9911796707
TMI Blog2002 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of capital gains tax and that the assessee is liable for the payment of that tax on the value of the proprietary business made over to the firm. - So far as the second question is concerned the. Assessing Officer had not brought the goodwill to tax as it was a self-generated asset and during this assessment year the statute did not provide for the levy of capital gains tax on that goodwill. That question is answered in favour of the assessee and against the Revenue. - - - - - Dated:- 2-9-2002 - Judge(s) : R. JAYASIMHA BABU., K. RAVIRAJA PANDIAN. JUDGMENT The judgment of the court was delivered by R. JAYASIMHA BABU J.-Two questions have been referred to us at the instance of the assessee. The assessment year is 1982-83. The que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital contribution of the other six partners is to be. There was, however, provision for partners advancing monies to the firm. The firm so constituted was granted registration. The share of the profits/loss of the assessee in that firm was fixed at ten per cent. and the other ninety per cent. was made over to the other six partners, who had not brought in any capital contribution. The deed also provided that the goodwill of the business of the assessee was to be separately valued at the sum of Rs. 2,72,500. The justification for that valuation was stated to be that it represented approximately the average of three years' profits. After so valuing that goodwill, that amount was also credited to the capital account of the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the assessee was only assigned certain items of sundry debtors and no cash payment was made to the assessee. The Assessing Officer, however, did not levy any tax on the amount of the goodwill as the statute, as it prevailed during the relevant year did not provide for levy of capital gains tax on self-generated assets. The assessee's appeal to the Commissioner and thereafter to the Tribunal proved unsuccessful, those two authorities having upheld the view of the Assessing Officer that the series of transactions was devised solely with a view to avoid capital gains tax by the assessee on the transfer of the proprietary business to six others, who had taken over that business, by adopting the device of becoming partners, bringing in moni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain, it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igure merely represented an entry in the account books and did not represent any cash balance or the value of any tangible asset. The whole device, it is evident, was meant to enable the assessee to receive the value of his business immediately after the formation of the firm and avoid payment of capital gains tax by claiming that the drawal of the capital contribution would not amount to the receipt of the proceeds of sale of the proprietary business of the assessee. The amount required for enabling the assessee to draw the value of his proprietary business which had been credited to his capital account was obviously provided by the other six partners who had in terms of the deed brought in no capital at all but who apparently had given ..... X X X X Extracts X X X X X X X X Extracts X X X X
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