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TMI Blog1987 (4) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... indu undivided family in the partnership firm as contribution towards capital. The assessee, a member of the Hindu undivided family, filed a return declaring the taxable income at Rs. 17,515 for the assessment year 1976-77. While filing the said return, the assessee did not show any income from the partnership firm of Messrs. H. J. Traders. However, in the course of hearing and during scrutiny, it was realised that the firm of Messrs. H. J. Traders was assessed to tax for the assessment year 1976-77 by the Income-tax Officer, Circle 11, Ward J, Ahmedabad, by his order dated January 8, 1979. According to the said assessment order, the assessee had earned a profit of Rs. 2,095 during the said assessment year. It was also realised that the assessee had on the transfer of the agricultural lands to the firm of Messrs. H. J. Traders earned a profit of Rs. 1,81,229 (Rs. 1,99,045-Rs. 17,817) which was exigible to tax under section 45 of the Income-tax Act, 1961 (hereinafter called " the Act "). Since, the variation was likely to exceed Rs. 1,00,000, the Income-tax Officer prepared and forwarded the draft of the proposed assessment order to the assessee on March 21, 1979, as required by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said to have earned a profit on transfer so as to attract the provisions of section 45 of the Act. The Revenue, feeling aggrieved by this order of the Commissioner of Income-tax (Appeals), carried the matter in further appeal to the Income-tax Appellate Tribunal. The ground raised in the appeal before the Tribunal was whether the Commissioner of Income-tax (Appeals) had erred in law in holding that there was no transfer within the meaning of section 2(47) of the Act when the assessee contributed the agricultural land to the firm of Messrs. H.J. Traders. At the time of hearing before the Tribunal, the departmental representative submitted that the question was required to be answered in favour of the Revenue in view of the decision of the Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. He further requested the Tribunal that the matter should be remanded for further processing on the basis of fresh facts with a view to finding out the genuineness of the transaction and the firm. This request was made on the basis of the observations made by the Supreme Court on page 523 of its judgment in the case of Sunil Siddharthbhai [1985] 156 ITR 509. The Tribunal confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer under section 2(47) of the Act, it did not result in capital gains liable to tax. The Appellate Tribunal, therefore allowed the appeal and set aside the order of the Income-tax Officer. On a reference under section 256(2), two questions arose for consideration : " (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that no capital gains resulted from the transfer of the shares held by the assessee to the partnership firm as his capital contribution, the cost of acquisition of the shares to the assessee being Rs. 1,49,819 and the market value of the shares being Rs. 1,60,279 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was a transfer within the meaning of clause (47) of section 2 of the Income-tax Act, 1961, of the shares contributed by the assessee as capital to the partnership firm in which he was a partner ? The High Court answered the questions in favour of the Revenue and against the assessee. The matter was carried in appeal to the Supreme Court. The Supreme Court took the view that when a partner brings in his personal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership business. If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely 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 asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The Income-tax Officer will be entitled to consider all the relevant indicia in this regard, whether the partnership 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer proceeded on the premise that the firm as well as the transaction was genuine and taking the price of the agricultural land on transfer at Rs. 1,99,045, he computed the capital gains in the hands of the assessee under section 48 of the Act. If the Supreme Court had not come to the conclusion that the amount credited in the account books of the partnership as the price of the land was merely notional, the question of remanding the matter for examining the genuineness of the firm as well as the transaction would never have arisen. It is true that in a given case the genuineness of the firm and/or the transaction may be doubted and may require scrutiny, but, in the present case, there existed no such doubt throughout the proceedings but merely because of the observations of the Supreme Court reproduced earlier, the departmental representative argued before the Appellate Tribunal that the matter should be remanded for further processing on the basis of fresh facts for finding out the genuineness of the transaction and the firm. It is obvious from the demand made before the Appellate Tribunal that the Revenue desires to examine the genuineness of the firm and the transaction on fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onation was in kind and not in cash and hence the assessee did not qualify for rebate under section 80G of the Act. Thereupon the assessee's counsel made a request that the assessee should be given an opportunity to prove that in substance the donation was in cash and not in kind. Dealing with this request, this court observed as under (at p. 886): " We are afraid we cannot permit the assessee to make out a totally new case at this belated stage which would run counter to the stand taken before the authorities below. The statement of case clearly shows that the assessee donated shares and not cash. We, therefore, cannot accede to the assessee's request to permit her to a second round of litigation by remanding the case with a view to giving her an opportunity to make out a case, hitherto not pleaded, that the donation, though ex facie of shares, was in substance of cash." In the present case also, as pointed out earlier, the Income-tax Officer never doubted the genuineness of the firm and/or the transaction. On the record, there is no material whatsoever to doubt either. What the Revenue desires is a remand so that it may, on introduction of fresh facts, if any, examine the gen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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