Decided on June 23,1992



G.K. Israni, Judicial Member - (1.) THIS appeal by the assessee is directed against the order of the learned Commissioner (Appeals) dated 5-11-1990 in respect of the assessment year 1987-88.
(2.) Although as many as seventeen grounds have been raised in the appeal, yet those grounds involve the only substantive issue as to whether the transfer by the assessee of its asset consisting of a plot of land to a newly formed partnership as its capital contribution gave rise to any capital gains and, if so, what is the quantum of such gain. The facts of the case, succinctly put, are that the assessee is a private limited company and was the owner of the plot of land since many years. During the previous year, relevant to the assessment year 1984-85, the assessee entered into partnership with various persons in the new firm constituted under the name and style of M/s. Habitat for the sole purpose of development of that plot of land. According to the partnership, it was agreed among the partners that the property would be introduced in the form of capital contribution of the assessee and it was also agreed that the other partners shall contribute a total sum of Rs. 20 lakhs and if any further capital was required it would be contributed by the other partners. The land had been appearing in the books of account of the assessee as a fixed asset at the value of Rs. 63 only. The plot was revalued at Rs. 1.20 crores and the land was transferred to the books of the firm on the same value. The difference between the original cost and the revalued figure was debited by the assessee-company to its capital reserve account. The Assessing Officer afforded an opportunity to the assessee to show cause as to why the difference between the book value of the land and its value adopted during the year in question, i.e., Rs. 1.20 crores should not be taken as the company's profit. The Assessing Officer also confronted the assessee with the decision of the Bombay Bench of theTribunal in the case of Jamnalal Sons Ltd. v. LAC [1989] 29 ITD 164. The assessee-company resisted the notice and stated that the land was transferred to the firm only as the assessee's capital contribution. The firm was still existing and no withdrawals had been made from the firm. Thus the assessee's case was distinguishable from the case of Jamnalal Sons Ltd. (supra). The assessee thus pleaded that the facts of its case were different from those pertaining to Jamnalal Sons Ltd. and also pertaining to the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC). The Assessing Officer after taking note, inter alia, of the following features of the case, came to the conclusion that the assessee company had chosen to transfer the land to the partnership firm to get back buildings of the value of Rs. 1 crore thereby evading capital gains tax which would have been taxable in the hands of the assessee if the land had been sold in the open market : (i) The business of the partnership shall be the single venture of developing the assessee's property at Jogeshwari and that the same shall be carried on mainly from the assessee's office at Nariman Point. (ii) The capital contribution of the assessee was Rs. 1,20,00,000 which is the market value of the land, was converted into stock-in-trade and introduced by the company as capital in the said firm. It was specifically pointed out by the Assessing Officer in Clauses 7,7(a), 7(b), 7(c) and 7(d) of the deed it has been laid down that the partnership firm is bound to construct, allot and make available to the appellant company that its land's exclusive ownership, enjoyment and use such units in proportionate share of residential and commercial users in the buildings to be constructed by the partnership of the value of Rs. 1 crore. It has also been specified when such units worth Rs. 1 crore are handed over to the appellant company its capital in the firm will be reduced by an identical amount and the balance shall remain at Rs. 20 lakhs as the assessee company had 50 per cent share in the firm and the share capital of the remaining partners was also Rs. 20 lakhs constituting the remaining 50 per cent share in the partnership. It has been clearly laid down that once the commercial or residential units are handed over to the assessee company the partnership firm will have no saying in the matter of selling or allotting, or giving on leave or licence otherwise these units and the appellant company will absolute right on the same. The Assessing Officer further held that the entire exercise of transfer of capital asset by the company to the newly constituted partnership firm was no thing but a device to evade payment of capital gain tax which would have been otherwise payable by the assessee. The Assessing Officer then ascertained the value of the land as on 1-1-1974 and found that such value was Rs. 19,77,700. He accordingly treated this value as the cost of acquisition and after deducting the same from the revaluation figure of Rs. 1,20,00,000 treated the balance of Rs. 1,00,22,300 as long-term capital gains and taxed it as such.
(3.) THE assessee took the matter to the learned Commissioner (Appeals) and challenged the order of the Assessing Officer on both counts. THE first challenge was on the ground that since the land has been transferred as a capital contribution of the assessee-company to the newly constituted firm and since no consideration had been received by the assessee, such transfer could not give rise to capital gains. THE second ground of challenge before the learned Commissioner (Appeals) was that the valuation of the property as on 1 -1 -19 74 was improper. THE learned Commissioner (Appeals) in his original order dated 5-11-1990 dealt with the first issue and concurred with the Assessing Officer that the transfer of the plot by the assessee-company to the newly constituted firm of M/s. Habitat did give rise to the capital gains which was exigible to tax. THE learned Commissioner (Appeals), however, omitted to deal with the other issue pertaining to the valuation of the property as on 1-1-1974. THE assessee thereafter moved a rectification application before the learned Commissioner (Appeals) seeking the adjudication of the issue. THE learned Commissioner (Appeals) subsequently passed an order of rectification under Section 154 on 3-9-1991 and directed the Assessing Officer to redetermine the value of the land as on 1-1-1974. THE Assessing Officer vide his order dated 4-12-1991 passed pursuant to the rectification order of the learned Commissioner (Appeals) revalued the land as on 1-1-1974 at Rs. 1,02,84,070. Consequently the long-term capital gain worked out only to Rs; 17,15,930. It is that amount of the, capital gains which is now the subject matter of the present appeal.;

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