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Sajjan Bagaria Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 9 of 1975
Judge
ActsIncome Tax Act, 1961 - Sections 2(7), 48, 67, 80T
AppellantSajjan Bagaria
RespondentCommissioner of Income-tax
Appellant AdvocateS.L. Bhatra, V.K. Bhatra and K.K. Bhatra, Advs.
Respondent AdvocateG.K. Talukdar and D.K. Talukdar, Advs.
Excerpt:
.....any other capital assets exceed five thousand rupees :provided that in a case where the long-term capital gains relate to buildings or lands, or any rights in buildings or lands, as well as to other assets, the sum referred to in sub-clause (ii) of clause (b) shall be taken to be- (a) where the amount of the long-term capital gains relating to the capital assets mentioned in sub-clause (i) is less than five thousand rupees, sixty-five per cent. '18. reading the provisions of section 80a(3), we are clearly of the opinion that in computing the total income of the assessee who is a partner of the firm, in the instant case, the provisions of section 80t are not attracted. viewing the problem from broader angle, we are clearly of the opinion that in order to get assignment of the interest of..........of rs. 15,863 cannot be allowed as a deduction for computing the amount of assessee's share in the capital gains earned by the firm, m/s. bagaria building corporation ' m/s. bagaria building corporation, calcutta, was a firm consisting of three partners, namely, the assessee, sajjan bagaria, smt. anandi devi agarwalla and smt. savitri devi agarwalla, each having one-third share. the assessee joined this firm with effect from 1st january, 1969. prior to that date, m/s. bagaria building corporation, calcutta, consisted of two ladies mentioned above and shewbhagawan saraf, each having one-third share. shewbhagawan saraf left the firm and the assessee came in his place.2. the firm owned a house property at 61, mcleod street, calcutta. this house property was sold by the firm for rs......
Judgment:

M.C. Pathak, C.J.

1. The following question of law has been referred by the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, under Section 256(1) of the Income-tax Act, 1961, to this court for decision :

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 15,863 cannot be allowed as a deduction for computing the amount of assessee's share in the capital gains earned by the firm, M/s. Bagaria Building Corporation ' M/s. Bagaria Building Corporation, Calcutta, was a firm consisting of three partners, namely, the assessee, Sajjan Bagaria, Smt. Anandi Devi Agarwalla and Smt. Savitri Devi Agarwalla, each having one-third share. The assessee joined this firm with effect from 1st January, 1969. Prior to that date, M/s. Bagaria Building Corporation, Calcutta, consisted of two ladies mentioned above and Shewbhagawan Saraf, each having one-third share. Shewbhagawan Saraf left the firm and the assessee came in his place.

2. The firm owned a house property at 61, Mcleod Street, Calcutta. This house property was sold by the firm for Rs. 3,25,000. The cost of the building was determined at Rs. 2,23,212. The sum of Rs. 1,01,788, which is the difference between the selling price of Rs. 3,25,000 and the cost of Rs. 2,23,212, was determined to be long-term capital gain of the firm. After making the deductions as per provisions of Section 80T of the Income-tax Act, 1961 (hereinafter referred to as ' the Act '), the amount of capital gain was determined by the Income-tax Officer assessing the firm at Rs. 53,233. This amount was allocated amongst the assessee and the two other partners in equal shares. The amount allocated to the assessee was Rs. 17,744.

3. In the return of income filed by the assessee he had shown his share of capital gains from the firm at Rs. 26,067. Against this amount he claimed deduction of Rs. 25,863.

4. The assessee has claimed this deduction of Rs. 25,863 in the following manner :

The property at 61, Mcleod Street, Calcutta, was constructed by the firm on a leasehold land. The lease was taken from one Tapendranath Mitra by Smt. Anandi Devi Agarwalla, Smt. Savitri Devi Agarwalla and Shewbhagawan Saraf, the then three partners of the firm, M/s. Bagaria Building Corporation. The lease deed was dated August 22, 1963, and the lease was for a period of 75 years from August 1, 1963. Under the terms of the lease the lessee had the right to erect a six-storeyed building on the plot. Thereafter, a 'building was constructed by the firm on the said plot and continued to own that house property. On January 1, 1969, Shewbhagawan Saraf left the firm and the assessee, Sajjan Bagaria, joined the

firm in his place. The lease of the plot of land on which the building was constructed was in the name of the three original partners of the firm. It was claimed that the assessee had to pay Rs. 15,000 to Shewbhagawan Saraf as consideration for his agreeing to assign his interest in the lease to the assessee. Another sum of Rs. 10,000 was stated to have been paid to Tapendranath Mitra, the lessor, for his agreeing to the transfer of the interest of Shewbhagawan Saraf in the lease to the assessee. A sum of Rs. 863 was stated to be the expenditure in connection with the above. This total amount of Rs. 25,863 was claimed to be deducted from the amount of his (assessee's) share in the capital gains earned by the firm.

