I put land into an LLP as capital. The stamp value is higher than the value the firm recorded. Can the Assessing Officer apply s.50C?
On this order, no. Section 45(3) itself supplies the deemed full value of consideration for a capital contribution, namely the amount recorded in the books of the firm. The Mumbai Tribunal held that one deeming fiction cannot be extended by importing another, so s.50C cannot be used to replace the book figure with the stamp duty value. The addition made by substituting a stamp value of Rs. 9,41,78,500 for the recorded Rs. 5.60 crores was deleted.
Decided by the ITAT (Mahavir Singh, Judicial Member, and G. Manjunatha, Accountant Member) on 2017-12-29, reported as I.T.A. Nos. 6050/Mum/2016 and 6114/Mum/2016 (Income Tax Appellate Tribunal, 'A' Bench, Mumbai), assessment year 2012-13. The two numbers are a cross-appeal pair: the companion appeal is the Revenue's appeal against an unrelated disallowance under s.14A read with Rule 8D, dealt with from paragraph 11 onwards and dismissed, and it is not the subject of this entry. No law report citation appeared on the copy retrieved.. It bears on section 45(3), section 50C, section 48, section 45 of the Income Tax Act 1961, in Capital Gains and How Tax Law Is Read matters.
This is a live and recurring dispute whenever land or a building is brought into a firm or LLP, and there is no High Court ruling either way that this project has located. The Assessing Officer's position rests on the Lucknow Tribunal decision in Carlton Hotel; this order is the considered answer to it and is what you will cite. Note that the Finance Act 2021 did not disturb s.45(3), so unlike the s.45(4) material this reasoning is not time-limited by the 2021 rewrite.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee company entered into a limited liability partnership agreement dated 28 December 2011 for developing, constructing and operating resorts, hotels and apartment hotels, followed by a supplementary agreement dated 29 December 2011. By the supplementary agreement the assessee transferred a plot of land admeasuring 6,869.959 square metres at Village Passpoli, Powai, Mumbai as its capital contribution into ATL Hospitality LLP. On the strength of a valuation report the land was taken at Rs. 5.60 crores and that value was recorded in the books of the firm. The supplementary agreement was registered on 24 April 2012 and the stamp valuation authority determined the market value at Rs. 9,41,78,500. The assessee computed capital gains under s.45(3) using the recorded figure of Rs. 5.60 crores, returning long term capital gain of Rs. 4,93,17,593. The Assessing Officer applied s.50C, took the consideration at Rs. 9,41,78,500 and recomputed the long term capital gain at Rs. 8,74,96,093, relying on the Lucknow Bench decision in Carlton Hotel Pvt Ltd v. ACIT, 122 TTJ 515, and on the fact that s.45(3) does not open with a non obstante clause. The Commissioner (Appeals)-16, Mumbai confirmed the addition of Rs. 3,81,78,500.
The finding of the Commissioner (Appeals) was reversed and the addition made by recomputing the long term capital gain on transfer of the capital asset into the partnership firm was deleted (para 9). Where a partner transfers a capital asset to a firm by way of capital contribution, s.45(3) makes the amount recorded in the books of account of the firm the deemed full value of the consideration for the purposes of s.48, and the Assessing Officer cannot import the separate deeming fiction in s.50C to displace it.
The Tribunal read s.45(3) as a special provision dealing with transfers between a firm and its partners, which both charges the gain and supplies the computation mechanism by fixing the deemed consideration. It accepted that s.45(3) does not contain a non obstante clause, but held that this did not permit the deeming fiction in s.50C to be extended into another deeming fiction created by s.45(3) for a special class of transfers. Since the Act itself provides the consideration to be adopted for the purposes of s.48, s.50C cannot be used to compute a different deemed consideration. The Tribunal supported this with the proposition, drawn from the Supreme Court decision in CIT v. Moon Mills Ltd as cited in the order, that one deeming fiction cannot be extended by importing another. It declined to follow the Lucknow Bench decision in Carlton Hotel on the footing that the Bench there had observed that s.50C overrides s.45(3) without giving a categorical finding, and had decided on different facts concerning a document registered under the Registration Act 1908 (para 9).
Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer.
