BHALCHANDRA BHATAVADEKAR, PUNE v. ACIT RG 16(3), MUMBAI

ITA 478/MUM/2010 | 2005-2006
Pronouncement Date: 24-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 47819914 RSA 2010
Assessee PAN CIETY2062N
Bench Mumbai
Appeal Number ITA 478/MUM/2010
Duration Of Justice 2 year(s) 1 month(s) 3 day(s)
Appellant BHALCHANDRA BHATAVADEKAR, PUNE
Respondent ACIT RG 16(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 24-02-2012
Date Of Final Hearing 07-02-2012
Next Hearing Date 07-02-2012
Assessment Year 2005-2006
Appeal Filed On 20-01-2010
Judgment Text
ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 1 OF 19 IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH MUMBAI BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER ITA NO. 478/MUM/2010 (ASSESSMENT YEAR: 2005-06) BALACHANDRA BHATAVADEKAR ACIT RANGE-16(3) B-6 YAK & YETI SOCIETY 206 2 ND FLOOR BUNDGARDEN ROAD MATRU MANDIR PUNE - 411001 VS MUMBAI PAN AACPB 4121 D APPELLANT RESPONDENT ITA NO. 668/MUM/2010 (ASSESSMENT YEAR: 2005-06) DY. CIT RANGE-16(3) BALACHANDRA BHATAVADEKAR MATRU MANDIR TARDEO ROAD B-6 YAK & YETI SOCIETY MUMBAI BUNDGARDEN ROAD VS PUNE - 411001 PAN AACPB 4121 D APPELLANT RESPONDENT ASSESSEE BY: SHRI VIJAY MEHTA AR REVENUE BY: SHRI PAVAN VED CIT (DR) DATE OF HEARING: 07/02/2012 DATE OF PRONOUNCEMENT: 24/02/2012 O R D E R PER B. RAMAKOTAIAH A.M. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGA INST THE ORDER OF THE CIT (A)-27 MUMBAI DATED 30.11.2009. TH E ISSUE IN THIS APPEAL IS WHETHER THE AMOUNT RECEIVED BY THE LEGAL HEIR OF DECEASED PARTNER ON THE SALE OF THE PROPERTY OF THE FIRM IS TAXABLE UNDER THE HEAD CAPITAL GAINS OR NOT. THE ASSESSEE IN HIS APPE AL HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND IN FACTS IN NOT HOLDING THAT T HE ASSESSING OFFICER ERRED IN ISSUING THE NOTICES AND ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 2 OF 19 COMPLETING THE ASSESSMENT UNDER SECTION 143 (3) OF THE ACT. ALSO THE NOTICES ISSUED BY THE ASSESSING OFFI CER AND THE ASSESSMENT ORDER PASSED BY HIM WAS BAD IN LAW ILLEGAL NULL AND VOID. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW IN NOT HOLDING THAT THE AMOUNT OF ` .1 05 93 000/- RECEIVED BY THE APPELLANT FROM M/S BALACHANDRA LABORATORY WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE SAID AMOUNT WAS RECEIVED BY THE APPELLANT FOR REMOVING OBSTRUCTION AND GRANTING CONSENT TO THE SALE OF PROPERTY BY M/S BALACHANDRA LABORATORY AS HE WAS THE LEGAL HEIR OF THE DECEASED PARTNER OF THE SAID FIRM. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND IN FACTS IN NOT HOLDING THAT THE A SSESSING OFFICER ERRED IN NOT REFERRING THE MATTER TO THE VA LUATION OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS. TH E LEARNED CIT (A) OUGHT TO HAVE HELD THAT REFERENCE T O VALUATION OFFICER CAN BE MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS ONLY AND NOT DURING THE COUR SE OF APPELLATE PROCEEDINGS. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND IN FACTS IN NOT ACCEPTING THE VALU ATION OF REGISTERED VALUER WHO HAD VALUED THE FAIR MARKET VA LUE OF THE PROPERTY AS ON 1.4.1981 SINCE THE PROPERTY WAS ACQUIRED PRIOR TO 1.4.1981. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND IN FACTS IN DIRECTING THE ASSESSIN G OFFICER TO CALCULATE CAPITAL GAINS ON THE BASIS OF THE VALU E AS ON 1.4.1981 ADOPTED BY THE DISTRICT VALUATION OFFICER AT ` .59 27 413/- AS AGAINST ` .1 61 48 700/- CLAIMED BY THE APPELLANT AS PER THE REPORT OF REGISTERED VALUER . 2. DURING THE COURSE OF THE ARGUMENTS GROUND NOS.1 4 5 & 6 HAVE NOT BEEN PRESSED AND THE ISSUES RELATING TO GR OUND NOS.2 & 3 ARE ONLY PRESSED AND ARGUED. 3. BRIEFLY STATED THE ASSESSEE IS A PARTNER IN THE FI RM M/S BALACHANDRA LABORATORIES. THE FIRM HAD PROPERTY AT THANE ON WHICH DEVELOPMENT RIGHTS WERE TRANSFERRED TO M/S FRIENDS DEVELOPMENT ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 3 OF 19 CORPORATION (FDC) FOR AN AMOUNT OF ` .17.00 CRORES. THE SAID FIRM PAID ONE THIRD OF CONSIDERATION TO LEGAL HEIRS AND MS BALACHANDRA LABORATORIES CLAIMED DEDUCTION IN THEIR ASSESSMENT. THE ASSESSEE HAPPENS TO BE ONE OF THE LEGAL HEIRS OF LATE SHRI C N BHATAVADEKAR. IN THE COURSE OF INQUIRY AND ASSESSMENT PROCEEDINGS THE ISSUE RELATING TO TAXING OF CAPITAL GAINS IN THE HANDS OF THE FIRM RESULTED IN ALLOWING THE CLAIM MADE TO M/S VIDEOCON PROPERTI ES LTD AT ` .95.00 LAKHS PAID TO AVOID CIVIL LITIGATION CONSEQU ENT TO THE COMPROMISE REACHED BEFORE THE BOMBAY HIGH COURT. HO WEVER AN AMOUNT OF ` .5.29 CRORES I.E. 1/3 RD OF THE TOTAL AMOUNT PAID T O LEGAL HEIRS OF SHRI C N BHATAVADEKAR (WHO HAD 33% SHARE I N THE PROPERTY) WAS NOT ALLOWED ON THE REASON THAT IT WAS AN APPROP RIATION OF THE FIRMS INCOME. THERE WERE OTHER ISSUES WITH REFEREN CE TO THE COST OF ACQUISITION ETC. IN THE FIRMS CASE WHICH ARE NOT RELEVANT FOR THE ISSUE IN THE PRESENT APPEAL. 