1981 (5) TMI 66 - AT - Income Tax

Summary

Issues:
1. Whether the difference in value of assets contributed to a reconstituted firm constitutes taxable income.
2. Whether the difference in value can be considered as business income or short-term capital gains.

Analysis:
1. The appeal was filed by the Revenue against the order of the AAC concerning the asst. yr. 1977-78. The firm M/s Gumanmal Umraomal, in which the assessee was a partner, made a voluntary disclosure of income represented by stock of cut emeralds and cash. The assets were distributed among the partners, with the assessee's share valued at Rs. 9,446. After reconstitution, the assets were passed on to the reconstituted firm at a higher value of Rs. 14,000. The Revenue treated the difference of Rs. 4,554 as income resulting from the sale of goods and taxed it. The AAC, relying on a Supreme Court decision, held that there was no sale, as the assessee merely contributed additional capital to the firm, and deleted the addition of Rs. 4,554.

2. The Revenue appealed to the Tribunal, challenging the AAC's decision. The Tribunal upheld the AAC's decision, citing the Supreme Court ruling that no sale occurred when a person re-valued goods at a higher price for contribution to a partnership. The Tribunal emphasized that there must be a seller and a purchaser for a sale to take place. The Tribunal concluded that the issue raised by the Revenue had already been decided by the Supreme Court and, therefore, upheld the AAC's decision. The Revenue's argument that the amount of Rs. 4,554 should be taxed as business income or short-term capital gains was dismissed by the Tribunal. The Tribunal clarified that this issue was not raised before the AAC, and therefore, the Revenue could not introduce it for the first time at the Tribunal level.

3. In summary, the Tribunal dismissed the Revenue's appeal, affirming the AAC's decision that the difference in asset values contributed to the reconstituted firm did not constitute taxable income. The Tribunal held that there was no sale involved, as per the Supreme Court ruling, and rejected the Revenue's argument to tax the amount as business income or short-term capital gains, as this issue was not raised before the AAC.