5. The Income-tax Officer rejected the claim holding that whatever deductions were to be allowed for finding out the capital gains would be allowed in the hands of the firm and no deduction could be allowed in the hands of the assessee. The Income-tax Officer also noted that the amount of Rs. 25,863 had been paid by the assessee for becoming a partner in the firm, M/s. Bagaria Building Corporation, and not for purchasing the property. The amount, therefore, according to the Income-tax Officer, could not be treated as the cost of the property in the hands of the assessee.

6. On appeal the Appellate Assistant Commissioner agreed with the findings of the Income-tax Officer and rejected the claim of the assessee for deduction of this amount of Rs. 25,863 from the amount of the assessee's share of capital gains.

7. The assessee then preferred an appeal before the Income-tax Appellate Tribunal.

8. Regarding the sum of Rs. 25,863 the assessee took the stand before the Income-tax Officer and the Appellate Assistant Commissioner that the assessee paid a sum of Rs. 15,000 to Shewbhagawan Saraf in consideration of which Shewbhagawan Saraf assigned his one-third share, right, title and interest in the building at 61, Mcleod Street, Calcutta to the assessee. That the assessee paid a sum of Rs. 10,000 to Tapendranath Mitra, the lessor, for his agreeing to the said assignment and that a sum of Rs. 863 represented the expenses incurred in connection with the said transfer.

9. Before the Appellate Tribunal the learned counsel for the assessee did not press for the sum of Rs. 10,000 stated to have been paid to Tapendranath Mitra, inasmuch as there was no evidence to that effect. Consequently, before the Appellate Tribunal only the other two sums, namely, the sum of Rs. 15,000 and the sum of Rs. 863, were pressed for and the Tribunal considered the claim of the assessee relating to the amount of Rs. 15,863.

10. The Tribunal held that this sum of Rs. 15,863 was spent for becoming a partner in the firm, M/s. Bagaria Building Corporation, Calcutta, and the same could not be allowed as a deduction for computing the amount of the assessee's share in the capital gains earned by the firm. The Tribunal,

therefore, confirmed the order of the Appellate Assistant Commissioner and dismissed the appeal.

11. On the above facts, the above-mentioned question of law has been referred.

12. Sections 45 to 55 of the Act deal with capital gains. Section 45 reads as follows :

' 45. Capital gains.--Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54 and 54B be chargeable to income-tax under the head ' capital gains', and shall be deemed to be the income of the previous year in which the transfer took place.'

13. Section 48 of the Act reads as follows :

' 48. Mode of computation and deductions.--The income chargeable under the head ' capital gains ' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--

(i) expenditure incurred wholly and exclusively in connection with such transfer ;

(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto.'

14. Section 80T of the Act deals with deduction in respect of long-term capital gains in the case of assessees other than companies. So Section 80T is applicable in the case of the firm, M/s. Bagaria Building Corporation, of which the assessee is a partner. Section 80T reads as follows :

' 80T. Deduction in respect of long-term capital gains in the case of

assessees other than companies.--Where the gross total income of an assessee

not being a company includes any income chargeable under the head

' capital gains ' relating to capital assets other than short-term capital assets

(such income being, hereinafter, referred to as long-term capital gains) there

shall be allowed, in computing the total income of the assessee, a deduction

from such income of an amount equal to,--

(a) in a case where the gross total income does not exceed ten thousand rupees or where the long-term capital gains do not exceed five thousand rupees, the whole of such long-term capital gains ;

(b) in any other case, five thousand rupees as increased by a sum equal to-

(i) forty-five per cent. of the amount by which the long-term capital gains relating to capital assets, being buildings or lands, or any rights in buildings or lands, exceed five thousand rupees ;

(ii) sixty-five per cent. of the amount by which the long-term

capital gains relating to any other capital assets exceed five thousand rupees :

Provided that in a case where the long-term capital gains relate to buildings or lands, or any rights in buildings or lands, as well as to other assets, the sum referred to in Sub-clause (ii) of Clause (b) shall be taken to be-

(A) where the amount of the long-term capital gains relating to the capital assets mentioned in Sub-clause (i) is less than five thousand rupees, sixty-five per cent. of the amount by which the long-term capital gains relating to any other capital assets exceed the difference between five thousand rupees and the amount of the long-term capital gains relating to the capital assets mentioned in Sub-clause (i); and

(B) where the amount of the long-term capital gains relating to the capital assets mentioned in Sub-clause (i) is equal to or more than five thousand rupees, sixty-five per cent. of the long-term capital gains relating to any other capital assets. '

15. It is found that while arriving at the capital gain of the firm, the income-tax authorities took into consideration the provisions of Section 48 and Section 80T of the Act and assessed the capital gain of the firm at Rs. 53,233 which amount was equally allocated amongst the three partners including the assessee, each partner's share being Rs. 17,744.

