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Issues Involved:
1. Whether there was a transfer of the house property by the assessee-firm to a partner of the firm. 2. Whether capital gains were chargeable on the basis of the fair market value of the property as on the date of the transaction. 3. Whether the assessee's share of capital gains from the firm for the assessment year 1964-65 is assessable in his hands. Detailed Analysis: Issue 1: Transfer of Property by the Firm to a Partner The primary issue was whether the execution of the release deed by three partners in favor of the fourth partner constituted a transfer of the house property by the firm to the individual partner. The assessee-firm argued that the release deed did not amount to a sale or transfer. The Appellate Assistant Commissioner and the Tribunal upheld this view, stating that there was no sale by the firm to the partner. The court analyzed the deed dated November 1, 1962, which was styled as a release deed. The document described the executants as releasors and the beneficiary as the releasee. The court noted that the property was initially purchased by the partnership firm and that subsequent entries in the firm's accounts indicated a transfer to the individual partner. Despite the document being termed a release deed, the court held that the intention was to convey the property from the firm to the individual partner, thus constituting a transfer. Issue 2: Chargeability of Capital Gains Based on Fair Market Value The second issue was whether capital gains should be calculated based on the fair market value of the property at the time of the transaction. The revenue contended that the property was transferred with the intention of reducing tax liability and sought to apply section 52(1) of the Income-tax Act, 1961, to substitute the fair market value for the consideration received. The court examined section 52(1), which allows the Income-tax Officer to take the fair market value as the full value of the consideration if the transfer was made to avoid tax liability. The court found no evidence or finding that the transfer was to reduce tax liability. Therefore, section 52(1) was not applicable. The court emphasized that the full value of the consideration received or accruing should be the basis for computing capital gains, not the fair market value. Consequently, the revenue's attempt to substitute the fair market value was rejected. Issue 3: Assessability of Capital Gains in Individual Partner's Hands The final issue was whether the individual partner's share of capital gains from the firm was assessable in his hands. Given the court's findings on the first two issues, it concluded that the capital gains were not chargeable based on the fair market value. Therefore, the individual partner's share of capital gains was not assessable in his hands. Conclusion: The court answered the first question in the affirmative, confirming that there was a transfer of property by the firm to the individual partner. The second question was answered in the negative, ruling that capital gains could not be charged based on the fair market value. Consequently, the third question was answered in the affirmative, stating that the individual partner's share of capital gains was not assessable in his hands. The assessee was entitled to costs in both references.
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