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TMI Blog1996 (2) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------- D.K. Panduranga Shetty(HUF) 60% Rs. 5,00,000 (by way of contributing property along with building under consideration) Smt. Sulakshana, wife of Shri D.K. Panduranga 20% Rs. 10,000 Shri D.K. Panduranga (individual) 10% Rs. 1,00,000 Miss Bindu Panduranga, daughter of Shri D.K. Panduranga 10% Rs. 10,000 ---------------------------------------------------------------------- The ITO noted that although the property under consideration had been valued at Rs. 80,000 only in the wealth-tax return filed by the assessee for assessment year 1980-81, on 31-12-1980 however, the same property was contributed as capital to the abovementioned firm by declaring its value to be Rs. 5 lakhs. The ITO furthermore noted that although the partnership was to deal in real estate, including dealing in land, buildings, flats, etc., and constructing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came to the conclusion that the assessee should not be considered to be liable to capital gains tax in this case and that, on the other hand, the assessee should receive the benefit of the decision of the Supreme Court in the case of Sunil Siddharthbhai in a general manner. The CIT(A) took special note of the contention of the assessee that the partnership firm, viz., M/s. Kalpana Construction Co., actually wanted to construct flats and sell the same but due to certain unavoidable problems between the said firm and the contractors, the business activities could not be carried on. Accordingly, the CIT(A) held that there was no mala fide or invalidity in constituting the firm and that the transaction appeared to be genuine. 5. Before us, the learned DR has strongly contended that the firm was formed merely for the purpose of avoiding capital gains on sale of the properly ultimately made by the assessee. It has furthermore been argued that in any case, the transfer of the property by the assessee to the partnership firm itself attracts levy of capital gains tax. In support of this contention, reliance has been placed not only on the observations made at the last portion of the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares in the company. It was held by the Bombay High Court that in the circumstances of the case, the true nature of the transaction was "transfer of land" and the various steps originating from the affidavit of the assessee and formation of partnership and culminating in the dissolution of the firm, in the process leaving the land with the company, were nothing but a device to avoid capital gains tax leviable under section 45 of the Act on the transfer of the land to the company. 8. Before we proceed to decide the issue, it would be worthwhile to repeat/quoting the relevant extract from the judgment of the Supreme Court in the case of Sunil Siddharthbhai which has been done by both the lower authorities : " If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the partnership and contribution of the property by way of capital to it by the assessee and the ultimate sale of the property. It will be difficult to say that the ulterior motive of the assessee was to evade capital gains on the sale of the property which took place after a long gap of more than 7 years. The second mitigating circumstance which is of considerable importance, is that whereas in the two cases relied upon by the learned DR, the property contributed as capital to the respective firms was either retained by the other partner or sold away and the respective assessees were compensated in cash at the value declared in the partnership deed in respect of such sales, in the instant case, however, the property was not at all transferred by the partnership firm M/s. Kalpana Construction Co. On the other hand, the property was ultimately returned to the assessee and the sale of the property was also ultimately made by the assessee itself. Hence, capital gains, if any, would ultimately arise in the hands of the assessee itself and the intervention of the firm is not at all material in determining the quantum of the capital gains. Whether, the assessee would argue at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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