Dept cannot Tax Partner along with the Firm for Sham Transactions: Gujarat HC [Read Judgment]

Gujarat High Court-CLAIM-TAXSCAN

The Gujarat High Court in CIT v. Vision Finstock Ltd, held that the income tax department cannot assess a partner along with his Firm on ground of sham transactions since it would amount to double taxation.

Justices Akil Kureshi and Biren Vaishnav was hearing an appeal filed by the department against the orders of first and second appellate authorities whereby these authorities quashed the assessment order.

In the instant case, the assessing officer completed assessment against the respondent on ground that the consideration received by him as partner of two Firms upon reevaluation and distribution of the partnership assets constitute short- term capital gain. He held that the real nature of transactions i.e. purchase and sale of land which clearly attracted capital gains. Based on the Apex Court ruling in the case of Mcdowell, he observed that the partners as well as the Firm are liable to pay tax on the escaped income.

The division bench upheld the orders passed by the lower authorities reversing the order of the Assessing Officer holding that if at all the transaction was held to be sham, the additions can be made in the case of the firm and not the partners. “The Commissioner (Appeals) also noted that in case of one of the partnership firms, the Assessing Officer had made such addition. In other words, now to tax the partner also would amount to double taxation. The Tribunal, while confirming the view of the CIT (Appeals), further noted that in case of other partners, the Assessing Officer had had not made the addition. CIT (Appeals) had exercised revisional powers under section 263 which order was set aside by the Tribunal.”

Read the Full Text of the Judgment Below

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