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TMI Blog1986 (2) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... t and therefore, no capital gain was chargeable to tax for the same. 3. In appeal, on following the decision of the Hon'ble Gujarat High Court in the case CIT vs. Kartikey V. Sarabhai (1981) 24 CTR (Guj) 184 : (1981) 131 ITR 42 (Guj) wherein it was held that where an asset belonging to an assessee is brought in by him into a firm in which he is a partner, the property in question would belong to the firm and the assessee will not have any power to dispose of whole or any part of it or any interest therein as his property; that in a specific partnership property a partner has no interest and as soon as the property is acquired either by way of introduction by a partner or by way of subsequent purchase, it becomes assets of the partnership firm that in respect of that property, no partner can say that he has any specified interest in it. Thus their Lordships of the Gujarat High Court held further that when an asset is introduced by a partner in the firm, the transaction amounts to transfer of property and the same is liable to capital gains. Accordingly, he confirmed the action of the ITO holding therein that the ITO was justified in charging capital gains in the hand of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her provisions of s. 2(47) of the IT Act, 1961 were attracted, because it was contended that the same was held as stock-in-trade by the assessee and therefore, the land was not a capital asset within the meaning of s. 2(14) of the Act and consequently s. 2(47), if at all, did not apply. In this respect, a note was also appended to the statement of income filed together with the return of income. The ITO taken into account the history in respect of the assets obtained by the assessee by way of partition from bigger joint family from time to time observed that the land was held by the assessee as capital asset. The reliance placed by the assessee on the decisions of CIT vs. Hind Construction Co. 1974 CTR (SC) 157 : (1972) 83 ITR 211 (SC) was negatived. Considering the return of net wealth for asst. yr. 1975-76 wherein the land was shown as stock-in-trade on the basis of which reliance of the assessee on the decision of CIT vs. Sutlej Cotton Mills Supply Agency Ltd. 1975 CTR (SC) 228 : (1975) 100 ITR 706 (SC) regarding intention of the assessee etc. he observed that mere showing the higher value in respect of the land did not mean that was a business activity, not it changed the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the submissions and have gone through the material placed. I find some substance in the submission of the ld. counsel. The only short question which I have to decide is whether the assessee held the piece of land transferred on 30th Aug., 1979 to the partnership firm of M/s Shah Enterprise. Now, it is an admitted fact that M/s. Shah Enterprise, a partnership firm in which the assessee is a partner is engaged in business of dealing in lands and acting as builders, developers of immovable properties etc. From the copy of the deed of partnership. I find that all the partners have been stated, by occupation, engaged in business. Clause 5(1) further states that the land (other then one under consideration) contributed by the assessee on 1st Jan., 1975 was held as capital asset. Clause 5(ii) further states that on and from 1st July, 1974 the assessee decided to trade in the lands contributed by developing the said lands and constructing for that purpose building thereon. Accordingly, entries in the books of the assessee were also passed revaluing firm as stock-in-trade as mentioned in the said clause. Clause 5(iii) further states that the assessee had appointed architect on 15th July, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the ground on which the authorities below have rejected the claim of the assessee. In my opinion, the assessee can be said to be doing the business of real estate and holding the land in question as stock-in-trade on the basis of following important and distinct features Existence of profit motive, an essential condition, is proved by entering into a partnership firm which is assessed having been engaged in similar business. The business in the real estate can be said to have commenced as soon as the essential activity in respect of that business as developers of land is first undertaken such as purchase of land. Here in this case the assessee was already holding the land as capital asset before 1st Jan., 1975. There is also supplementary work undertaken and carried out in connection with the property viz. appointment of architects, submission of the plans and obtaining the approval for house construction from Ahmedabad Municipal Corporation etc. From this, the motive becomes crystal clear. It also establishes that the assessee has dealt with the land, as a commodity, in the same way as a dealer in real estate would ordinarily deal with. The supplementary work carried out in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AMURTHY, VICE PRESIDENT (AS A THIRD MEMBER) The Point of difference referred under s. 255(4) of the IT Act in this case is as under: "Whether, in law and on the facts and in the circumstances of the case the land transferred to the partnership firm of which the assessee is a partner, was held by the assessee as stock-in-trade and not as capital asset so as to attract the provisions of s. 2(47) of the IT Act?" 2. The assessee in this case is a similar HUF viz. Hathising H. Shah. It was a partner through the Karta in the firm of M/s. Shah Enterprise which is said to be carrying on business in dealing in property i.e. acquiring land and constructing building and flats there on for sale. During the previous year ended on 31st March, 1980 relevant for the asst. yr. 1980-81, under consideration the assessee had brought into the firm as capital certain and bearing final plot No. 191 at a value of Rs. 1,10,990. The assessee claimed that this transaction did not amount to transfer within the meaning of s. 2(47) of the IT Act so as to attract capital gains charge and that the land before it was brought into the books of the firm as capital contribution constituted in the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended to deal in business of developing the land, constructing building and flats thereon and selling out the same on profit. This intention of treating the land as stock-in-trade, it is submitted, reflects in the further action taken by the assessee by entries in the books of accounts, appointment of architects for preparing plans for construction of buildings on the aforesaid lands and submitting plans to Ahmedabad Municipal Corporation for their approval and permission and the approval granted by the Ahmedabad Municipal Corporation etc. These facts were recited in the partnership deed. dt. 1st Jan., 1975 which have not been disputed or challenged. It is stated that though originally the assessee intended to deal in the business of developing the property constructing building or flats thereon and selling them at a later stage, the other persons also offered to join the partnership and the assessee decided to carry on the said business in partnership rather then singly. 5. The ld. Departmental Representative contended that whatever may be the treatment to the land given by the assessee before the land was transferred to the firm, once it was contributed as capital to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of capital gains. However, it is not necessary to go further into the aspect because of the limited scope of the point of difference viz. whether the concerned land constitutes the assessee's stock-in-trade or capital asset. The materials brought on record by the assessee in the shape of entries in the books of accounts and recital in the partnership deed other facts and circumstances adverted to in detail in the ld. Accountant Member's order clearly in my view establishes the assessee's claim that the land was held by the assessee as stock-in-trade intended to be dealt with as such. The fact that the land was subsequently transferred to the partnership firm does not make anytheless the stock-in-trade because whether the assessee should deal in the business singly on his own or should carry on such business in partnership with others is purely a matter of convenience and commercial expediency and where the assessee deals in the same business through a partnership instead of singly it will amount to his carrying on the business. It is well settled that business carried on by a partnership firm is business carried on by the partner himself (see the decision of the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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