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TMI Blog1992 (3) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the Division Bench. 2. When the matter was placed before the Division Bench, the Members constituting the Bench made the following entry in the order sheet on 26-2-1991 : "The issue involved in this appeal pertains to the applicability of the decision of the Hon'ble Supreme Court in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. In the case of Jamnalal Sons Ltd., the Tribunal has decided the appeal against the assessee. However, contrary view has been taken by the Tribunal in the cases of Dr. Gaur Hari Singhania, Mahavir Prasad Taparia, HUF, M/s. L.P. Gas Transport Bottling Co. Ltd. and Sushil Kishore Premchand. Apart from conflicting views expressed by the various Benches of the Tribunal, the issue involved in this appeal is also of great importance. We would, therefore, direct that the appeal papers may be placed before the President for constituting a Special Bench to dispose of this appeal." and referred the matter to the President of the Income-tax Appellate Tribunal with a proposal to constitute a Special Bench to dispose of the appeal of the assessee. The President has, therefore, constituted the present Bench to hear and dispose of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Jamnalal Sons Ltd. and S/Shri Rahulkumar Kamalnayan Bajaj, Shishirkumar Kamalnayan Bajaj and Shekhar Bajaj. 9. In Anant Trading, all the partners brought in the shares of Bajaj Tempo as their capital contribution after converting them into stock-in-trade. Further, M/s. Jamnalal Sons Ltd. also brought in Rs. 5,000 (in cash) as Its capital. 10. Bajaj Trading started selling plots of land of Janki Kutir and received advances from the buyers of the said plots of land. The advances so collected were distributed amongst the partners and credited to their respective capital accounts whereby all the partners got their capital back (in cash) Which they had contributed by way of land/ shares after converting them into stock-in-trade. 11. In the subsequent years the assessee had also converted shares of certain other companies into stock-in-trade, traded in them and had offered for taxation profits/loss therefrom. 12. Both Bajaj Trading and Anant Trading have been granted registration under section 185 of the Income-tax Act, 1961 (the Act) and are assessed as registered firm ever since their formation on 8-5-1979 and 18-1-1981 respectively. Their first year of assessments are 1980- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action of the ITO on the grounds that --- 1. The ITO failed to appreciate that what was transferred to the firm was stock-in-trade and not capital assets. 2. The ITO erred in holding that since the assessee had not traded in these shares subsequent to the date(s) of their conversion the conversion itself cannot be treated as valid conversion into stock-in-trade. 3. The ITO failed to appreciate that the business carried on by a firm is nothing but the business carried on by its partners and therefore, no transfer was involved in the aforesaid transaction. 4. The ITO failed to appreciate that the partnership is not a legal entity apart from the partners constituting it. 5. The ITO failed to appreciate that the assessee had effectively converted the shares of Bajaj Auto and Bajaj Tempo into stock-in-trade and had in fact, intimated to him in this regard. 6. The conversion of capital asset into stock-in-trade and bringing them into the firm by way of capital contribution was bona fide/genuine and valid. 7. The ITO failed to appreciate that both Bajaj Trading and Anant Trading are genuine firms and have been granted registration under section 185 of the Act, by their r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets transferred to the firm were not all sold away soon after the transfer and the firms had substantial and real business continuing for years together. It is submitted that the observations of the SC at para 20 of the order referred to above, do not, on the facts and circumstances of this case, apply to the appellant and no taxable capital gains arise. After consideration, I find sufficient force in the submissions of the appellant. I hold that no capital gains arise to the appellant. The other connected ground against the estimate under section 52 of the consideration for the transfer of the shares becomes infructuous in view of the decision recorded above. Respectfully following the decision of the SC, I direct the ITO to delete from the assessment of the appellant the amount of Rs. 49,68,530 assessed by him by way of capital gains." 11. Being aggrieved by the order of the CIT(Appeals) the revenue hits come up in appeal before the Tribunal. At the outset, the learned standing counsel for the Revenue objected to the propriety of constituting a Special Bench when the order of the Tribunal was already available in the same group in the case of Jamnalal Sons Ltd. According to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances including certain decisions of High Court/Tribunal, it is expected of the later Division Bench to refer the matter to the President of the Tribunal for constituting a Special Bench instead of taking a contrary view and creating avoidable confusion. It is under these circumstances, that in the present case, the Division Bench had referred the matter to the President vide its aforesaid order sheet entry and the President, after being satisfied that the appeal should be decided by a Special Bench, had constituted the present Bench for disposing the appeal. 