M/s. Chakrabarty Medical Centre vs. TRO (ITAT Pune)

DATE: January 30, 2015 (Date of pronouncement)
DATE: February 9, 2015 (Date of publication)
AY: 2008-09
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Property introduced by a partner into firm becomes the asset of the firm even if there is no registered deed. Though the asset is held by the firm as a depreciable asset and though the investment in s. 54EC bonds is made in the names of the partners, the firm is eligible for s. 54EC exemption

(i) Under s. 239 of the Indian Contract Act and s. 14 of the Indian Partnership Act, for the purpose of bringing the separate properties of a partner into the stock of the firm it is not necessary to have recourse to any written document at all, that as soon as a partner intends that his separate properties should become partnership properties and they are treated as such, then by virtue of the provisions of the Contract Act and the Partnership Act, the properties become the properties of the firm and that this result is not prohibited by any provision in the Transfer of Property Act or the Indian Registration Act. The legal position, therefore, appears to be that no written or registered document is necessary for an individual to contribute any land or immovable property as a contribution against his share of the capital of a new partnership business. Consequently, the capital gains on sale of the property is assessable in the hands of the firm;

(ii) As regards the question whether the firm is eligible for exemption u/s 54EC for the investment made by two partners in their individual names, the assessee firm was on 02-04-2008 and before the dissolution the professional assets i.e. hospital building and land were sold out. As per the well settled law, partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner though not specifically defined in terms of their shares. On perusal of the language used in Sec. 54EC, it is provided that the assessee has to make the investment within a period of six months in the notified securities after the date of transferred of capital asset. The words used in Sec. 54EC are – “the assessee has invested the whole or any part of capital gains in the long-term specified asset”. As we have held that the property which was sold out, it was property of the assessee firm and hence, the capital gain is taxable in the hands of the assessee firm. At the same time even though the bonds are purchased on the names of the two partners, it can be said that irrespective of the way, how the sale consideration was credited to the bank accounts of two partners, but the benefit of Sec. 54EC cannot be deprived to the assessee firm. As admittedly, even on the dissolution of the firm the assessee as a partner has a right to get back their capital as per the final valuation done on the date of dissolution or otherwise. In fact, for taking said view we get the support from the decision in the case of DIT (International Taxation) Vs. Mrs. Jennifer Bhide 252 CTR 444 (Kar).

(iii) The assessee firm has claimed depreciation on the hospital building and hence, Sec. 50 is applicable. In terms of Sec. 50 whatever Capital Gain is worked out on the depreciable asset then the same is treated as Short Term Capital Gain. The next question before us is whether the assessee firm can claim the benefit of Sec. 54EC which is specified for the benefit of Long Term Capital Gain. This issue is decided in favour of the assessee by the Hon’ble High Court of Bombay in the case ACe Builders (P) Ltd. 281 ITR 210. We, accordingly, hold that even though the assessee firm has claimed the depreciation on the hospital building but benefit of Sec. 54EC can be given following the legal principles laid down by the Hon’ble Bombay High Court in the case of ACe Builders (P) Ltd. (supra).

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