Ownership of Property in Individual Capacity of Partners Cannot Be Considered For LTCG To Their Partnership Firm: ITAT [Read Order]
The Tribunal ruled that the ownership of property held in the individual capacity of partners cannot be attributed to their partnership firm for the purpose of taxing Long Term Capital Gains (LTCG).
![Ownership of Property in Individual Capacity of Partners Cannot Be Considered For LTCG To Their Partnership Firm: ITAT [Read Order]](https://images.taxscan.in/h-upload/2025/06/28/2055949-ltcg-taxscan.webp "Ownership of Property in Individual Capacity of Partners Cannot Be Considered For LTCG To Their Partnership Firm: ITAT [Read Order]")
The Nagpur Bench of Income Tax Appellate Tribunal ( ITAT ) held that ownership of property in individual capacity of partners cannot be considered for Long TermCapital Gains ( LTCG )for taxing their partnership firm.
Aakar Hotels, (assessee) a partnership firm, was subjected to a search and seizure operation involving its partners, Atul Yamsanwar and others. The Assessing Officer (AO) reopened the case under Section 147 of the Income Tax Act and alleged that income from the transfer of a hotel property had escaped assessment.
The AO concluded that the assessee had sold the property to M/s. PNB Construction Company for Rs. 3,30,00,000/-, as evidenced by a registered assignment deed, and added Rs. 2,67,14,897/- as LTCG to the assessee’s income. Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)].
The CIT(A) deleted the addition and held that the leasehold land belonged to the partners individually, and the firm could not be taxed for LTCG. Aggrieved by the CIT(A)’s order, the Revenue appealed to the ITAT.
The Revenue contended that the CIT(A) erred in deleting the addition without appreciating that the sale deed was duly registered, and the purchaser had deducted Tax Deduction at Source (TDS) of Rs. 3,30,000/-.
The Revenue further argued that the assignment deed showed a complete transfer of the property by the firm and that the legal maxim "nemodat quod non habet" (no one can give what they do not have) was inapplicable, as the property belonged to the firm.
The counsel for the assessee submitted that the leasehold rights were held by the partners individually, as per a lease agreement with MIDC. The Counsel argued that the firm had no ownership rights over the property.
The counsel submitted that the assessee also filed a suit before the Civil Judge Senior Division, Nagpur, challenging PNB Construction’s occupation of the property.
The two-member bench, comprising V. Durga Rao (Judicial Member) and K.M. Roy (Accountant Member), observed that the leasehold land was held by the partners in their individual capacities, as evidenced by the MIDC lease agreement.
The Tribunal held that the partnership firm and its partners are distinct entities under the Income Tax Act, 1961, and the firm could not be considered the owner of the capital asset for LTCG taxation.
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The Tribunal further observed that the assignment deed was struck by the legal maxim "nemodat quod non habet," as the firm lacked ownership rights to transfer the property.
The Tribunal concluded that the CIT(A) rightly deleted the addition, as the property’s ownership rested with the partners, not the firm. The appeal of the Revenue was dismissed.The Tribunal ruled that the ownership of property held in the individual capacity of partners cannot be attributed to their partnership firm for the purpose of taxing Long Term Capital Gains (LTCG).
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