H S MUKHERJEE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In the assessment year 1966-67, the accounting year ending on March 31, 1966, the assets of the firm, Nirsa Refractory & Ceramic Works, Calcutta, were transferred to a limited company, viz., Nirsa Refractory & Ceramic Works Private Ltd., for a consideration of Rs.3 lakhs. Rupees 1,60,000 of the consideration was allocated towards plant, machinery, electric motors, etc., and the balance Rs. 1,40,000 was allocated towards consideration for a leasehold land belonging to the firm. Capital gains arising as a result of the transfer of the properties apart from the land was included in the income of the firm in its income-tax assessment in the said assessment year and was taxed. Thereafter, the capital gain which was determined to be Rs. 1,31,676 was allocated between the two partners.

(2.) In the income-tax assessment of H.S. Mukherjee, one of the partners and the assessee, the Income-tax Officer included half of the said capital gains and levied tax on the same under Section 114 of the Income-tax Act, 1961, as prevailing in the said year at the minimum rate of 15%.

(3.) Being aggrieved, the assessee preferred an appeal from the said assessment to the Appellate Assistant Commissioner. It was contended in the appeal that the tax on capital gains in the relevant assessment year should in no case exceed 15% of the net gains and as tax at the said rate has been imposed on the firm, the same could not be assessed further in the hands of the partners under Section 114 of the Act. It was further contended that the partners being the real owners of the property, capital gains should have been assessed in their hands and not in the hands of the firm. It was contended, in the alternative, that if such capital gains were taxed in the hands of the firm, the same could not be assessed in the hands of the partners.