9911796707
TMI Blog1992 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... be profitable to have a look at the introductory facts. The assessee is a Hindu undivided family. The main source of income was dividend. The assessee was not doing money-lending business. The relevant assessment year with which we are concerned is 1976-77. The assessee had received on final partition plot No. 6A, sub-plot No. 3, of Dariapur-Kazipur. Its area was 5,082 sq. yards. Out of this land, it was claimed by the assessee that an area measuring 4,273 sq. yards was converted into stock-in-trade of business of the land and the assessee revalued the same at Rs. 3,84,570 with effect from June 1, 1975, as against cost of Rs. 1,27,335. The Hindu undivided family consisted of Shri Jaykrishna Harivallabhdas (karta), his wife and the branch of Shri Rajesh jaykrishna, son of Shri jaykrishna Harivallabhdas. The assessee further claimed that, with the said stock-in-trade, he joined the firm of Messrs. Namrata Investors as a partner and his capital account was credited with Rs. 3,84,570. It was further claimed that the difference of Rs. 2,57,235 is neither taxable as income nor as capital gain within the meaning of section 45 of the Income-tax Act, 1961 ( for short, " the Act of 1961 " ). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider question No. 2 first. Before we proceed to deal with that question, it is necessary to note a few relevant statutory provisions holding the field. Section 2(47) of the Act, as it stood at the relevant time, defined "transfer" as under : "2. (47) 'Transfer' in relation to a capital asset, includes (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise provided in sections 53, 54, 54B, 54D, 54E, 54F, 54G and 54H, be chargeable to income tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place." A conjoint reading of the provisions as aforesaid makes it clear that, before the charge on capital gains is attracted, it should be shown that, during the previous year, there has taken place a transfer of the capital assets of the assessee. The Tribunal has thus taken a view interpreting section 2(47) of the Act that, when the assessee converted his capital asset into stock-in-trade by joining the partnership of Messrs. Namrata on June 16, 1975, the assessee could be said to have entered into a transaction of transfer of his capital asset within the meaning of section 2(47). For that view, reliance was placed on the decision of this court as mentioned in paragraph 14 of the judgment of the Tribunal. Mr. Kaji, learned counsel for the applicant-assessee, has vehemently contended that now the question stands fully covered by the decision of the Supreme Court in the case of Kartikeya V Sarabhai v. CIT [1985] 156 ITR 509, where the Supreme Court has taken the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the partnership firm, there can be no reckoning of the liabilities and losses which the firm may suffer in the years to come. All that lies within the womb of the future. It is impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm when neither can the date of dissolution or retirement be envisaged nor can there be any ascertainment of liabilities and prior charges which may not have even arisen yet. Therefore, the consideration which a partner acquires on making over his personal asset to the firm as his contribution to its capital cannot fall within the terms of section 48. And as that provision is fundamental to the computation machinery incorporated in the scheme relating to the determination of the charge provided in section 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether. Accordingly, it was held that in such cases, when the partner of a firm made over to the firm certain shares in a company which were held by him, there was a "transfer" of the shares, but, for that he received no consideration within the meaning of section 48 nor did any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership is formed between the assessee and his wife and children or substantially limited to them, whether 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 partner ship 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 device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth." Relying on these observations, learned counsel for the Revenue submitted that, while answering question No, 2 in favour of the assessee, we may clarify that it will be open to the Income-tax Officer to find out whether the transaction in question was genuine or not. It is difficult to appreciate this contention. It has to be kept in mind that, despite these observations found in the ultimate paragraph of the report as aforesaid, the Supreme Court in that case did not or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to the subsequent transferee. As such, a germ of case was there, on behalf of the Revenue as seen from the record, such inquiry was found permissible in the aforesaid decision. So far as the facts and circumstances of this case are concerned, they are clearly covered by the decision of this court in CIT v. Harikishan Jethalal Patel [1987] 168 ITR 472, as no such stand is discernible from the record of the case so far as the submission of learned counsel is concerned. Even that apart, the very phraseology of question No. 2 suggests that it was the Revenue's own case that the assessee had become a partner in the firm from June 16, 1975, and in fact, that was the basis on which section 45 was sought to be attracted against the assessee. Consequently, it is not open to the Revenue to now urge to the contrary placing reliance on the general observations found in the decision of the Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. In fact, any such attempt would be counterproductive as, if it is suggested by the Revenue in the alternative that on June 16, 1975, the assessee had not become a genuine partner in the firm, the question whether there was any transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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