Home Income tax Corporate Income tax Property Bought for Business Use by a Partnership Firm, Section 56(2)(vii)(b)(ii) of the IT Act. Does Not Apply: ITAT

Property Bought for Business Use by a Partnership Firm, Section 56(2)(vii)(b)(ii) of the IT Act. Does Not Apply: ITAT

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Property Bought for Business Use by a Partnership Firm, Section 56(2)(vii)(b)(ii) of the IT Act. Does Not Apply: ITAT
Chennai ITAT's Order for Smt. Chandrasekaran Valarmathi & Smt. Rajasekaran Vasanthamalli

The Revenue Tax Appellate Tribunal (ITAT), Chennai Bench dominated that Part 56(2)(vii)(b)(ii) Revenue Tax Act, 1961 shall not be relevant if the property was bought for enterprise use of a partnership agency.

The taxpayer Chandrasekaran Valarmathi is a associate in a agency M/s Chandran Steels, together with three different companions of the agency, bought a particular constructing for Rs.95.72 Lacs. This quantity was remarked to be debited within the agency. The constructing mortgage of Rs.70 Lacs was acquired towards that.

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Through the evaluation proceedings, the Assessing Officer (AO) noticed that the property, acquired at a price of Rs. 85 Lakhs, deviated from the rule of thumb worth of Rs. 155.77 Lacs.

Consequently, the AO invoked the provisions of Sec.56(2)(vii)(b)(ii), suggesting that the differential quantity must be handled as ‘earnings from different sources’ for the assessee, with the precise share being one-fourth.

Displeased with this resolution, the assessee appealed to the CIT(A), however the attraction was dismissed. Subsequently, the assessee pursued a second attraction earlier than the tribunal.

In defence, Ok.G. Raghunath, the counsel for the assessee, contended that based on Part 14 of the Indian Partnership Act, any property, rights, or curiosity acquired with the agency’s funds is deemed to be owned by the agency. Because the total buy quantity was funded by the agency, Raghunath argued that the property rightfully belonged to the agency.

Moreover, he identified that the agency claimed depreciation on the property, indicating its enterprise use and negating the applicability of Sec.56(2)(vii)(b)(ii).

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Quite the opposite, P. Sajit Kumar, representing the income, asserted that the property deed didn’t explicitly state that the acquisition was made within the capability of the agency’s companions, and the property acquisition was not attributed to the agency.

He emphasised that the mortgage for the property was sanctioned within the particular person names of the companions, implying that the property was acquired of their capacities.

The tribunal famous that the property had been acquired by way of joint possession involving 4 people, all of whom had been companions within the agency M/s Chandran Steels. Moreover, the agency was granted depreciation, and it was completely using the property for its enterprise wants, with the reimbursement of the mortgage instalment dealt with by the agency.

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In gentle of those circumstances, the tribunal concluded that the property was successfully acquired by the agency itself and never by the person companions. Consequently, the tribunal decided that the provisions of Sec.56(2)(vii)(b)(ii) couldn’t be invoked, as these provisions didn’t apply to partnership companies throughout the related interval.

After an intensive examination of the information and data, the two-member bench comprising Manoj Kumar Aggarwal (Accountant Member) and Mahavir Singh (Vice President) held that Part 56(2)(vii)(b)(ii) of the Revenue Tax Act, 1961, wouldn’t be relevant when the property is bought for the enterprise use of a partnership agency.

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