Case Law Details
Smt. Chandrasekaran Valarmathi Vs ITO (ITAT Chennai)
Introduction: The Income Tax Appellate Tribunal (ITAT) Chennai delivered a crucial ruling in the case of Smt. Chandrasekaran Valarmathi vs. ITO. The central issue revolved around the applicability of Section 56(2)(vii)(b)(ii) of the Income Tax Act to a property purchased for the business use of a partnership firm. The ITAT’s detailed order dated 29th November 2023 provides insightful perspectives on this matter.
Detailed Analysis: In the appeal before the ITAT, the assessee contended that the property, jointly owned by partners of the firm M/s Chandran Steels, was acquired for the firm’s business purposes. The firm claimed depreciation on the property, and the funds for the purchase and loan repayment originated from the firm. The assessee argued that the property should be deemed to be acquired by the firm under Section 14 of the Indian Partnership Act.
The assessing officer, invoking Section 56(2)(vii)(b)(ii), added the differential amount to the assessee’s income. The CIT(A) upheld the decision, emphasizing that the property was registered in individual names, requiring rent payments to co-owners.
The ITAT, through purposive construction, examined the firm’s role in the property’s acquisition, use, and repayment. It recognized the firm as the de facto owner, receiving depreciation and exclusively utilizing the property for business. Referring to Section 14 of the Partnership Act, the ITAT deemed the property acquisition for the firm, rendering Section 56(2)(vii)(b)(ii) inapplicable to partnership firms at the relevant time.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
