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Issues Involved:
The issue involved in this case is whether the sale of property by a partner to a firm in which he is a partner amounts to a 'transfer' for the purpose of capital gains tax under section 45 of the Income-tax Act, 1961. Judgment Details: Issue 1: Transfer of Property by a Partner to a Firm The assessee, an individual, converted his proprietary business into a partnership and later transferred his immovable property to the firm. The Appellate Tribunal held that the transfer did not amount to a 'transfer' under section 45, based on a previous decision. However, the Department argued that the sale deed constituted a transfer and capital gains tax was applicable. Issue 2: Legal Interpretation of Partnership Transactions The Department contended that the partnership firm should be treated as a legal entity capable of entering into transactions, citing legal precedents. On the other hand, the assessee's counsel argued that crediting the sale consideration to the capital account of the firm did not constitute a transfer, relying on legal interpretations from previous cases. Issue 3: Application of Capital Gains Tax The Supreme Court's decision in Sunil Siddharthbhai v. CIT was referenced to determine the applicability of capital gains tax in cases where a partner transfers assets to a firm. The Court analyzed the specific circumstances of the case where the entire sale consideration was credited to the capital account of the partnership. Conclusion: The Court held that in this case, the transfer of property by the assessee to the partnership firm did constitute a transfer for the purpose of capital gains tax. Despite arguments regarding the nature of partnership transactions, the Court found that the capital gains tax was applicable due to the actual gain in the transaction. Therefore, the question was answered in the negative, in favor of the Department.
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