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TMI Blog1986 (9) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... l asset at the time when it became the property of the firm ? 2. Whether, on the facts and in the circumstances of the case, the conclusion drawn by the Appellate Tribunal that the property ceased to be capital asset and became the stock-in-trade of the co-owners is supported by any relevant and valid material and whether such conclusion of the Appellate Tribunal is not perverse ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in stating that the excess contribution over and above Rs. 6,00,000 in terms of value allowed to be withdrawn does not in any way suggest that there has been a sale ? 4. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in to the partnership stock, their capital accounts were credited with a sum of Rs. 8,00,000 in agreed shares. The question that arose for consideration in the income-tax assessments was whether the assessee, as the co-owner of the property, was liable to be taxed on the difference between the cost of the property and the consideration credited to the assessee's capital account in the books of the partnership firm. A contention was urged before the Revenue that the property was converted into a business asset (stock-in-trade) prior to throwing the same into the partnership stock and consequently what was thrown into the partnership stock was stock-in-trade and not a capital asset. The assessee also contended that the unilateral act of thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset was thrown into the partnership stock pursuant to the partnership agreement dated July 16, 1979, there can be little dispute that the decision of the Supreme Court in Sunil Siddharthbhai v CIT[1985] 156 ITR 509 becomes applicable. In view of that decision, it must be held that there is a transfer within the meaning of section 2(47) of the Income-tax Act when the partners unilaterally threw the asset into the partnership stock. But then, the Supreme Court observed that the claim for levy of tax on the capital gains cannot be sustained. We may quote the following observations of the Supreme Court (p. 522): " When his personal asset merges into the capital of the partnership firm, a corresponding credit entry is made in the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, invited our attention to the observations of the Supreme Court that 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 sham transaction and even where the partnership is genuine, whether 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 device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on capital gain. It is true that, in the light of the aforesaid observations of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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