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TMI Blog1987 (7) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was as adduced before the authorities below that since the bigger HUF had discontinued its business several year before and that all its business assets which were partitioned very much earlier and with which the coparceners had been carrying on the same business, the assets so disclosed by the HUF is the capital asset of the HUF. The claim of the Senior Departmental Representative was that apart from the statement of the assessee there was no other evidence, which is available to support the contention of the assessee. The plea of the assessee, however, found favour with the learned AAC and he came to the conclusion that for calculating the period of holding of an asset has to be with reference to s. 2(42) whereby the period of holding would back to the holdings by the HUF. He was of the view that the asset was in the nature of a capital asset and it was taxable to capital gains tax only. The plea of the Senior Departmental Representative was, therefore, that without any evidence available accepting the plea of the assessee was not proper. 3. The plea of the assessee, on the other hand, was that the evidence that it was in the nature of capital asset is available in the shape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins, though there is an element of transfer involved but the credit to the partner's capital account is only a notional figure, not necessarily indicating the market value of the said asset. It was, therefore, pleaded that under those circumstances, the provisions of capital gains could be attracted in the instant case. 4. In the redirect, the plea of the Revenue was with reference to para 20 of the Supreme Court's decision in (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC) that this could be a device or a camouflage. 5. We have given very careful considerations to the arguments advanced by the parties as well as the materials that are on record. In the case of the bigger HUF, the Tribunal had considered the factum of voluntary disclosure, the value disclosed and also the years of acquisition, i.e. the year to which the income relates. The total value as per disclosure was Rs. 4.95 lacs, which was valued at 24.29 lacs and on that basis the asset was partitioned amongst the members on 15th March, 1976. This partition was recognised under s. 171 vide order dt. 16th March, 1982. The issue in the case of the HUF was as to what was the nature of these assets in the hands of the big ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid asset which had been contributed by him in the firm in which he is a partner whether resulted in any transfer, provisions of capital gains could be attracted and whether para 20 of the Supreme Court's observation in (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC) would have any applicability to the facts of the case or not remain to be considered, which we do in the following paragraphs. Their Lordships were considering the fact of all assets brought in or contributed by a partner by credit to his capital account at a particular value in relation to the applicability of capital gains. Their Lordships were alive to several Supreme Court decisions such as CIT vs. Hind Construction Ltd. 1974 CTR (SC) 157 : (1972) 83 ITR 211 (SC), Malabar Fisheries Co. vs. CIT (1979) 12 CTR (SC) 415 : (1979) 120 ITR 49 (SC), Addandi Narayanappa vs. Bhaskara Krishnappa. AIR 1966 SC 1300 and also to other High Court decisions, which had considered the situation and relationship of partner, partnerships, assets belonging to them etc. They had considered this issue by referring to the decision consequent to dissolution of the firm as well. They observed: "It is apparent, therefore, that when a partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from the point of view of dissolution of the firm their Lordships were faced with the situation of receiving an asset in which the assessee had interest during the subsistence of the partnership. Therefore, referring to Registration Act as well, it was concluded that whenever an assessee contributes his personal asset as his capital contribution there is no element of transfer. On the issue of the credit given to the partner's account whether it represented consideration for the transfer or not their Lordships observed: "The consideration for the transfer of the personal assets is the right which the arises or accrues to the partner during subsistence of the partnership to get his share of the profits from time to time and, after the dissolution of the partnership or with his retirement from the partnership, to get the value of a share in the net partnership assets as on the date of the dissolution or retirement after deduction of liabilities and prior charges. The credit entry made in the partner's capital account in the books of the partnership firm does not represent the true value of the consideration. It is a notional value only, intended to be taken into account at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount n the books of the partnership firm, but that entry is made merely for the purpose of adjusting the rights of the partners inter se when the partnership is dissolved or the partner retires. It evidences no debt due by the firm to the partner. Indeed, the capital represented by the notional entry to the credit of the partner's account may be completely wiped out by losses which may be subsequently incurred by the firm, even in the very accounting year in which the capital account is credited. Having regard to the nature and quality of the consideration which the partner may be said to acquire on introducing his personal asset into the partnership firm as his contribution to its capital it cannot be said that any income or gain arises or accrues to the assessee in the true commercial sense which a businessman would understand as real income or gain." After making all these observations in the penultimate paragraph their Lordships observed that the conclusions arrived at by them would not be applicable to a case where the partnership is not a genuine firm, where the transaction is a sham or unreal, the transfer of personal asset represents the genuine intention to contribute to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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