ITOv. Fine Developers. (2013) 55 SOT 122(Mum.) (Trib.)

S.45(4): Capital gains –Admission of partner- Admission of a new partner in partnership firm does not attract

provisions of section 45(4).(S. 2(47))

Assessee-firm was engaged in business of builders and developers. It admitted a new partner. Assessing Officer found that assessee owned a plot of land 50 per cent of which was transferred in favour of new partner. He thus, opined that assessee-firm was liable to be taxed under section 45(4). On appeal, it was noted that from very beginning of partnership, plot in question was treated as stock-in-trade and even at end of relevant assessment year it was shown as current asset in balance sheet of firm.In view of above, there was no extinguishment of right as envisaged by section 2(47) in case of assessee-firm.Admission of a new partner in partnership firm does not attract provisions of section 45(4). In the instant case no capital asset was transferred by the assessee during the relevant assessment year. From the very beginning of the partnership the plot of land in question was treated stock-in-trade by the assessee firm. Even on 31-3-2008 it was shown as current asset (i.e. W-I-P) in the balance sheet. The Assessing Officer has nowhere rebutted/ doubted this factual position. Considering the above, the Commissioner (Appeals) rightly held that no capital asset was transferred by the assessee-firm and, hence, provisions of section 45(4) should not have been invoked. In the result, the revenue's appeal has to be dismissed. (A.Y. 2008-09)