16. Section 67(2) of the Act reads as follows:

' 67. Method of computing a partner's share in the income of the firm.--(1).....

(2) The share of a partner in the income or loss of the firm, as computed under Sub-section (1) shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the firm has been determined under each head of income.' (The underlining is mine.)

17. The words ' in the same manner ' in Sub-section (2) of Section 67 are very significant. Having recourse to the provisions of Section 67 of the Act the assessee's capital gain has been assessed at Rs. 17,744 and while computing the capital gain at the hands of the assessee-partner, the provisions of Section 48 of the Act will be applicable necessarily. If the deductions allowable under Section 80T have been allowed in the hands of the assessee-firm then under Section 80A the similar deductions are debarred in the hands of the partner in respect of the same capital gain by Section 80A which reads as follows:

'(3) Where, in computing the total income of a firm, association of persons or body of individuals, any deduction is admissible under Section 80G or Section 80H or Section 80J or Section 80K or, Section 80MM or Section 80N or Section 80O or Section 80QQ or Section 80S or Section 80T or Section 80TT, no deduction under the same section shall be made in computing the total income of a partner of the firm or, as the case may be, of a member of the association of persons or body of individuals in relation to the share of such partner in the income of the firm or the share of such member in the income of the association of persons or body of individuals. '

18. Reading the provisions of Section 80A(3), we are clearly of the opinion that in computing the total income of the assessee who is a partner of the firm, in the instant case, the provisions of Section 80T are not attracted. That also makes it clear that, in view of the provisions of Sub-section (2) of Section 67, Section 48 will be attracted in the instant case of the assessee.

19. We are, therefore, required to consider whether in the instant case the sum of Rs. 15,000 stated to have been paid to the outgoing partner by the assessee, may be said to be covered by Clause (ii) of Section 48. In other words, whether the sum of Rs. 15,000 paid to the outgoing partner, Shewbhagawan Saraf, by the assessee may be considered as the cost of acquisition of the capital asset so far as the present assessee is concerned. It has been found that the sum of Rs. 15,000 has been paid by the assessee to the outgoing partner, Shewbhagwan Saraf, as a consideration for the deed of assignment which is found in the paper book.

20. The Tribunal has observed that this sum of Rs. 15,000 was paid by the assessee for becoming a partner in the firm, M/s. Bagaria Building Corporation, Calcutta, and, therefore, the same amount could not be allowed as deduction for computing the amount of the assessee's share in the capital gains assessed for the firm. But we have to consider this question at two stages. The first stage is the computation of the capital gain of the firm and the second stage is the computation of the capital gain of the partner.

21. A firm is an assessee and so also a partner is an assessee within the meaning of Section 2(7) of the Act. That being the position the cost of the building is certainly deductible while computing the capital gain of the firm. Similarly, when the capital gain is allocated amongst the partners and a partner is treated as a separate assessee, any cost of acquisition of a particular capital asset from which the capital gain is derived, may have to be deducted under Section 48(ii) of the Act. In the instant case, in order to acquire the interest, whatever that may be, in the capital asset, namely, the house property in question, the assessee-partner had to spend Rs. 15,000 and there is no dispute about that. It cannot be said that this sum of Rs. 1 5,000 was paid for becoming only a partner and not for acquiring the interest of the assignor. Viewing the problem from broader angle, we are clearly of the opinion that in order to get assignment of the interest of the assignor in the house property in question the assessee had to spend this sum of

Rs. 15,000 and that being the position this sum has to be treated as cost of acquisition of the capital asset so far as the partner is concerned. The benefit of Section 48 of the Act cannot be denied to the partner when the income is going to be assessed in his hands as a separate assessee.

22. That being the position, we hold that this sum of Rs. 15,000 and a sum of Rs. 863, which were spent by the assessee for acquiring the interest in the house property from which the capital gain in question has arisen, are deductible under Section 48(ii) while computing the capital gain of the assessee-partner.

23. In the circumstances, we find that, on the facts and in the circumstances of the case, the Tribunal was not justified in holding that the amount of Rs. 15,863 could not be allowed as deduction for computing the amount of the assessee's share in the capital gains earned by the firm, M/s. Bagaria Building Corporation.

24. In the result we answer the question of law referred in the negative and against the department.

25. The reference is answered accordingly. We make no order as to costs.

26. A copy of the judgment shall be sent to the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, as provided under Section 260(1) of the Act.

D. Pathak, J.

27. I agree.


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