4. THE ASSESSEE FILED RETURN OF INCOME BEING THE PART NER OF THE FIRM HAVING 45% BUT ALSO AS LEGAL HEIR OF SHRI C.N. BHATVADEKAR. INITIALLY THE ASSESSEE FILED RETURN OF INCOME DECL ARING HIS INCOME AT ` .4 61 000/- AND SUBSEQUENTLY ON 27.04.2007 REVISED RETURN OFFERING THE CAPITAL GAIN ON THE AMOUNT RECEIVED AS A LEGAL HEIR. IN REVISED RETURN THE ASSESSEE OFFERED 1/5 TH OF THE 1/3 RD SHARE AND CLAIMED INDEXATION OF 1/5 TH OF 1/3 RD OF THE COST OFFERING THE INCOME AT ` .59 38 350/- (AO WRONGLY CONSIDERED RECEIPT AT ` .1 13 33 333 IN THE ASSESSMENT ORDER AS AGAINST ` .1 05 93 000/- RECEIVED BY THE ASSESSEE). IN THE COURSE OF THE ASSESSMENT OF THE A SSESSEE THE ASSESSING OFFICER CONSEQUENT TO HIS STAND TAKEN IN THE CASE OF THE FIRM THAT THE AMOUNT CANNOT BE ALLOWED AS DEDUCTION BROUGHT TO TAX THE RECOMPUTED CAPITAL GAINS ON A PROTECTIVE BA SIS. THE ASSESSEE GRIEVANCE BEFORE THE CIT (A) WAS ABOUT THE STAND TA KEN BY AO AND ALSO WITH REFERENCE TO THE DENIAL OF THE COST OF AC QUISITION WHICH WAS REWORKED OUT BY THE ASSESSING OFFICER. HOWEVER IN THE COURSE OF THE APPELLATE PROCEEDINGS BEFORE THE CIT (A) THE ASSES SEE RAISED AN ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 4 OF 19 ADDITIONAL GROUND THAT THE AMOUNT IS NOT TAXABLE AS THE SAID AMOUNT WAS NOT RECEIVED AS LEGAL HEIR BUT WAS PAID TO AVOID COMPLICATIONS FROM THE LEGAL HEIRS IN TRANSFER OF P ROPERTY WHICH SHOULD BE TREATED AS AMOUNT PAID FOR REMOVING OBSTR UCTIONS AND GRANTING CONSENT THEREBY THE AMOUNT WAS NOT TAXABL E. THE CIT (A) HOWEVER CONSIDERED THE SUBMISSIONS OF THE ASSESSEE VIDE PARA 5 ONWARDS OF THE ORDER AND CAME TO A CONCLUSION THAT THE AMOUNT WAS RECEIVED AS A LEGAL HEIR AND THEREFORE IT IS TAXAB LE AS CAPITAL GAIN. HE WENT ON IN RE-DETERMINING THE COST OF ACQUISITIO N AND ALLOWED THE APPEAL PARTLY. THE ASSESSEE IS AGGRIEVED ON VARIOUS ISSUES AS RAISED IN THE GROUNDS BUT AT PRESENT CONFINED ONLY TO THE ISSUE THAT THE AMOUNT RECEIVED WAS CAPITAL RECEIPT NOT CHARGEABLE TO TAX AS RAISED IN GROUND NOS.2 & 3. 5. REFERRING TO THE ORDER OF THE ASSESSING OFFICER AND THE CIT (A) AND FURTHER TO THE ORDER OF THE ITAT IN THE FIRMS CASE IN ITA NOS.3558/MUM/2009 AND 3730/MUM/2009 DATED 30.9.2010 IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT THE ASSESSEE RECEIVED THE AMOUNT NOT AS LEGAL HEIR OF THE DECEAS ED PARTNER BUT ON THE ADVISE OF THE LEGAL COUNSEL OF M/S FRIENDS D EVELOPMENT CORPORATION TO AVOID ANY FUTURE PROBLEMS ON THE TIT LE AND REFERRED TO THE SUBMISSIONS BEFORE THE CIT (A) THE REMAND REPO RT ETC. CONTENDING THAT THE ASSESSEE RECEIVED THE AMOUNT AS M/S FDC INSISTED THE FIRM TO OBTAIN NOC FROM LEGAL HEIRS AN D THEREFORE THE AMOUNT CANNOT BE TREATED AS AMOUNT CHARGEABLE TO TA X. HE REFERRED TO THE SUBMISSIONS MADE BEFORE THE CIT (A) EXTRACTE D FROM PAGE-3 OF THE CIT (A) ORDER TO MAKE THE PROPOSITION THAT THE AMOUNT IS NOT AN APPROPRIATION OF THE FIRMS ASSETS NOT PAID TO THE ASSESSEE AS A LEGAL HEIR BUT ONLY TO REMOVE THE OBSTRUCTIONS AND GRANTI NG CONSENT TO THE SALE OF PROPERTY OF M/S BALACHANDRA LABORATORIE S. HE ALSO PLACED DOCUMENT ON RECORD TO SUPPORT THAT THE 5 LEG AL HEIRS HAVE SIGNED THE DEED AS CONSENTING PARTIES THEREFORE T HE AMOUNT IS A CAPITAL RECEIPT BUT NOT EXIGIABLE TO CAPITAL GAIN U NDER THE PROVISIONS ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 5 OF 19 OF THE ACT. MOREOVER IT WAS SUBMITTED THAT THERE IS NO COST TO THE ASSESSEE SO AS TO COMPUTE WORKING OF THE CAPITAL GA IN. THEREFORE FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT. VS. B. C. SRINIVASA SHETTY (128 ITR 294 SC) TH E AMOUNT IS NOT TAXABLE. IT WAS FURTHER SUBMITTED THAT THE PAYMENT WAS NOT RECEIVED FROM THE FIRM BUT WAS DIRECTLY PAID BY THE SAID BUY ER AND THEREFORE THE AMOUNT IS NOT ASSESSABLE TO TAX. 6. IN REPLY THE LEARNED DEPARTMENTAL REPRESENTATIVE H OWEVER SUBMITTED THAT THE ASSESSEE HAD A LEGAL RIGHT AS LE GAL HEIR OF THE DECEASED PARTNER AND THAT IS THE REASON WHY THE SAI D BUYER INSISTED ON TAKING CONSENT FROM THE LEGAL HEIRS AND ALSO REF ERRED TO THE ORDER OF THE CIT (A) AND THE ITAT TO SUBMIT THAT THE ASSE SSEE HAS RECEIVED THE AMOUNT AS LEGAL HEIR OF THE DECEASED PARTNER OF THE SAID FIRM. THEREFORE THE AMOUNT WAS TAXABLE. HE SUPPORTED THE ORDER OF THE CIT (A) TO THE EXTENT IT WAS CONFIRMED IN THE HANDS OF THE ASSESSEE AS THERE ARE OTHER ISSUES WHICH REVENUE IS CONTESTI NG. 7. