arises for

consideration is with regard to assessment of capital gain either as

long-term capital gain or short-term capital gain. The assessee

claims that gain on the sale of the land is long term capital gain on

the ground that the assessee continues to be the owner of the

property, even though the same was shown as asset in the

accounts of the partnership firm. The claim of the assessee

appears to be that there is no registration of document executed for

transfer of the property to the partnership firm. The fact remains

that the land was transferred to the account of the partnership firm

and the partnership firm was enjoying the landed property as its

own for the purpose of carrying on its business. Under the common

law, as rightly submitted by the Ld. D.R., registration of document is

mandatory for transfer of immovable property. However, under the

Income-tax Act, which is being a special enactment, definition of

“transfer” given in Section 2(47) of the Act would prevail over the

5 I.T.A. No.1097/Mds/15 S.P. No.338/Mds/15 definition given in other enactments. Therefore, whether there is a

transfer or not is to be examined in the light of Section 2(47) of the

Act and not otherwise. In fact, the Apex Court in the case of Mysore

Minerals Ltd. v. CIT (239 ITR 775) examined this issue and found

that the registration of document is not an essential requirement for

transfer of property under the Income-tax Act. This judgment of the

Apex Court was not brought to the notice of the Madras High Court

in S. Rajamani & Thangarajan Industries (supra). This was also not

considered by this Tribunal in Raja Fertilizers (supra). Therefore,

this Tribunal is of the considered opinion that the judgment of

Madras High Court in S. Rajamani & Thangarajan Industries (supra)

and this Tribunal’s decision in Raja Fertilizers (supra) may not be

applicable to the facts of the case. This Tribunal is of the

considered opinion that the judgment of the Apex Court in Mysore

Minerals Ltd. (supra) is squarely applicable to the facts of the case.

Therefore, when the property was shown in the accounts of the

partnership firm and the partnership firm was allowed to enjoy the

property as its own, there was transfer of property to the partnership

firm.

common law is not a legal entity. However, under Income-tax Act, it

6 I.T.A. No.1097/Mds/15 S.P. No.338/Mds/15 is a separate and distinctly assessable unit. This distinction has to

be born in mind and the partnership firm carried on its business

through its partners. Therefore, for all practical purposes, under the

provisions of Income-tax Act, the partnership firm is the owner of the

property and the assessee became the owner on the date on which

it was re-transferred from the partnership firm. Therefore, the gain,

if any, on transfer of property, has to be assessed only as short-

term capital gain and not as long-term capital gain. Therefore, this

Tribunal do not find any infirmity in the order of the lower authority

and accordingly, the same is confirmed.

54EC and 54 of the Act. We have carefully gone through the

provisions of Sections 54EC and 54 of the Act. As rightly observed

by the CIT(Appeals), the provisions of Sections 54 and 54EC of the

Act are applicable only in respect of gain arising from transfer of

long-term capital asset. In this case, the gain arose from the

transfer was short-term capital gain. Therefore, provisions of

Sections 54EC and 54 are not applicable at all.

rightly taken the value as reflected in the balance sheet of the

partnership firm and it was confirmed by the CIT(Appeals).

7 I.T.A. No.1097/Mds/15 S.P. No.338/Mds/15 Therefore, this Tribunal do not find any infirmity in the order of the lower authority and accordingly, the same is confirmed.

Order pronounced on 26th June, 2015 at Chennai.

Sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 26th June, 2015.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-13, Chennai 4. आयकर आयु�त/CIT-10, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.