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Handle my notice → Ask a CA on WhatsAppOn this order, no. Section 45(3) itself supplies the deemed full value of consideration for a capital contribution, namely the amount recorded in the books of the firm. The Mumbai Tribunal held that one deeming fiction cannot be extended by importing another, so s.50C cannot be used to replace the book figure with the stamp duty value. The addition made by substituting a stamp value of Rs. 9,41,78,500 for the recorded Rs. 5.60 crores was deleted. This was decided by the ITAT (Mahavir Singh, Judicial Member, and G. Manjunatha, Accountant Member) and bears on section 45(3), section 50C, section 48, section 45 of the Income Tax Act 1961. It is reported as I.T.A. Nos. 6050/Mum/2016 and 6114/Mum/2016 (Income Tax Appellate Tribunal, 'A' Bench, Mumbai), assessment year 2012-13. The two numbers are a cross-appeal pair: the companion appeal is the Revenue's appeal against an unrelated disallowance under s.14A read with Rule 8D, dealt with from paragraph 11 onwards and dismissed, and it is not the subject of this entry. No law report citation appeared on the copy retrieved.. This is a live and recurring dispute whenever land or a building is brought into a firm or LLP, and there is no High Court ruling either way that this project has located. The Assessing Officer's position rests on the Lucknow Tribunal decision in Carlton Hotel; this order is the considered answer to it and is what you will cite. Note that the Finance Act 2021 did not disturb s.45(3), so unlike the s.45(4) material this reasoning is not time-limited by the 2021 rewrite. If it applies to you, the first step is this: Get the value actually recorded in the books of the firm or LLP, and make sure the partner's own computation uses that figure and nothing else. That is what s.45(3) makes the full value of consideration.
The assessee company entered into a limited liability partnership agreement dated 28 December 2011 for developing, constructing and operating resorts, hotels and apartment hotels, followed by a supplementary agreement dated 29 December 2011. By the supplementary agreement the assessee transferred a plot of land admeasuring 6,869.959 square metres at Village Passpoli, Powai, Mumbai as its capital contribution into ATL Hospitality LLP. On the strength of a valuation report the land was taken at Rs. 5.60 crores and that value was recorded in the books of the firm. The supplementary agreement was registered on 24 April 2012 and the stamp valuation authority determined the market value at Rs. 9,41,78,500. The assessee computed capital gains under s.45(3) using the recorded figure of Rs. 5.60 crores, returning long term capital gain of Rs. 4,93,17,593. The Assessing Officer applied s.50C, took the consideration at Rs. 9,41,78,500 and recomputed the long term capital gain at Rs. 8,74,96,093, relying on the Lucknow Bench decision in Carlton Hotel Pvt Ltd v. ACIT, 122 TTJ 515, and on the fact that s.45(3) does not open with a non obstante clause. The Commissioner (Appeals)-16, Mumbai confirmed the addition of Rs. 3,81,78,500. The matter was decided on 2017-12-29 by the ITAT (Mahavir Singh, Judicial Member, and G. Manjunatha, Accountant Member). On those facts the ITAT held as follows. The finding of the Commissioner (Appeals) was reversed and the addition made by recomputing the long term capital gain on transfer of the capital asset into the partnership firm was deleted (para 9). Where a partner transfers a capital asset to a firm by way of capital contribution, s.45(3) makes the amount recorded in the books of account of the firm the deemed full value of the consideration for the purposes of s.48, and the Assessing Officer cannot import the separate deeming fiction in s.50C to displace it.
The Tribunal read s.45(3) as a special provision dealing with transfers between a firm and its partners, which both charges the gain and supplies the computation mechanism by fixing the deemed consideration. It accepted that s.45(3) does not contain a non obstante clause, but held that this did not permit the deeming fiction in s.50C to be extended into another deeming fiction created by s.45(3) for a special class of transfers. Since the Act itself provides the consideration to be adopted for the purposes of s.48, s.50C cannot be used to compute a different deemed consideration. The Tribunal supported this with the proposition, drawn from the Supreme Court decision in CIT v. Moon Mills Ltd as cited in the order, that one deeming fiction cannot be extended by importing another. It declined to follow the Lucknow Bench decision in Carlton Hotel on the footing that the Bench there had observed that s.50C overrides s.45(3) without giving a categorical finding, and had decided on different facts concerning a document registered under the Registration Act 1908 (para 9). In the words reproduced by the source cited on this page: "Though the provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer." The decision followed or applied CIT v. Moon Mills Ltd (Supreme Court) — relied on for the proposition that one deeming fiction cannot be extended by importing another, as cited in the order; ACIT v. Carlton Hotel Pvt Ltd, 122 TTJ 515 (Lucknow) — not followed.