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS. AS ALREADY STATED THE ASSESSEE IS NOT ONLY A PARTNER IN THE FIRM OF M/S BALACHANDRA LABORATORIES HAVING A S HARE OF 45% TO HIMSELF BUT ALSO ONE OF THE 5 LEGAL HEIRS OF SHRI CHINTAMANI NEELKANTA BHATAVADEKAR WHO DIED INTESTATE HAVING AB OUT 33% SHARE IN THE FIRM AT THAT POINT OF TIME. 8. THE FACTS IN THE CASE OF FIRM : IT IS RELEVANT TO EXAMINE AND NOTE THE CASE OF THE FIRM M/S BALACHANDRA LABORATOR IES AS IT HAS A BEARING ON THE PRESENT ISSUE. A PLOT OF LAND ADMEAS URING 40876 SQ. MTRS (INCLUDING THE ADDITIONAL AREA) SITUATED AT VI LLAGE CHITALSAR MAJIWADA TALUKA GHODBUNDER ROAD THANE WAS OWNED B Y THE SAID FIRM ALONG WITH A BUILDING STRUCTURE STANDING THERE ON. THE SAID PLOT WAS PURCHASED BY THE FIRM FROM M/S DAYABHAI & CO. P VT. LTD. VIDE AN AGREEMENT DTD. 14.9.1962 FOR A TOTAL CONSIDERATI ON OF ` .1 38 977/-. DURING THE YEAR UNDER CONSIDERATION T HE SAID ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 6 OF 19 PROPERTY WAS SOLD BY THE FIRM FOR A TOTAL CONSIDERA TION OF ` .17 CRORES TO M/S FRIENDS DEVELOPMENT CORPORATION VIDE AN AGRE EMENT DTD. 24.5.04. IN THE RETURN OF INCOME FILED FOR THE YEA R UNDER CONSIDERATION ON 30.8.05 THE CAPITAL GAIN ARISING FROM THE SALE OF THE SAID PROPERTY WAS DECLARED BY THE FIRM AT ` .5 56 00 780/- AFTER CLAIMING THE FOLLOWING DEDUCTIONS: (I) ` .5 29 65 000/- PAID TO THE CONFIRMING PARTIES OF TH E SALE AGREEMENT DTD. 24.5.04. (II) ` .5 19 34 219/- BEING THE INDEXED COST OF ACQUISITIO N OF THE 2/3 RD PORTION OF THE PROPERTY. (III) ` .95 LACS PAID TO M/S VIDEOCON PROPERTY FOR SETTLEME NT OF SUIT. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS CLAIMED BY THE FIRM THAT THE SAID LEGAL HEIRS WERE DEMANDING THE S HARE OF LATE SHRI C.N. BHATAVADEKAR IN THE PROPERTY OF THE PARTNERSHI P FIRM AND IT WAS NOT POSSIBLE TO SALE/TRANSFER THE PROPERTY IN Q UESTION WITHOUT THEIR CONSENT. IT WAS CLAIMED THAT THE AMOUNT OF ` .5 29 65 000/- BEING 33% OF THE TOTAL SALES PROCEEDS THUS WAS PAID TO THE SAID LEGAL HEIRS IN ORDER TO REMOVE THE ENCUMBRANCE SO THAT TH E PROPERTY COULD BE SOLD AND THE SAME THEREFORE WAS DEDUCTIBLE WHILE COMPUTING LONG TERM CAPITAL GAIN FROM THE SALE OF T HE PROPERTY . SIMILARLY IT WAS CLAIMED THAT THERE WAS LITIGATION BETWEEN THE FIRM AND M/S VIDEOCON PROPERTIES LTD. GOING ON AT THE RE LEVANT TIME WHEREIN A SUIT WAS FILED BY THE SAID COMPANY. IT W AS STATED THAT THE CLAIM MADE BY M/S VIDEOCON PROPERTIES LTD. BY WAY O F THE SAID SUIT WAS ALSO AN ENCUMBRANCE ON THE PROPERTY WHICH WAS R EQUIRED TO BE REMOVED BEFORE THE SAME COULD BE SOLD. IT WAS CLAI MED THAT THE AMOUNT OF ` .95 LACS PAID TO M/S VIDEOCON PROPERTIES LTD. TO SE TTLE THE LITIGATION THUS WAS ALSO DEDUCTIBLE WHILE COMPU TING THE LONG TERM CAPITAL GAIN. AFTER EXCLUDING 1/3 RD SHARE OF THE CONFIRMING PARTIES THE INDEXED COST OF ACQUISITION OF THE PRO PERTY FOR THE PURPOSE OF CLAIMING DEDUCTION WAS TAKEN BY THE FIRM AT ` .5 19 34 219/-. THE A.O. ALLOWED THE DEDUCTION OF ` .95 LACS ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 7 OF 19 CLAIMED BY THE FIRM ON ACCOUNT OF AMOUNT PAID TO M/ S VIDEOCON PROPERTIES LTD. FOR SETTLEMENT OF SUIT HOLDING THAT IT WAS PAID FOR THE BETTERMENT OF THE TITLE OF THE PROPERTY. HE HOWEV ER DISALLOWED THE CLAIM OF THE FIRM FOR DEDUCTION OF ` .5 29 65 000/- PAID TO THE LEGAL HEIRS OF THE DECEASED PARTNER HOLDING THAT WHATEVER THE LEGAL HEIRS OF THE DECEASED PARTNER HAD TO BE PAID SHOULD HAVE BEEN PAID OUT OF THE NET INCOME OF THE FIRM AFTER PAYING CAPITAL GAIN TAX ON SALE OF PROPERTY. HE HELD THAT THE RECEIPTS IN THE HANDS O F LEGAL HEIRS OF THE DECEASED PARTNERS WAS BASICALLY THE DISTRIBUTION OF THE INCOME OF THE FIRM WHICH COULD NOT BE ALLOWED AS DEDUCTION FO R THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN IN THE HANDS OF TH E FIRM. THE LONG TERM CAPITAL GAIN ARISING FROM THE SALE OF LAND AND BUILDING THUS WAS WORKED OUT BY THE A.O. AT ` .15 76 56 169/- AFTER DEDUCTING THE AMOUNT OF ` .95 LACS PAID TO M/S VIDEOCON PROPERTIES LTD. AND ` .28 43 831/- ON ACCOUNT OF INDEXED COST OF ACQUISIT ION FROM THE TOTAL SALE CONSIDERATION OF ` .17 CRORES IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 3.12.07. AGAINST TH E ORDER PASSED BY THE A.O. U/S 143(3) AN APPEAL WAS FILED BY THE FIRM BEFORE THE LD. CIT(A) CHALLENGING THE TWO ADDITIONS MADE BY THE A. O. WHILE COMPUTING THE LONG TERM CAPITAL GAIN BY WAY OF DISA LLOWANCE OF ` .5 29 65 000/- PAID TO THE LEGAL HEIRS OF THE DECEA SED PARTNER AND BY RESTRICTING THE INDEXED COST OF ACQUISITION OF ` .5 19 34 219/- CLAIMED BY THE ASSESSEE TO ` .28 43 831/-. DURING THE COURSE OF APPELLATE PROCEEDING BEFORE THE LD. CIT(A) ADDITIO NAL GROUND WAS ALSO RAISED BY THE FIRM SEEKING TO CLAIM DEDUCTION OF ` .7 75 13 760/- ON ACCOUNT OF INDEXED COST OF ACQUIS ITION OF THE ENTIRE PROPERTY AS AGAINST ` .5 19 34 219/- CLAIMED ORIGINALLY BEING THE INDEXED COST OF ACQUISITION OF 2/3 RD PORTION OF THE SAID PROPERTY. IN SUPPORT OF ITS CLAIM FOR DEDUCTION OF ` .5 29 65 000/- PAID TO THE LEGAL HEIRS OF THE DECEASED PARTNER TO REMOVE THE E NCUMBRANCE ON THE PROPERTY