COMMISSIONER OF INCOME TAX Vs. G SESHAGIRI RAO
LAWS(APH)-1992-9-24
HIGH COURT OF ANDHRA PRADESH
Decided on September 09,1992

COMMISSIONER OF INCOME-TAX Appellant
VERSUS
G. SESHAGIRI RAO Respondents

JUDGEMENT

Syed Shah Mohd. Quadri, J. - (1.)At the instance of the Commissioner of Income-tax, Andhra Pradesh, the following questions of law are referred to this court for its opinion :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in annulling the Commissioner of Income-tax's order under section 263 ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that there was no transfer of interest by the assessee to the other partners in the firm within the meaning of section 2(47) of the Income-tax Act, 1961 ?"

(2.)There was a partnership under the name and style of Messrs. White Field Industrial Corporation, Bangalore (for short, "White Field"). It purchased certain land in Seghalli, Bidarahalli, Hebli, Hoskote Taluk, Bangalore district, from Messrs. Krishna Mining Company, Goginenipuram. Gudur, Nellore district, under a registered sale deed dated 15/05/1972. Out of the four partners of the White Field, one Sri Peda Sekhar died on 9/07/1977. The remaining partners continued under a fresh deed of partnership executed on 15/07/1977. Three more partners including the assessee, were included in the partnership under the deed of partnership dated 1/04/1977. The land which was purchased by White Field was converted for industrial purposes and was revalued at Rs. 12 lakhs. The assessee's share in the said partnership in a sum of Rs. 2 lakhs was credited to his account. On 20/02/1980, the old partners of White Field retired and the assessee received the said sum of Rs. 2 lakhs on retirement. For the assessment year 1980-81, in the assessment proceedings, the assessee claimed that the said amount of Rs. 2 lakhs received by him did not constitute "transfer" within the meaning of section 2(47) of the Income-tax Act. Accepting this contention, the Income-tax Officer completed the assessment on 10/12/1980. In exercise of the power under section 263 of the Income-tax Act, the Commissioner revised the order of assessment on the ground that the Assessing Officer did not go into the question whether any capital gains liable to tax had arisen in the case of the assessee on his receiving Rs. 2 lakhs at the time of his retirement. Against this order of the Commissioner of Income-tax dated 1/12/1982, the assessee filed appeal before the Income-tax Appellate Tribunal. The Tribunal took the view that as the land in question was purchased by the firm even before the assessee became the partner of the firm, the question of transferring the interest of the assessee in favour of the other partners in the firm did not arise. It accordingly allowed the appeal following the judgment of this court in CIT v. L. Raghu Kumar [1983] 141 ITR 674. At the instance of the Commissioner of Income-tax, the above two questions are referred to this court for its opinion.
(3.)Sri S. R. Ashok, learned standing counsel for the Department, submits that on retirement, the assessee received the benefit of conversion of property into industrial purpose and as the conversion is at a higher valuation, the benefit was passed on to the assessee on retirement, so there was a transfer within the meaning of section 2(47) of the Act.
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