Registration of document is not essential under section 2(47)

By | September 6, 2015

Q : Whether Registration of document is an essential requirement for transfer of property under Section 2(47) ?

Answer :

Facts of the case

The  assessee had transferred his land to the partnership firm for business purposes in which he was a partner. Subsequently said land was re-transferred to assessee. The Assessee claimed long term capital gains Since there was no registered document, there was no transfer of property to the partnership firm. However Assessing Officer held that capital gain in question was to be treated as short-term capital gain.

Held

The supreme Court in the case of Mysore Minerals Ltd. v. CIT[1999] 239 ITR 775 examined this issue and found that the registration of document is not an essential requirement for transfer of property under the Act.

Therefore, when the property was shown in the accounts of the partnership firm and the partnership firm was allowed to enjoy the property as its own, there was transfer of property to the partnership firm

Therefore, the gain, if any, on transfer of property, has to be assessed only as short-term capital gain and not as long-term capital gain.

IN THE ITAT CHENNAI BENCH ‘A’

K.R. Muralidhar

v.

Income-tax Officer, Chennai

N.R.S. GANESAN, JUDICIAL MEMBER
AND A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER

IT APPEAL NO. 1097 (MDS.) OF 2015
S.P. NO. 338 (MDS.) OF 2015
[ASSESSMENT YEAR 2009-10]

JUNE  26, 2015

R. Vijayaraghavan, Advocate for the Appellant. P. Radhakrishnan, JCIT for the Respondent.

ORDER

N.R.S. Ganesan, Judicial Member – The appeal and Stay Petition of the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-13, Chennai, dated 23.3.2015 and pertain to assessment year 2009-10.

2. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is regarding computation of capital gain in transfer of land. According to the Ld. counsel, during the year under consideration, the assessee admitted long-term capital gain of Rs. 67,73,345/- on sale of factory land and building at 141, Kottivakkam Village, Nehru Nagar, Chennai, Kancheepuram District. The assessee also claimed exemption in respect of long-term capital gain in view of the investment in Rural Electrification Corporation Limited bonds and investment in residential house property. The assessee also claimed short-term capital loss of Rs. 11,35,986/- on account of extinction of Goodwill. However, the Assessing Officer disallowed the claim of the assessee on the ground that the assessee became the owner of the land in the assessment year 2007-08. The Assessing Officer came to a conclusion that the land in question was sold within a period of three years. Hence, it has to be treated as short-term capital gain. According to the Ld. counsel, the land in question stands in the name of partner and it was not transferred to the partnership firm at all. The assessee continues to be the owner of the land. According to the Ld. counsel, the assessee had taken over only the building and other assets and excluded the landed properties of the partnership firm. The Ld.counsel also placed his reliance on the judgment of Madras High Court in CIT v. S. Rajamani & Thangarajan Industries [2000] 241 ITR 668 and submitted that for transfer of landed property, the document shall be registered. Since there is no registered document, according to the Ld. counsel, there was no transfer of property to the partnership firm, hence, the Assessing Officer is not justified in treating the capital gain as short-term capital gain. The Ld.counsel also placed his reliance on the decision of this Bench in Raja Fertilizers v. ITO [2013] 142 ITD 435/33 taxmann.com 406 (Chennai).

3. On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that “transfer” has been defined under Section 2(47) of the Income-tax Act, 1961 (in short ‘the Act’). Therefore, though registration of document is mandatory for transfer of immovable property under the common law, Income-tax Act does not require any registered document for transfer of immovable property. According to the Ld. D.R., Income-tax Act, being a special enactment, for assessment of total income for levy of tax and collection thereof, it would prevail over the other enactments. Therefore, even though there is no registered document for transfer of property from the assessee to the partnership firm, it has to be treated as transfer in the hands of the partnership firm. In fact, the property was shown as asset in the accounts of the partnership firm. Therefore, the assessee became the owner on the date on which the firm was dissolved. Therefore, the Assessing Officer has rightly taken the gain as short-term capital gain.

4. We have considered the rival submissions on either side and perused the relevant material on record. The only issue arises for consideration is with regard to assessment of capital gain either as long-term capital gain or short-term capital gain. The assessee claims that gain on the sale of the land is long term capital gain on the ground that the assessee continues to be the owner of the property, even though the same was shown as asset in the accounts of the partnership firm. The claim of the assessee appears to be that there is no registration of document executed for transfer of the property to the partnership firm. The fact remains that the land was transferred to the account of the partnership firm and the partnership firm was enjoying the landed property as its own for the purpose of carrying on its business. Under the common law, as rightly submitted by the Ld. D.R., registration of document is mandatory for transfer of immovable property. However, under the Income-tax Act, which is being a special enactment, definition of “transfer” given in Section 2(47) of the Act would prevail over the definition given in other enactments. Therefore, whether there is a transfer or not is to be examined in the light of Section 2(47) of the Act and not otherwise. In fact, the Apex Court in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 examined this issue and found that the registration of document is not an essential requirement for transfer of property under the Income-tax Act. This judgment of the Apex Court was not brought to the notice of the Madras High Court in S. Rajamani & Thangarajan Industries (supra ). This was also not considered by this Tribunal in Raja Fertilizers (supra ). Therefore, this Tribunal is of the considered opinion that the judgment of Madras High Court in S. Rajamani & Thangarajan Industries (supra ) and this Tribunal’s decision in Raja Fertilizers (supra ) may not be applicable to the facts of the case. This Tribunal is of the considered opinion that the judgment of the Apex Court in Mysore Minerals Ltd. (supra ) is squarely applicable to the facts of the case. Therefore, when the property was shown in the accounts of the partnership firm and the partnership firm was allowed to enjoy the property as its own, there was transfer of property to the partnership firm.

5. We are conscious that the partnership firm under the common law is not a legal entity. However, under Income-tax Act, it is a separate and distinctly assessable unit. This distinction has to be born in mind and the partnership firm carried on its business through its partners. Therefore, for all practical purposes, under the provisions of Income-tax Act, the partnership firm is the owner of the property and the assessee became the owner on the date on which it was re-transferred from the partnership firm. Therefore, the gain, if any, on transfer of property, has to be assessed only as short-term capital gain and not as long-term capital gain. Therefore, this Tribunal do not find any infirmity in the order of the lower authority and accordingly, the same is confirmed.

6. Now the assessee also claims deduction under Sections 54EC and 54 of the Act. We have carefully gone through the provisions of Sections 54EC and 54 of the Act. As rightly observed by the CIT(Appeals), the provisions of Sections 54 and 54EC of the Act are applicable only in respect of gain arising from transfer of long-term capital asset. In this case, the gain arose from the transfer was short-term capital gain. Therefore, provisions of Sections 54EC and 54 are not applicable at all.

7. Now coming to the valuation, the Assessing Officer has rightly taken the value as reflected in the balance sheet of the partnership firm and it was confirmed by the CIT(Appeals). Therefore, this Tribunal do not find any infirmity in the order of the lower authority and accordingly, the same is confirmed.

8. In the result, the appeal of the assessee is dismissed. Since the appeal is dismissed, the stay petition of the assessee being infructuous, the same is also dismissed.

9. In the result, both the appeal as well as the Stay Petition of the assessee are dismissed.

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