9911796707
TMI Blog1986 (1) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons was constituted as on 1-10-1974 by a deed dated 1-11-1974 consisting of 11 major partners and one minor admitted to the benefits of the partnership. Each of the partners, including the minor admitted to the benefits of the partnership, brought in as share of capital contribution, at the market value of ₹ 27 per share, 20,000 shares of J.K. Synthetics Ltd. originally held by each as investment out of bonus shares received. 2. The ITO considered that the difference between the market value of such shares brought in at ₹ 5,40,000 and their cost of acquisition, determined by him at ₹ 28,000, attracted capital gains charge. The dispute came up before the Tribunal on an earlier occasion and by its order dated 29-1-1981 the Tribunal set out the points on which dispute arose between the assessees and the department as under : 1. The asset in question is not the capital asset of the assessees, being their stock-in-trade. 2. There was no transfer of the said capital by each of the assessees before us to the aforesaid firm of J.K. Sons, Bombay. 3. Assuming without admitting that there was such a transfer, consideration was not received in cash of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sizeable profit in share dealing and in fact more tax has been paid than the tax which would have been payable otherwise, in that by forming the firm, both the firm and the partners have been subjected to tax. It was argued that the necessity of forming the partnership firm was to pool together in a partnership and coordinate the transactions of different family members, at one place through one unit or agency. We were taken through the partnership deed and a statement showing the position of income and tax incidence of the firm for the assessment years 1975-76 onwards up to 1985-86, to highlight the claim that sizeable amount of income has been assessed in the hands of the firm. It was, of course, admitted that the transaction in the shares of J.K. Synthetics Ltd. were not much, the only transaction effected being of the sale of 17,000 shares of the firm on 5-2-1975 during the accounting year 1974-75 relevant for the assessment year 1975-76 under consideration, 54,000 shares on 17-3-1976 in the accounting year 1975-76 relevant for the assessment year 1976-77, and 12,000 shares on 6-6-1978 in the accounting year 1978-79 relevant for the assessment year 1979-80. It was, however, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a firm, converting the shares into stock-in-trade and transferring them to the firm is a device adopted and does not appear to be a bona fide transaction. It was further urged by the learned departmental representative that the sale of 17,000 shares was to one of the groups in which the members of the family were interested and the employment of a broker for the transaction, which is not necessary in the circumstances, is rather odd and inexplicable. The transfer of the shares in the circumstances, it was submitted, cannot be regarded as contribution for the purpose of the trading or business. At any rate, it was urged that insofar as the transaction of 17,000 shares sold to Polar Investment is concerned, this resulted in realisation of money shortly after the assessees converted their investment shares into stock-in- trade and contributed them towards firm';s capital. The assessee';s reply to this was that the sale of 17,000 shares in the context of total stock-in-trade of 2,20,000 shares cannot be regarded as significant. The sale was effected to raise the necessary funds required and as pointed out, no large chunk of the block of the shares has been disposed of. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and where such contribution of his personal asset to the partnership business by a partner is impelled by genuine intention on his part to contribute to the firm';s capital for the purpose of carrying on the business of the firm. They cannot apply to a case where the transfer made by a partner of his personal asset to a firm as his contribution to its capital is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit but does not fall within the tax net of capital gains charge on account of the form in which the transaction is clothed. The revenue authorities in such a case can pierce the veil of the legal form of the transaction and look into its substance and see what has been really achieved by the apparent form of the transactions. 5. Whether a firm is genuine or not and whether the transfer of his personal asset by a partner to the firm as his contribution to its capital is merely a ruse or device for converting such asset into money which, or the benefit of which, is available to him without attracting tax liability are all findings of fact to be ascertained on an examination of relevant materials s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be dictated by necessity to raise only the required amount of money for the business of selective dealings in shares by the firm. Thus, far from the personal assets of the partners being sold soon after their transfer to the firm so that the monies realised or the benefit thereof, are enjoyed by the partners, they are continued, substantially, to he held by the firm. We, therefore, fail to see how it can be said that the transaction of the partners of contributing their holding of shares in J.K. Synthetics Ltd. to the partnership firm as their capital could be said to be a device to avoid capital gains charge in respect of the transfer. The figures highlighted by the departmental representative in an attempt to show that the transfer was a device do not, in our view, justify the charge because they may be regard- ed as device or ruse for the purpose of the charge to capital gains only if it is found that in fact there is a realisation in terms of money of these shares within a short span of time after such transfer which is not the case here. As we have already noticed, even the three instances of sale which have taken place are of small number of them and have not resulted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim for registration as a whole. This view of mine is further reinforced by the fact that in the impugned orders under section 185 as well as in the relevant assessment orders the Income-tax Officer has taken the status of the appellant as unregistered firm. In other words, the Income-tax Officer has accepted that the appellant firm is a firm but still registration in the opinion of the Income-tax Officer could not be allowed because of legal deficiencies in the partnership deed and the claim. On the doubt raised by the departmental representative as to the bona fides of the sale of 17,000 shares to Polar Investment on 5-2-1975 in which Dr. Gaur Hari Singhania was interested, apart from the fact that even if it is justified, it has no nexus to the question which arises for our decision in this case, it has been pointed out by the learned counsel for the assessee, with reference to the order for the assessment year 1975-76 that the addition made in that regard for undervaluation was deleted by the AAC and, consequently, there was no merit in this contention of the department. A certificate is also filed to show that the aforesaid shares were still held by Polar Investment. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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