14. In view of the aforesaid discussion on the preliminary objection raised by the Revenue, we requested the learned Standing Counsel for the Revenue to make his submissions on the merits of the case. 15. Placing a copy of the order of the Tribunal in the case of Jamnalal Sons Ltd., the learned Standing Counsel for the Revenue submitted that this is a typical case where the Tribunal has clearly demonstrated how a device was adopted by the said company and other partners of Bajaj Trading including the assessee, to avoid tax on capital gains. In this connection, he pointed out that the Tribunal has elaborately discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of merger of the order of the ITO with that of the CIT (Appeals). In doing so, the Tribunal followed the decision of the Hon'ble Bombay High Court, in the case of CIT v. P. Muncherji Co. [1987] 167 ITR 671. 17. Thereafter, the learned counsel for the assessee invited our attention to the deed of partnership dated 8-5-1979 of Bajaj Trading, more particularly, clauses (1), (4), (5) and (7) thereof to urge that there was nothing unusual in the formation of the said partnership so as to come to the conclusion that the assessee and other partners had adopted a device to avoid tax on capital gains on the transfer of shares and other properties after converting them into stock-in-trade. He further submitted that it would be his endeavour to impress upon us that the order of the Tribunal, in the case of Jamnalal Sons Ltd. would not have any bearing in deciding the point at issue. According to him, in deciding the appeal in favour of the Revenue in that case, the Tribunal appeared to be influenced by the fact that Jamnalal Sons Ltd.'s case had brought in large plots of land of Janki Kutir after converting them into stock-in-trade and Bajaj Trading started receiving advances from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ITO in valuing the shares of Bajaj Tempo at Rs. 95 per share in place of the cost price of Rs. 19.65 taken by the assessee. According to him, since no evidence has been brought on record to show that the assessee has brought in shares of Bajaj Tempo at a price higher than that disclosed by him, the ITO was not justified in working out the capital gains of Rs. 33,90,750 and including the same in the total income of the assessee. Here also, he emphasised the fact that Anant Trading has been granted registration under section 185 of the Act and the same is being continued from year to year. In other words, here also, he wanted to impress upon us that once the genuineness of the firm is not in doubt, the ITO was not justified in working out the capital gains on certain presumptions/ assumptions. 19. The learned counsel for the assessee further submitted that since the ITO has not doubted the genuineness of the transaction nor had he taken up any ground to that effect before the Tribunal, the revenue should not be allowed to raise and argue such ground at this stage. He also submitted that since the Hon'ble Supreme Court has reversed the decision of the Hon'ble Gujarat High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in the case of Jamnalal Sons Ltd. The assessee may be at liberty to say that a view in favour of Jamnalal Sons Ltd. was possible but that fact by itself, could not be made a plank to say that the view taken by the Tribunal requires reconsideration or it should not be followed in his case. In fact, no distinguishing features have been brought out between the facts and circumstances obtaining in the case of Jamnalal Sons Ltd. and that obtaining in the assessee's case. On the contrary, the learned Standing Counsel for the Revenue has very rightly pointed out that while deciding the issue in the manner it did in the case of Jamnalal Sons Ltd. the Tribunal has not only considered the facts and circumstances obtaining in that case but has also considered the facts and circumstances obtaining in the case of Bajaj Trading, as well as its partners, including the assessee. We do not find anything wrong in the approach adopted by the Tribunal as it accords with the decision of the Hon'ble Supreme Court, in the case of Sunil Siddharthbhai, more particularly, the observations appearing at page 523 of the report. It is no doubt true that both the firms, namely, Bajaj Trading and Arrant T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though a firm may be genuine and recognised as such under section 185 of the Act, the transaction may not be genuine as there was possibility of a taxpayer to adopt a device with a view to avoid tax on capital gains. In the instant case Bajaj Group, as a whole, has adopted such a device with a view to avoid huge amount of tax on capital gains on the sale of assets which the partners of Bajaj Trading have brought into the firm by way of their share capital. It is no doubt true that in the case of Jamnalal Sons Ltd. the Tribunal has mainly focused its attention to the land transaction of Janki Kutir. But it cannot be said that the Tribunal has altogether omitted to deal with the share transaction, if the order of the Tribunal is read as a whole as it should be. As the issue involved in the appeal mainly revolves round the facts obtaining in the case, no fault could be found in the order of the Tribunal, in the case of Jamnalal Sons Lid. for not referring to other orders referred to at the time of hearing. We also do not deem it fit to refer to the reported decisions/orders, as according to us, the facts and circumstances obtaining in the present case are so clear and eloquent that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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