Case Law Details
ITO Vs Satish Babu Kethineedi (ITAT Hyderabad)
ITAT Hyderabad held that transfer of assets of the partnership to the retiring partners would amount to the transfer of the capital assets in the nature of capital gains and business profits which is chargeable to tax under section 45(4) of the Income Tax Act.
Facts- The case of the assessee was selected for scrutiny and during the assessment proceedings, it was found that the assessee along with Sri Nihar Ranjan Pradhan has incorporated a company by name M/s. Digital Campus Services Private Limited and got allotted shares of the company which was in lieu of introduction of the ERP package in the ratio of 60:40 and accordingly, the assessee received shares worth Rs.8,92,98,000 /which attract provisions of section 45 of the Act. As the assessee did not admit the income from capital gains or otherwise in the return filed for A.Y. 2012-13, assessment was reopened u/s 147 of the Act and notice u/s 148 of the Act was issued. AO completed the assessment by making an addition of Rs.8,92,98,000/- towards undisclosed income, thereby determining the total income at Rs.8,95,38,000/-.
CIT(A) partly allowed the appeal of the assessee. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Supreme Court in the case of CIT Vs. Mansukh Dyeing and Printing Mills has held that when the asset of the partnership is transferred to a retiring partner the partnership which is assessible to tax ceases to have a right or its right in the property stands extinguished in favour of the partner to whom it is transferred. If so read it will further the object and the purpose and intent of amendment of section 45. Once, that be the case, we will have to hold that the transfer of assets of the partnership to the retiring partners would amount to the transfer of the capital assets in the nature of capital gains and business profits which is chargeable to tax under section 45(4) of the I.T. Act.
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