SOLD ADDITIONAL EVIDENCE WAS FILED BE FORE THE LD. CIT(A) IN THE FORM OF A LETTER ISSUED BY M/S FRIENDS DEVE LOPMENT ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 8 OF 19 CORPORATION CONFIRMING THAT THEY HAD DEMANDED THE N OC OF THE LEGAL HEIRS BEFORE THE AGREEMENT FOR SALE AFFIDAVI T OF MRS. KALINDINI D. BAROT LEGAL HEIR OF THE DECEASED PARTNER CONFIR MING THAT THE LEGAL HEIRS HAD DEMANDED THEIR RESPECTIVE SHARE OUT OF TH E CONSIDERATION TO BE RECEIVED FROM THE SALE OF DEVELOPMENT RIGHTS A COPY OF OPINION FROM M/S GAGRAT & CO. A SOLICITOR ADVISING M/S FRIE NDS DEVELOPMENT CORPORATION TO OBTAIN NOC FROM THE LEGA L HEIRS IN ORDER TO HAVE A CLEAR TITLE OF THE PROPERTY AND THE CORRESPONDENCE WITH BANK OF MAHARASHTRA WHEREIN THE LEGAL HEIRS HA D SPECIFICALLY INTIMATED THE BANK NOT TO RELEASE THE CHARGE OF THE SAID PROPERTY WITHOUT SEEKING THEIR CONSENT AS THEY WERE THE RIGH TFUL LEGAL HEIRS OF THE DECEASED PARTNER. THE SAID ADDITIONAL EVIDENCE WAS FORWARDED BY THE LD. CIT(A) TO THE A.O. SEEKING HIS COMMENTS THEREON. ACCORDINGLY REMAND REPORT SUBMITTED BY THE A.O. TO THE LD. CIT(A) OFFERING HIS COMMENTS ON THE EXAMINATION/VERIFICATI ON OF THE ADDITIONAL EVIDENCE. THE CIT(A) ALLOWED THE CLAIM O F DEDUCTION OF AMOUNTS PAID TO LEGAL HEIRS AND ALSO CLAIM OF COST OF ACQUISITION ON ENTIRE VALUE BUT REWORKED THE AMOUNT OF COST FOR WO RKING CAPITAL GAINS. 9. AS SEEN FROM THE ORDER OF THE ITAT IN THE CASE OF M /S BALACHANDRA LABORATORIES THE ASSESSEE CONTESTED TH E ISSUE OF VALUATION WHICH WAS RESTORED TO THE FILE OF THE CIT (A). BUT IN THE REVENUE APPEAL WHEN THE REVENUE CHALLENGED THE ALLO WANCE OF AMOUNT PAID TO THE LEGAL HEIR THE ITAT DISMISSED T HE GROUNDS BY HOLDING AS UNDER: 16. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON REC ORD. IT IS OBSERVED THAT THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF AN AMOUNT OF `. 5 29 65 000/ - PAID TO THE LEGAL HEIRS OF THE DECEASED PARTNER WHI LE COMPUTING THE LONG TERM CAPITAL GAIN WAS DISALLOWED BY THE A.O. MAINLY ON THE GROUND THAT THE SAID PAYMENT WAS BASICALLY IN THE NATURE OF DISTRIBUTION OF ITS INCOME BY THE ASSESSEE FIRM WHICH COULD NOT BE ALLOWED AS DEDUCTION. THE ASSESSEES CASE ON THIS ISSUE WAS T HAT ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 9 OF 19 THE SAID AMOUNT WAS PAID TO THE LEGAL HEIRS OF THE DECEASED PARTNER IN ORDER TO REMOVE THE ENCUMBRANCE ON THE PROPERTY BEFORE THE SAME COULD BE SOLD. TO SUP PORT AND SUBSTANTIATE THIS CASE THE FOLLOWING ADDITIONA L EVIDENCE WAS FILED BY THE ASSESSEE BEFORE THE LD. C IT(A):- 1. A LETTER ISSUED BY M/S FRIENDS DEVELOPMENT CORPORATION CONFIRMING THAT THEY HAD DEMANDED NOC OF THE LEGAL HEIRS OF THE ASSESSEES PARTNER BEFORE THE EXECUTION OF AGREEMENT FOR SALE. 2. AFFIDAVIT OF MRS. KALINDINI D.BAROT LEGAL HEIR OF THE DECEASED PARTNER CONFIRMING THAT THE LEGAL HEIRS HAD DEMANDED THEIR RESPECTIVE SHARE OUT OF TH E CONSIDERATION RECEIVED FROM THE SALE OF DEVELOPMENT RIGHTS. 3. A COPY OF OPINION FROM GAGRAT & CO. A SOLICITOR ADVISING M/S FRIENDS DEVELOPMENT CORPORATION TO OBTAIN NOC FROM THE LEGAL HEIRS IN ORDER TO HAVE CLEAR TILE OF THE PROPERTY. 4. THE CORRESPONDENCE WITH BANK OF MAHARASHTRA WHEREIN THE LEGAL HEIRS HAD SPECIFICALL Y INTIMATED THE BANK NOT TO RELEASE THE CHARGE OF THE SAID PROPERTY WITHOUT SEEKING THEIR CONSENT AS THEY WERE THE RIGHTFUL LEGAL HEIRS OF THE DECEASED PARTN ER. THE ABOVE DOCUMENTS WERE ADMITTED BY THE LD. CIT(A ) AS ADDITIONAL EVIDENCE AND THE SAME WERE FORWARDED BY HIM TO THE A.O. SEEKING HIS COMMENTS THEREON. IN T HE REMAND REPORT SUBMITTED TO THE LD. CIT(A) A COPY O F WHICH IS PLACED AT PAGE NO. 51 AND 52 THE A.O. AFT ER VERIFYING THE ADDITIONAL EVIDENCE ACCEPTED THE FAC T THAT THE AMOUNT IN QUESTION WAS PAID TO THE LEGAL HEIRS OF ITS DECEASED PARTNER BY THE ASSESSEE FIRM ONLY ON THE GROUND OF CREATING ENCUMBRANCE ETC. AND NOT ON THE BASIS OF ANY LEGAL SANCTITY. SINCE A SIMILAR PAYME NT OF ` .95 LACS MADE BY THE ASSESSEE TO M/S VIDEOCON PROPERTIES LTD. FOR SETTLEMENT OF SUIT WAS ALLOWED AS DEDUCTION BY THE A.O. WHILE COMPUTING THE LONG TERM CAPITAL GAIN HOLDING THAT IT WAS MADE FOR THE BETTE RMENT OF THE TITLE OF THE PROPERTY AND THE LEGAL HEIRS OF THE DECEASED PARTNER TO WHOM THE AMOUNT IN QUESTION WAS PAID WERE ADMITTEDLY NOT THE PARTNERS OF THE ASSESS EE FIRM THE LD. CIT(A) HELD THAT THE SAID AMOUNT WAS PAID IN ORDER TO REMOVE THE ENCUMBRANCE ON THE PROPERTY FOR THE BETTERMENT OF THE TITLE AND THE CLAIM OF THE AS SESSEE ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 10 OF 19 FOR DEDUCTION OF THE SAID AMOUNT WHILE COMPUTING TH E LONG TERM CAPITAL GAIN COULD NOT BE DENIED AS IT WA S NOT A CASE OF DISTRIBUTION OF INCOME OF THE ASSESSEE FI RM AMONGST THE PARTNERS AS ALLEGED BY THE A.O. HAVING REGARD TO ALL THESE FACTS OF THE CASE HIGHLIGHTED B Y THE LD. CIT(A) AND KEEPING IN VIEW THE SUBMISSIONS MADE BY THE LD. REPRESENTATIVES OF BOTH THE SIDES BEFORE US WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) ALLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE ON T HIS ISSUE. WE THEREFORE UPHOLD THE SAME AND DISMISS GROUND NOS. 1 TO 3 OF THE REVENUES APPEAL . 