Case Law Details
RELEVANT PARAGRAPH
16.48.1 There is no dispute to the position that the profits or gains or benefits arising to the assessee from said transaction in question has been assessed under the head “business” by the AO in the light of the view that stock in trade was sold or transferred by the assessee company to a firm at an appreciated price. It was the claim of the assessee itself that the stock in trade held by it was contributed to a firm in which the assessee became a partner, and in the light of the stand so taken by the assessee, the AO brought the surplus to tax under the head “business”. In the light of the stand taken by the assessee that the land transferred to a partnership firm was stock in trade at the time when the same was contributed to a firm, the AO has treated the transaction of making over the land of the assessee to a firm to be in the nature of trading or commercial transaction rejecting the assessee’s claim that it was not liable to be taxed as no sales had taken place. However, when an argument has been advanced supported by various decisions when a partner contributes its personal assets of whatever character to a firm towards its capital contribution when he becomes a partner, the asset involved in the transaction would partake the character of capital asset at that material point of time. The learned standing counsel for the revenue advanced an alternative argument based on same set of facts but on different conclusions of law drawn from those facts that in case the contribution of land by assessee partner to a firm is accepted to have been made towards its capital contribution in a firm and the land involved in the said transaction of capital contribution to a firm is held to be of a “capital asset in nature” at the time when the same was contributed as capital contribution, the profit or gain arising from the
transfer of a land by the assessee to a firm may be taxed under section 45(3) of the Act inserted with effect from A.Y. 1988-89. This alternative argument is, in our view, undoubtedly arising from the same set of facts, and in respect of same item of income arising from the same transaction, which have been considered in the assessment made by the AO. Further, the provisions of section 2(14), 2(47) and 45(3) of the Act were very much relied upon by the AO while assessing the item to tax as is clear from the respective orders of the authorities below and from the submissions of the assessee made before the authorities below as well as before us. It is not the new source of income or new item of income that is sought to be taxed by the revenue at this stage. It is the same income assessed by the AO that is now sought to be taxed under section 45(3) of the Act in the light of the legal inferences drawn from same of set of facts, as against the business profit assessed in the assessment made by the AO. The subject matter of appeal has not been really changed. The change is only with regard to the correct head of income under which it is to be assessed under the Income Tax Act. Thus, the contention of the assessee in this regard that the department has no right to take an alternative plea to tax the profits or gains arising from transfer of land by assessee to a firm by way of capital contribution as per provisions of section 45(3) of the Act is not found convincing.
16.48.2 Further, the answer to a question that whether the land in question had a character of capital asset or stock in trade at the time when the same was contributed as capital to a firm in which the assessee became a partner is based on a legal conclusion to be drawn from same set of facts. The relevant provisions of law contained in section 2(14), 2(47) and 45(3) were very much relied upon by the department authorities below to bring the item to tax though the tax has been imposed by the AO and the CIT(A) under the head “business profit”. This makes it clear that the department has not made out a new claim for the first time before the Tribunal by way of an alternative argument made before us.
16.48.3 It is not the case where any enhancement of income is sought for by the Revenue. It is also not the case where any benefit already granted to the assessee is sought to be taken back by the department. The only point raised by the Sr. Standing Counsel for the revenue is that in case the surplus arising from the transaction is not found to be assessable under the head “business”, the same may be taxed under the head “capital gain”, and in that situation the tax liabilities of the assessee would not increase. All the facts to decide the question as to whether the surplus in question is asses sable under the head “business” or “capital gain” are available on record, which has been considered by the authorities below and which has been referred to by the assessee. The AO as well the assessee both have admitted the fact that the land was contributed as capital contribution by the assessee in the capacity of a partner. The subject matter involved in this issue is also not being changed in as much as in the light of the facts available on record and that were considered by the authorities below and also relied upon by the assessee, the same very transaction of contributing the land by a partner to a firm as its capital contribution is the sole basis to decide the alternative contention raised by the revenue. By allowing department to raise this additional plea, we do not think that we traverse beyond the subject matter of dispute between the parties involved in this case. This alternative plea raised by the revenue does not altogether changes the complexion of the case, and only change sought to be made is to determine the correct head of income on same set of facts. The various decision relied upon by the ld. counsel for the assessee are, therefore, not applicable to the present case in as much as those cases were rendered either in the situation where new facts were considered, benefit already granted to the assessee were sought to be withdrawn, the subject matter of the appeal was completely changed and the assessment was sought to be enhanced.
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