9911796707
TMI Blog1991 (10) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... motion Corporation of Tamil Nadu Limited. In the letter dated 13-2-1981 given by SIPCOT sanctioning the loan, it was stipulated that the textile division of the assessee-company should be converted into a separate private limited company before drawal of that loan and six months time was granted at a meeting of the SIPCOT held on 30-4-1981 for that purpose. On 23-9-1981 such a new company called Mettur Spinning Mills Ltd. (hereinafter referred to as "MSM") was incorporated. On the same date a firm was constituted with the assessee and MSM as partners. At the time of the formation of the firm, the assessee brought the textile mill as its contribution of capital. That firm was granted registration and was assessed for the previous year ended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded 31-3-1982 it had been mentioned that the assets of the textile division had been revalued as on 23-9-1981 when it was contributed as its capital in the partnership firm and the capital reserve was credited with a sum of Rs. 51.1 lakhs representing surplus on revaluation of assets. He inferred that the assessee had in fact realised a sum of Rs. 51.1 lakhs on account of that transaction. The assessee objected to this inference pointing out that the revaluation was made on 1-4-1979 and not at the time of conversion of the assets into firm's assets. The CIT was, therefore, of the opinion that this claim had to be verified and he accordingly set aside the assessment and directed the ITO to make a fresh assessment in accordance with law. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the whole transaction was colourable and that the whole effort was made to avoid tax and sustained the assessment of profit under section 41(2) as well as capital gains. 6. In the further appeal before us it was pointed out on behalf of the assessee that the firm had been granted registration and assessed to tax thereby accepting as a genuine firm and, therefore, the income of the firm could not be included in the total income of the assessee. It was also pointed out that if the firm was taken to be bogus, then there could not be any transfer of the property at all from the assessee to MSM via the firm and consequently there could not be any assessment to capital gains or profit under section 41(2) since the property would have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal of the assessee in the firm constituted with MSM. It must be remembered that when the firm was dissolved, there was no transfer at all as held by the Supreme Court in CIT v. Dewas Cine Corpn. [1968] 68 ITR 240 and the question of capital gains at that point of time does not arise for consideration. However, the Supreme Court has held in the case of Sunil Siddharthbhai that when property is brought in as capital by one of the partners on the formation of the firm, it amounts to a transfer. But the Supreme Court had observed in that case that such a transfer does not give rise to capital gains as such because it is difficult to ascertain the capital gains that may arise on that occasion. 10. The Supreme Court had made certain other obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that there was no real need for the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the Income-tax Officer enters upon a scrutiny of the transaction, for, in the task of determining whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth. " 11. Keeping these observations in mind, if we look at the facts of the case we find that in this case also the firm has to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which cannot arise by the very nature of this transaction. Since none of the indicia mentioned by the Supreme Court which can lead to an inference that the transaction was sham or illusory or a device or ruse is present in the case, the facts presented by the assessee remain the truth and has to be accepted as such. It follows that, as held by the Supreme Court in Sunil Siddharthbhai's case, in this case also even though there was a transfer of the textile mill by the assessee to the firm on the formation of the firm by bringing it as its capital contribution, the assessee received no consideration within the meaning of section 48 nor did any profit or gain accrue to the assessee for the purpose of section 45 of the Income-tax Act on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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