10. THOUGH THE ISSUE IN THE CASE OF THE FIRM IS WHETHER THE AMOUNT IS ALLOWABLE AS A DEDUCTION WHILE COMPUTING THE CAPITAL GAIN WHICH THE CIT (A) ALLOWED AS PAID TO THE LEGAL HEIR FOR IMPROVING THE TITLE THE FACT IS THAT THE AMOUNT WAS RECEIVED BY THE 5 LEGAL HEIRS AS THEY HAVE THE LEGAL RIGHT TO THE SAID PROP ERTY IN THE SHARE OF SHRI CHINTAMANI NEELKANTA BHATAVADEKAR WHO HAD 33% SHARE AND DIED INTESTATE. IN OUR OPINION THE ISSUE WHETHER TH E AMOUNT WAS PAID AS LEGAL HEIRS OR AS ENCUMBERERS WAS NOT BEFOR E THE TRIBUNAL AS IN EITHER CASE THE AMOUNT WAS DEDUCTIBLE IN THE COMPUTATION OF CAPITAL GAINS IN THE CASE OF FIRM. PAYMENT MADE TO PERSONS CLAIMING TO BE LEGAL HEIRS WAS CONSIDERED AS EXPEND ITURE INCURRED IN REMOVING ENCUMBRANCE TO TRANSFER AND IS HELD DEDUCT IBLE IN VARIOUS CASE LAW. THEREFORE THE FACT THAT THE AMOUNT WAS A LLOWED AS PAYMENT FOR REMOVING ENCUMBRANCE IN NO WAY AFFECT T HE DECISION IN THE HANDS OF THE LEGAL HEIRS TO CONSIDER WHETHER TH E AMOUNT IS SUBJECTED TO CAPITAL GAINS TAX. THIS ISSUE IS THERE FORE HAS TO BE EXAMINED INDEPENDENTLY ON THE LEGAL PRINCIPLES. 11. RIGHTS OF LEGAL HEIRS : AS SEEN FROM THE DEVELOPMENT AGREEMENT REGISTERED ON 17.05.2004 PLACED ON RECOR D THE FOLLOWING ARE THE RECITALS: WHEREAS (A). THE OWNERS HAVE INFORMED THE DEVELOPERS THAT THE DAUGHTERS OF THEIR LATE PARTNER SHRI CHINTAMANI NIL KANTH BHATAVADEKAR WHO WAS THE SENIOR PARTNER IN THE SAID ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 11 OF 19 FIRM AND WHO DIED INTESTATE HAVING. INTESTACY CLAIMED A SHARE BY HEIRSHIP IN THE ESTATE OF THE DECEASED. THE CLAIMS OF THE CONFIRMING PARTIES AS ONLY HEIRS OF THE SAID DECEASED PARTNER SHRI CHINTAMANI NILKANTH BHATAVADEKAR IN THE PARTNERSHIP FIRMS PROPERTY HAVE BEEN AMICABLY SETTLED BETWEEN THE OWNERSHIP AND THE CONFIRMING PARTIES SIMULTANEOUS WITH THE AMOUNT PAYABLE TO THEM UNDER THIS DEVELOPMENT AGREEMENT HAVING BEEN PAID TO THE ACCOUNTS OF THE OWNERS AND THE CONFIRMING PARTIES UNDER CLAUSES 2(B) AND NOW THERE IS NO DISPUTE BETWEEN THE OWNERS AND THE CONFIRMING PARTIES IN RESPECT OF ONLY THE PARTNERSHIP PROPERTY REFERRED UNDER THE AGREEMENT AND SITUATED AT VILLAG E CHITALSAR-MANPADA ON S.V. ROAD GHODBUNDER ROAD MAJIVADE TALUKA & DISTRICT THANE AND MORE PARTICULA RLY DESCRIBED IN THE SCHEDULE HEREUNDER WRITTEN (HEREIN AFTER REFERRED TO AS THE SAID PROPERTY). THE OWNERS AND THE CONFIRMING PARTIES TO THIS DOCUMENT ON REALIZATION AND CREDIT IN THEIR INDIVIDUAL ACCOUNTS THE PAYMENTS M ADE UNDER CLAUSE 2(C) OR WITHIN 7 DAYS FROM THE DATE OR WHICHEVER IS EARLIER AGREE TO GIVE TO THE DEVELOPE RS NOC AND CONSENT TO PERFECT THE TITLE OF THE SAID PROPER TY IN FAVOUR OF THE SAID DEVELOPERS OR THEIR NOMINEES THE SHARE PERCENTAGE AND DISTRIBUTION OF THE SAID PROPERTY FINALIZED BETWEEN THE OWNERS AND THE CONFIRMING PARTIES WILL BE AS FOLLOWS: I) 33% TO THE DECEASED PARTNER CHINTAMANI NILKANTH BHATAVADEKARS SHARE 6.6% EACH TO SHRI BALACHANDRA ALIAS JAYAN; CHINTAMANI BHATAVADEKAR MRS. KALINDI D. BAROT MISS SUNITI CHINTAMANI BHATAVADEKAR MISS SHASHIKALA CHINTAMANI BHATAVADEKAR & MISS VIJAYA CHINTAMANI BHATAVADEKAR. II) 22% TO SHRI HARI NILKANTH BHATAVADEKAR III) 45% TO SHRI BALACHANDRA JAYANT CHINTAMANI BHATAVADEKAR. IV) 0% TO NILKANTH ALIAS NEEL BALACHANDRA BHATAVADEKAR ----- 100% ==== ALL DISPUTES/DIFFERENCES (IF ANY) AMONG ALL THE OWN ERS AND THE CONFIRMING PARTIES HAVE BEEN AMICABLY SETTL ED. MR. NILAKANTH ALIAS NEEL BALACHANDRA BHATAVADEKAR ALSO HEREBY GIVES HIS NOC AND CONSENT TO THIS MUTUA LLY ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 12 OF 19 AGREED SHARE PERCENTAGE AND DISTRIBUTION AS MENTION ED ABOVE. THE DEVELOPERS ARE AWARE OF THIS AND HAVE AGREED TO DISTRIBUTE THE SAME ACCORDINGLY. ( EMPHASIS SUPPLIED .) 