Section 45(4) read with section 2(14) – Receipt of money equivalent to share in enhanced portion of the assets re-valued by the Retiring Partners do not give rise to capital gain u/s. 45(4) read with section 2(14)
Jagdish D. Shah | Jagdish T. Punjabi Chartered Accountants
4. D.S. Corporation vs. Income Tax Officer
(Mum) Members: P.M. Jagtap (V.P.) – Third Member I.T.A. Nos.: 3526 & 3527/MUM/2012 A.Y.s: 2006-2007 and 2007-2008 Dated: 10th January, 2019 Counsel for Assessee / Revenue: Dr. K.
Shivaram and Rahul Hakani / Ajay Kumar
Section 45(4) read with section 2(14) –
Receipt of money equivalent to share in enhanced portion of the assets
re-valued by the Retiring Partners do not give rise to capital gain u/s. 45(4)
read with section 2(14)
The assessee, a partnership firm, was
originally constituted vide the deed of partnership entered into on 01.08.2005
with the object to carry on the business of real estate development and
construction. The firm was reconstituted from time to time. On 23.09.2005, the
assessee firm purchased a property at a suburb in Mumbai for a consideration of
Rs. 6.5 crore. After arriving at a settlement with most of the tenants
occupying the said property and obtaining permission of the competent authority
concerned for construction of a five-star hotel, the said property was revalued
at Rs. 193.91 crore as per the valuation report of the registered valuer. The
resultant revaluation surplus was credited to the capital accounts of the
partners in their profit sharing ratio. Two of the five partners retired from
the partnership firm, on 27.03.2006 and on 22.05.2006. On their retirement,
both these partners were paid the amounts standing to the credit of their
capital accounts in the partnership firm including the amount of Rs. 30.88 crore
credited on account of revaluation surplus.
According to the AO, there was transfer of
capital asset by way of distribution by the assessee firm to the retiring
partners in terms of section 45(4) of the Act and the assessee firm was liable
to tax on the capital gain arising from such transfer. According to the CIT(A)
there was no dissolution of partnership firm at the time of retirement, there
was only reconstitution of the partnership firm with change of partners.
Therefore, he held that the provisions of section 45 (4) were not attracted.