It was decided by the ITAT on 2017-12-29 and is reported as I.T.A. Nos. 6050/Mum/2016 and 6114/Mum/2016 (Income Tax Appellate Tribunal, 'A' Bench, Mumbai), assessment year 2012-13. The two numbers are a cross-appeal pair: the companion appeal is the Revenue's appeal against an unrelated disallowance under s.14A read with Rule 8D, dealt with from paragraph 11 onwards and dismissed, and it is not the subject of this entry. No law report citation appeared on the copy retrieved.. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 45(3), section 50C, section 48, section 45, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The finding of the Commissioner (Appeals) was reversed and the addition made by recomputing the long term capital gain on transfer of the capital asset into the partnership firm was deleted (para 9). Where a partner transfers a capital asset to a firm by way of capital contribution, s.45(3) makes the amount recorded in the books of account of the firm the deemed full value of the consideration for the purposes of s.48, and the Assessing Officer cannot import the separate deeming fiction in s.50C to displace it. It arises in Capital Gains and How Tax Law Is Read matters, on section 45(3), section 50C, section 48, section 45 of the Income Tax Act 1961, and was decided by Mahavir Singh, Judicial Member, and G. Manjunatha, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Have a valuation report supporting the recorded figure. The assessee here had one, and the Tribunal noted it as part of the facts. If s.50C is invoked, take the deeming-on-deeming point squarely: s.45(3) already prescribes the consideration, so there is nothing left for s.50C to supply. Expect the Assessing Officer to rely on ACIT v. Carlton Hotel Pvt Ltd, 122 TTJ 515 (Luck). This order deals with it, holding that the Lucknow Bench did not give a categorical finding and decided on different facts. Do not read the order as protecting an artificially low book value. It settles which provision supplies the consideration, not whether the recorded value can be attacked on other grounds. Check the position for stock in trade separately. Section 45(3) speaks of a capital asset, and the treatment of trading stock brought into a firm is not what this order decides.
Searched for later treatment; none was found. That is not the same as a source affirming it. A Tribunal order of December 2017 which takes a view opposed to the Lucknow Bench in Carlton Hotel Pvt Ltd v. ACIT, 122 TTJ 515. No High Court decision resolving the conflict was located, and no appeal against this order was found. Section 45(3) was not amended by the Finance Act 2021, so the issue is live for current years. A secondary source records that this order has since been followed by the Hyderabad, Kolkata and Chennai Benches, so the weight of Tribunal authority now sits with it; those later orders were not retrieved and are not cited here. Treat the point as arguable rather than settled, and expect the Assessing Officer to rely on Carlton Hotel. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Paragraphs 2, 3, 4 and 9 were retrieved and read verbatim; the remainder of the order was not read in full. All figures in this entry are taken from paragraphs 2, 3, 4 and 9 as printed. The order is that of a Division Bench of the Tribunal and has not, so far as could be located, been tested in the Bombay High Court; a search for an appeal returned nothing. Section 45(3) itself was left untouched by the Finance Act 2021, which substituted s.45(4) and inserted s.9B. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The finding of the Commissioner (Appeals) was reversed and the addition made by recomputing the long term capital gain on transfer of the capital asset into the partnership firm was deleted (para 9). Where a partner transfers a capital asset to a firm by way of capital contribution, s.45(3) makes the amount recorded in the books of account of the firm the deemed full value of the consideration for the purposes of s.48, and the Assessing Officer cannot import the separate deeming fiction in s.50C to displace it.
TaxSphere, “Amartara Pvt Ltd v DCIT (ITAT Mumbai)”, https://taxnotice.vittsphere.com/caselaw/case/amartara-v-dcit-45-3-versus-50c/ (validity last checked 2026-09-07)
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