12. VIDE PARA-E AND F IN PAGE 6 OF THE DOCUMENT IT WA S STATED AS UNDER:- E) . TITLE DEEDS OF THE SAID PROPERTY ARE AT PRES ENT LYING WITH AND ARE IN CUSTODY OF THE BANK OF MAHARASHTRA (HEREINAFTER REFERRED TO AS THE SAID B ANK). ON REALIZATION & CREDIT IN THEIR INDIVIDUAL ACCOUNT S OF THE PAYMENTS MADE UNDER CLAUSE 2(C)(I) TO 2(C)(III) OR WITHIN 7 DAYS FROM THE DATE HEREOF WHICHEVER IS EARLIER THE OWNERS HEREBY IRREVOCABLY AUTHORIZE THE DEVELOPERS TO EXECUTE FURTHER PAPERS/DOCUMENTS AS REQUIRED AND TO COLLECT THE SAID TITLE DEEDS FROM THE SAID BANK AND THE RECEIPT GIVEN BY THE DEVELOPERS WILL GIVE THE SAID BANK FULL DISCHARGE. THE SAID CONFIRMING PARTIES WILL O N REALIZATION AND CREDIT IN THEIR INDIVIDUAL ACCOUNTS OF THE PAYMENTS MADE UNDER CLAUSE 2(C)(IV) OR WITHIN 7 DAY S FROM THE DATE HEREOF WHICHEVER IS EARLIER WRITE AL L LETTERS AS REQUIRED TO THE SAID BANK WITHDRAWING THEIR OBJE CTION OR MANDATE AND HEREBY GIVE THEIR NO OBJECTION & CONSENT TO THE SAID BANK TO HANDOVER THE SAID DOCUMENTS AND TITLE DEEDS TO THE DEVELOPERS AND ALS O IRREVOCABLY AUTHORIZE THE DEVELOPERS TO EXECUTE SUC H DEEDS/ PAPERS/DOCUMENTS AS REQUIRED AND COLLECT THE SAID TITLE DEEDS FROM THE SAID BANK AND RECEIPT GIV EN BY THE DEVELOPERS WILL GIVE THE SAID BANK FULL DISCHA RGE. F. IN OR ABOUT THE YEAR 1994 THE THEN PARTNERS OF THE SAID FIRM NAMELY SHRI CHINTAMANI NILKANTH BHATAVADEKAR SHRI HARI NILKANTH BHATAVADEKAR AND SHRI BALACHANDRA ALIAS JAYANT CHINTAMANI BHATAVADEKAR I.E. THEN OWNERS HAD AGREED TO SELL TO VIDEOCON PROPERTIES LTD. A PORTION OF THE SAID PRO PERTY DESCRIBED IN THE SCHEDULE HEREUNDER WRITTEN AND MOR E PARTICULARLY DESCRIBED IN THE SCHEDULE THEREUNDER W RITTEN BY AGREEMENT FOR SALE DATED 13.05.1994 (HEREINAFTER REFERRED TO AS THE SAID AGREEMENT) WHICH WAS LATE RON TERMINATED ON 27 TH SEPTEMBER 1999 BY THE SAID VIDEOCON PROPERTIES LTD. THE DEPOSIT OF EARNEST MO NEY OF ` .38 00 000/- (RUPEES THIRTY EIGHT LAKHS ONLY). G.) H). ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 13 OF 19 I). J. THE OWNERS AND THE CONFIRMING PARTIES HAVE AT THE DEVELOPERS AGREED TO GIVE/GRANT FULL AND COMPLETE DEVELOPMENT RIGHTS TO THE DEVELOPERS TO DE VELOP THE SAID ENTIRE PROPERTY HOWEVER ARISING & OF WHATSOEVER NATURE AND THE DEVELOPERS HAVE AGREED TO DEVELOP THE SAID PROPERTY ENTIRELY AT THEIR OWN RIS K AND RESPONSIBILITY AND EXPECTED AT OR FOR THE CONSIDERA TION AND ON CERTAIN TERMS AND CONDITIONS MUTUALLY AGREED UPON BY AND BETWEEN THE OWNERS AND THE CONFIRMING PARTIES AND THE DEVELOPERS. 13. FURTHER IT WAS AGREED VIDE PARA C-IV OF THE AGREEM ENT AS UNDER:- (C)(IV) 33% (THIRTY THREE PERCENT) I.E. ` .5 29 65 000) (FIVE CRORES TWENTY NINE LAKHS & SIXTY-FIVE THOUSAN D ONLY) IN EQUAL SHARES I.E. ` .1 05 93 000/- (RUPEES ONE CRORE FIVE LAKH NINETY-THREE THOUSAND ONLY) TO EACH OF THE CONFIRMING PARTIES AND THE SAME SHOULD BE IMMEDIATELY DISTRIBUTED NON-REFUNDABLE AT ANY TIME ON ANY GROUND WHATSOEVER FREE FROM ANY LIABILITY & DEB TS FREE FROM ANY CHARGES FOREVER THAT IS ` .1 05 93 000/- TO SHRI BALACHANDRA ALIAS JAYANT CHINTAMAN BHATAVADEKAR ` .1 05 93 000/- TO MRS. KALINDI D. BAROT ` .1 05 93 000/- TO MISS SUNITI CHINTAMAN BHATAVADEKAR ` .1 05 93 000/- TO MISS SHASHIKALA CHINTAMAN BHATAVADEKAR AND ` .1 05 93 000/- TO MISS VIJAYA CHINTAMAN BHATAVADEKAR BEING THE SHARE DUE TO THEM RECEIVABLE AS ONLY HEIRS OF MR. CHINTAMAN N. BHATAVADEKAR IN FULL AND FINAL SETTLEMENT OF THEIR CLAIMS AS ONLY HEIRS OF THE SAID DECEASED MR.CHINTAMAN N. BHATAVADEKAR IN RESPECT OF THE SAID PARTNERSHIP PROPERTY ONLY. ALL THE OWNERS AND THE CONFIRMING PARTIES AGREE AND DECLARE THAT NOW T HEY HAVE NO DISPUTES IF ANY AND THE SAME NOW STAND SETTLED AMICABLY AMONG ALL OF THEM AND THEY ALL GIV E THEIR NO OBJECTION AND CONSENT TO THIS AGREEMENT. ( EMPHASIS SUPPLIED) 14. ALL THE ABOVE DO INDICATE THAT NOT ONLY THE ASSESSE E BUT OTHER FOUR LEGAL HEIRS OF LATE CHINTAMANI N. BHATAVADEKAR RECEIVED THE AMOUNT AS LEGAL HEIRS ONLY. IN FACT THE RECITALS DO INDICATE THAT DURING THE LIFE TIME OF SHRI CHINTAMANI N. BHATAVAD EKAR THEY ENTERED INTO SALE AGREEMENT WAY BACK IN MAY 1994 F OR SALE OF ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 14 OF 19 PROPERTY TO M/S VIDEOCON PROPERTIES LTD WHICH DISPU TE WAS ULTIMATELY SETTLED BY WAY CONSENT BEFORE THE HON'BL E BOMBAY HIGH COURT VIDE THE TERMS DATED 15-03-2004 ON PAYMENT OF ` .95 LAKHS. THIS INDICATES THAT SHRI CHINTAMANI NEELKANTH BHATA VADEKAR HAD RIGHTS ON THE PROPERTY HAVING BEEN THE ERSTWHILE DE CEASED PARTNER OF THE FIRM HAVING 33% SHARE. IT IS ON RECORD THAT SHR I C.N. BHATAVADEKAR EXPIRED INTESTATE ON 12.2.1996 I.E. AF TER ENTERING INTO AGREEMENT WITH M/S VIDEOCON PROPERTIES LTD FOR SALE BUT BEFORE THE TERMINATION OF THE AGREEMENT IN 1999. CONSEQUENTLY SINCE THE MATTER WAS PENDING IN THE COURT OF LAW THE LEGAL H EIRS ALSO BECAME PARTIES TO THE DISPUTE AND NATURALLY THE PRESENT BU YER INSISTED ON GETTING THE NOC FROM THE LEGAL HEIRS. AS SEEN FROM THE RECITALS IT IS VERY CLEAR THAT THE CLAIMS WERE MADE AS LEGAL HEIRS ONLY TO THE INTESTATE PROPERTY OF LATE C N BATAVADEKAR. THEREFO RE THE AMOUNTS RECEIVED BY THE ASSESSEE HAS TO CONSIDERED AS RECEI VED IN THE CAPACITY OF LEGAL HEIR OF THE ERSTWHILE DECEASED P ARTNER IN THE PROPERTY OF THE FIRM. 15. THE FACT IS ALSO THAT THE ASSESSEE AND OTHER 4 LEGA L HEIRS GOT EXACTLY 1/3 RD OF THE AMOUNT EQUAL TO 33% SHARE OF THE DECEASED PARTNER AND ALL THE FIVE LEGAL HEIRS GOT EQUAL PORT ION DIRECTLY FROM THE FIRM DO INDICATE THAT THE AMOUNT WAS RECEIVED O NLY AS A LEGAL HEIR CONSEQUENT TO SURRENDERING THEIR RIGHTS IN THE PROPERTY. THE CONTENTION THAT BUYER PAID THE CONSIDERATION HAS NO EFFECT ON THE ISSUE AS THERE ARE LEGAL PRINCIPLES THAT EVEN IF MO NEY IS RECEIVED FROM THIRD PARTY THE SAME CAN ALSO BE CONSIDERED A S SALE CONSIDERATION. HOWEVER THE ASPECT OF THE RIGHTS OF LEGAL HEIR IN THE PROPERTY WAS NOT EXAMINED BY THE AO AS THE ASSESSEE OFFERED THE CAPITAL GAINS BY FILING THE REVISED RETURN. 