HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 261/2017 Pr. Commissioner of Income Tax, Alwar -Appellant Versus Shri Kundan Lal Badshah, Plot No. 109, Anand Nagar, Khairthal, Alwar Respondent For Appellant(s) : Ms. Parinitoo Jain with Ms. Shiva Goyal For Respondent(s) : HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 03/10/2017 1. By way of this appeal, appellant has assailed judgment and order of Tribunal whereby Tribunal has disposed of appeal of department with certain directions. 2. Counsel for appellant has framed following substantial question of law:- 1. Whether on facts and circumstances of case and in law Hon ble ITAT was justified in deleting addition of Rs. 1,18,75,507/- made by Assessing Officer by applying provisions of section 45(1) r.w.s. 50C of I.T. Act, 1961 by holding that at time of transfer land belonged to partnership firm when at time of sale land was registered in name of assessee in his individual capacity. 2. Whether on facts and circumstances of case and in law Hon ble ITAT was justified in not giving directions to tax capital gain in (2 of 4) [ITA-261/2017] hands of firm M/s Swamy Grit Udhyog u/s 45(4) of I.T. Act in respect of sale of said land to Sh. Rattan Singh on 12.05.2009 when it had itself held that at time of transfer land belonged to firm and not assessee Sh. Kundan Lal Badshah? 3. Whether on facts and circumstances of case and in law Hon ble ITAT was in not issuing directions for taxing such capital gain in hands of assessee in A.Y. 2007-08 when it had itself held that capital gain arose in hand of assessee u/s 45(3) in year in which property was transferred to books of firm as capital contribution.? 3. While considering matter, Tribunal specifically held that property was transferred in name of partnership firm in year 2006-07 and department could have charged capital gain for this period. 4. In that view of matter, observations made by Tribunal reads as under:- 10. Now, coming to execution of sale deed dated12.05.2009, it is noted that after retirement of assessee from firm, Shri Ratan Singh, on basis of power of attorney dated 11.06.2008, executed sale deed dated 12.05.2009 in his own name. It is here that main issue for consideration arises as to whether sale deed has been executed by assessee (through its power of attorney holder, Shri Ratan Singh) in whose name property stand in land records or sale deed has been executed by firm M/s Swami Grit Udyog, in whose name property stands and all rights remained vested as per partnership deed and its books of accounts. As we have stated above, once land has been contributed by assessee as his share of capital contribution and acknowledged by firm which is duly evident by partnership deed dated 19.07.2006, said property becomes property of firm and transfer thereof is chargeable to tax in hands of assessee by virtue of provisions of Section 45(3) of Act. In case of Add. CIT Vs. Manjeet Engineering Industries [154 ITR 509] (Del.) and in case of CIT vs. A.V. Bhanoji Rao (3 of 4) [ITA-261/2017] [142 ITR 706] (AP), it is held that no particular mode or form is provided for bringing in separate property into stock of firm by partner and no deed whatsoever registered or otherwise is required to be executed by partner for doing so. In present case, facts are on stronger footing as capital contribution is evidenced by deed of partnership and same would be considered as transfer in relation to capital asset in terms of Section 2(47)read with section 45(3) of Act. Therefore, we agree with finding ofthe ld CIT(A) that liability to pay tax on capital gains, if any, arises in hands of appellant, when property (purchased by appellant) was transferred to books of partnership firm. Thus, capital gains, if any, in hands of appellant would arise in FY 2006-07 under provisions of section 45(3) of IT Act i.e. in year when such property is transferred to books of firm ascapital contribution. 11. As per Ld. CIT(A), as per provisions of Section 45(4) of Act, taxability will arise on such transfer in terms of sale deed dt. 12.05.2009 in case of dissolution of firm and issue has to be examined by concerned A.O having jurisdiction over firm. It is here that we do not agree with finding of Ld. CIT(A). Here it would be relevant to refer to decision of Hon ble Bombay High Court in case of CIT vs. A.N. Naik Associates 136 Taxman 107 (Bombay) wherein Hon ble Court have examined provisions of Section 45(4) of Act. It held that expression otherwise used in section 45(4) has to be read with words transfer of capital assets by distribution of capital assets, if so read, it becomes clear even when firm is in existence and there is transfer of capital assets, it comes within expression otherwise as object of amending Act was to remove loophole which existed whereby capital gain tax was not chargeable. In instant case, firm continue to exist and subject land has been transferred by firm (as we have held above) in favour of one of partners of firm, Shri Ratan Singh. Therefore, it is for Revenue to decide whether such transfer in favour of Ratan Singh is taxable in hands of firm under section45(4) of Act or not. To that extent, above findings of ld CIT(A) stand modified. (4 of 4) [ITA-261/2017] 5. In our considered opinion, no substantial question of law arises. 6. request is made to take action pursuant to observations made by Tribunal. However, we are not expressing any opinion on said aspect in view of statutory provisions. 7. Hence, appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. A.Sharma/10 Pr. Commissioner of Income-tax, Alwar v. Kundan Lal Badshah