16. A PROPERTY IS A BUNDLE OF RIGHTS WHICH THE OWNER CA N LAWFULLY EXERCISE TO THE EXCLUSION OF ALL OTHERS. THE DEFINI TION OF CAPITAL ASSETS MEANS PROPERTY OF ANY KIND BOTH TANGIBLE AS WELL AS INTANGIBLE ASSETS. AS THERE IS NO DEFINITE MEANING TO DEFINE THE ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 15 OF 19 PROPERTY IN THE ACT BUT PROPERTY MUST BE CONSTRU ED IN ITS PLAIN NATURAL MEANING SUBJECT TO A CONTEXT IN WHICH THAT EXPRESSION OCCURS (JK TRUST VS. CIT/EPT 23 ITR 143 150 (BOM. ) THE WORD PROPERTY DOES NOT MEAN MERELY PHYSICAL PROPERTY BUT ALSO MEANS THE RIGHTS TITLE OR INTERESTS IN IT. IT WAS HELD I N V. RANGASWAMY NAIDU VS. CIT 31 ITR 711 (MAD.) THAT THE SHARE OF A PARTNER IN A PARTNERSHIP CONCERN TO BE A CAPITAL ASSET. FURTHER THE HONBLE SUPREME COURT IN THE CASE OF CED VS. MRUDULA NARESH CHANDRA 160 ITR 342 TOOK THE VIEW THAT THE SHARE OF THE DEC EASED IN THE GOODWILL WILL PASS ON TO LEGAL HEIR TOGETHER WITH O THER ASSETS AND THAT IT SHOULD BE VALUED IN THE MANNER CONTEMPLATED UNDER RULE 7C OF THE ESTATE DUTY RULES. EVEN THOUGH THE SAID DECI SION WAS RENDERED IN THE CONTEXT OF ESTATE DUTY THE PRINCIP LE IS THAT THE RIGHT OF THE DECEASED PARTNER WILL DEVOLVE ON THE L EGAL HEIRS. THEREFORE WE ARE OF THE VIEW THAT THE LEGAL HEIRS HAD A RIGHT IN A PROPERTY AND CONSEQUENT TO TRANSFER OF THAT LEGAL RIGHT PROVISIONS OF SEC.45 TOWARDS CAPITAL GAINS GET ATTRACTED. OUR VIEW IS SUPPORTED BY THE DECISION OF THE HON.BLE GAUHATI HIGH COURT I N THE CASE OF COMMISSIONER OF WEALTH TAX VS. SUBIMAL SAIN AND OTH ERS 195 ITR 574 (GAU.) 195 ITR 574 (GAU.) WHEREIN THEIR LORDSHI PS HELD SINCE A PARTNERSHIP FIRM HAS NO EXISTENCE THE PARTNERSHIP PROPERTY WILL VEST IN ALL THE PARTNERS AND IN THAT SENSE EVERY PARTN ER HAS AN INTEREST IN THE PROPERTY OF THE PARTNERSHIP. THE INTEREST OF A PARTNER IN THE PARTNERSHIP FIRM BELONGS TO HIM AND WOULD BE INCLUD IBLE IN THE ASSET AND WILL HAVE TO BE TAKEN INTO ACCOUNT WHI LE COMPUTING THE NET WEALTH OF THE INDIVIDUAL. WHERE THE INDIVIDUAL ASSESSEE IS A PARTNER IN A FIRM THE INTEREST OF THE PARTNER IN T HE IMMOVABLE PROPERTY OF THE PARTNERSHIP IS TO BE INCLUDED IN COMPUTING H IS NET WEALTH. HE WOULD BE ENTITLED TO EXEMPTION OF THE PROPORTIONATE SHARE OF THE INTEREST IN THE BUILDING BELONGING TO THE FIRM U/S 5(1)(IV) OF THE WEALTH TAX ACT 1957 . THEREFORE ON PRINCIPLES OF LAW IT IS TO BE CONSI DERED THAT THE LEGAL HEIRS HAVE A RIGHT IN THE SHARE OF T HE DECEASED PARTNER ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 16 OF 19 WHICH THEY HAVE TRANSFERRED CONSEQUENT TO THE SALE OF THE IMMOVABLE PROPERTY. HOWEVER THIS ASPECT OF RIGHTS IN THE PROPERTY AND CONSIDERING IT FOR THE PURPOSE OF DEFINITION OF TRANSFER WERE NOT EXAMINED BY THE AO. ASSESSEE ALSO HAS NOT ADVANCED ANY ARGUMENTS ON THIS ISSUE ABOUT THE LEGAL RIGHTS. THE ONLY ARGUMENT RAISED WAS THAT THERE WAS NO COST OF ACQUISITION FO R ACQUIRING THE RIGHTS AND HENCE ON THE RATIO OF THE HONBLE SUPREM E COURT IN THE CASE OF B.C.SRINIVASA SHETTY 128 ITR 294 THE CAPIT AL GAINS IS NOT SUSCEPTIBLE TO COMPUTATION. THEREFORE NO CAPITAL G AIN CAN BE LEVIED. 17. THESE ISSUES CANNOT BE DECIDED BY US AS THESE ASPE CT OF ARGUMENTS WERE NOT EXAMINED BY ASSESSING OFFICER OR CIT(A).. AS HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. PR SESHADRI 329 ITR 377 (KARN.) THE RATIO OF A CASE CA N BE APPLIED ONLY WHEN THE TRIBUNAL PRIMARILY RECORDS A FINDING ABOUT THE FACTS AND CIRCUMSTANCES OF THE CASE AND FINDS THAT THE RATIO IS ATTRACTED TO THE FACTS AND CIRCUMSTANCES AND THEREFORE THE QUESTION IS COVERED AND THE ISSUE CAN BE DECIDED BY APPLYING THE RATIO OF T HE CASE AS ENUNCIATED BY THE HIGH COURT OR THE SUPREME COURT. IN THE ABSENCE OF EXAMINATION OF FACTS AND CIRCUMSTANCES OF THE CA SE THERE IS NO WAY THE TRIBUNAL COULD DIRECTLY APPLY THE RATIO OF THE HIGH COURT OR THE SUPREME COURT. 18. THE ISSUE TO BE CONSIDERED IS WHETHER THE TRANSFER OF PROPERTY ATTRACTS CAPITAL GAIN AND IF SO WHETHER THERE IS A NY COST OF ACQUISITION TO ASSESSEE OR NOT. IN THE RETURNS FI LED BOTH THE FIRM AS WELL AS THE ASSESSEE TOOK A SIMILAR STAND AS FAR AS THE COST IS CONCERNED. IN THE HANDS OF THE FIRM AS THE FIRM PA ID 1/3 RD OF THE PROCEEDS TO THE LEGAL HEIRS THE COST OF ACQUISITIO N WAS RESTRICTED TO THE VALUE OF 2/3 RD OF THE PROPERTY. ACCORDINGLY THE ASSESSEE CLAIMED 1/5 TH OF THE 1/3 RD OF THE PROPERTY IN HIS INDIVIDUAL RETURN. HOWEVER BOTH THE FIRM AND THE PARTNER IN APPEALS BEFORE THE CIT (A) TOOK A DIFFERENT STAND CONSEQUENT TO THE ACTION OF THE ASS ESSING OFFICER IN DENYING THE PAYMENTS TO THE LEGAL HEIRS. THE FIRM C LAIMED THE ENTIRE ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 17 OF 19 COST OF ACQUISITION IN THE HANDS OF THE FIRM BY CHA NGING ITS STAND THAT THE AMOUNT WAS PAID NOT AS LEGAL HEIR BUT AS E NCUMBER FOR IMPROVING THE TITLE OF THE PROPERTY. THE CIT (A) AL LOWED THE CLAIM IN THE HANDS OF THE FIRM. IN THE HANDS OF THE INDIVIDU AL HOWEVER THE ASSESSEE CLAIMED ORIGINALLY 1/5 TH OF THE 1/3 RD SHARE AS COST OF ACQUISITION. CONSEQUENT TO HIS STAND THAT THE AMOUN T IS NOT RECEIVED AS LEGAL HEIR THE CONTENTION WAS THAT THE AMOUNT WAS NOT TAXABLE AT ALL. BEFORE US ALSO AS DISCUSSED ABOVE THE CONTENTION WAS THAT THE AMOUNT WAS CAPITAL RECEIPT NOT EXIGIABLE T O TAX. WITH REFERENCE TO THE COST OF ACQUISITION THE ASSESSEE HAS NOT PRESSED THE GROUNDS REGARDING THE COST OF THE ACQUISITION. IT I S NOTICED THAT THE COST OF ACQUISITION ISSUE WAS RESTORED IN THE HANDS OF THE FIRM TO THE CIT (A) FOR ADJUDICATION. 19. THE ISSUE OF COST TO THE LEGAL HEIRS HAS TO BE EXAM INED AFRESH BY AO KEEPING MIND THE PROVISIONS OF SEC. 49 OF THE ACT. THE PROVISION IS AS UNDER: 49. [(1)] WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE (I) ON ANY DISTRIBUTION OF ASSETS ON THE TOTAL OR PARTIAL PARTITION OF A HINDU UNDIVIDED FAMILY; (II) UNDER A GIFT OR WILL; (III) (A) BY SUCCESSION INHERITANCE OR DEVOLUTION OR [(B) OR] (C) .. OR (D) .. OR (E) . ]; (EMPHASIS SUPPLIED) AS ALREADY STATED ASSESSEE RECEIVED THE RIGHT BY W AY OF SUCCESSION INHERITANCE OR DEVOLUTION IN THE PROPERTY OF THE LATE SHRI CHINTAMANI NEELKANTH BHATAVADEKAR WE ARE OF THE VI EW THAT THE COST IS TO BE DETERMINED ACCORDING TO THE PROVISION S OF THE ACT. THAT MAY BE THE REASON ASSESSEE ALSO ORIGINALLY OFFERED THE AMOUNT CLAIMING THE COST OF ACQUISITION/INDEXATION. ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 18 OF 19 20. SINCE THESE ASPECTS WERE NOT EXAMINED AN D ALSO THE CONTENTION THAT THERE IS NO COST WAS ALSO RAISED BE FORE US WHICH REQUIRE EXAMINATION OF RECORD WE IN THE INTEREST O F JUSTICE RESTORE THESE ISSUES TO THE FILE OF THE ASSESSING OFFICER T O DETERMINE WHETHER PROVISIONS OF SEC 45 WILL APPLY AND IF SO TO DETERM INE THE COST OF ACQUISITION/INDEXATION AND COMPUTE THE CAPITAL GAIN S ACCORDINGLY KEEPING IN MIND THE PROVISIONS OF THE ACT AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHRI B.C. SRINIVASA SETTY (128 ITR 294). WITH THESE DIRECTIONS THE ISSUE OF COMPUTATION OF CAPITAL GAIN IS RESTORED TO THE FILE OF THE ASSESSI NG OFFICER. NEEDLESS TO SAY THAT ASSESSEE SHOULD BE GIVEN ADEQUATE OPPOR TUNITY TO SUPPORT HIS CONTENTIONS AND FREE TO FURNISH NECESSA RY EVIDENCE IN SUPPORT OF VARIOUS CONTENTIONS. ACCORDINGLY THE GRO UND NOS. 2 & 3 ARE ALLOWED PARTLY. 20. REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (A) ERRED IN DIRECTING THE ASSE SSING OFFICER NOT TO TAX THE CAPITAL GAIN OF ` .5 29 65 000/- ARISING OUT OF SALE OF PROPERTY AT KOLSHET THANE I N THE HANDS OF THE ASSESSEE PROTECTIVELY AS THE SAME H AS BEEN TAXED IN THE HANDS OF FIRM SUBSTANTIVELY. 2. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT TH E DISALLOWANCE MADE IN THE CASE OF THE FIRM HAS YET T O ATTAIN FINALITY. 3. THE LEARNED CIT (A) IN THE CASE OF THE FIRM HAS DELETED THE DISALLOWANCE MADE OF ` .5 29 65 000/- ERRED IN ACCEPTING THE CLAIM OF THE ASSESSEE THAT SAME ARE EXPENSES INCURRED FOR BETTERMENT OF THE TITLE OF TH E PROPERTY EVEN THOUGH THE DEPARTMENT HAS NOT ACCEPT ED THE DECISION AND FILED APPEAL TO THE HON'BLE ITAT. 21. CONSEQUENT TO THE ORDERS OF THE ITAT IN THE CASE OF THE FIRM THE ISSUES RAISED BY THE REVENUE IN THIS APPEAL DOE S NOT SURVIVE. SINCE IN THE CASE OF THE FIRM THE AMOUNT WAS DIRECT ED TO BE ALLOWED AS EXPENSES INCURRED FOR BETTERMENT OF TITLE OF THE PROPERTY GROUND NO.3 IS NOT APPLICABLE AT ALL TO THIS CASE AND WITH REFERENCE TO GROUND NO.1 & 2 WE DO NOT FIND ANY REASON TO INTER FERE WITH THE ITA NOS 478 AND 668 OF 2010 MR. BALACHANDRA C. BHATAVADEKAR PAGE 19 OF 19 DIRECTIONS OF THE CIT (A) TO ASSESS THE AMOUNT IN T HE HANDS OF THE INDIVIDUAL SUBSTANTIALLY. ACCORDINGLY THE REVENUE G ROUNDS ARE REJECTED AND THE APPEAL IS DISMISSED. 22. IN THE RESULT ASSESSEES APPEAL IS CONSIDERED PART LY ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY 2012. SD/- SD/- (V.DURGA RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 24 TH FEBRUARY 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR G BENCH ITAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI