SARALADEVI SARABHAI ( P - 1 )D - TRUST V. COMMISSIONER OF INCOME-TAX

ITR/242/1985

AI Insights

The case revolves around the question of whether the contribution of personal assets by a partner to a partnership firm constitutes a transfer under section 2(47) of the Income Tax Act, 1961, leading to capital gains tax. The Appellate Tribunal had held it as a transfer, which was contested by the assessee. The Supreme Court's decision in SUNIL SIDDHARTHBHAI v. COMMISSIONER OF INCOME-TAX, AHMEDABAD, which found that such contributions do not fall under the scope of capital gains taxation, was central to the arguments. The Revenue sought to re-examine the genuineness of the partnership and the transaction, but the court denied this request, citing the absence of foundational facts that would raise doubts about the partnership's genuineness.

• Counselvise Citation: [2001] 140 COUNSELVISE.COM (IT) 727365 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 09-01-2001
• Assessment Year: misc
• Other Referred Cases: SUNIL SIDDHARTHBHAI v. COMMISSIONER OF INCOME-TAX, AHMEDABAD, COMMISSIONER OF INCOME-TAX v. HARIKISHAN JETHALAL PATEL
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: MANISH BHATT
• Keywords: Capital Gains; Partnership firm; Transfer; Contribution to capital
• Section: 48; 45; 2(47)

Judgement Text

" IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 242 of 1985 For Approval and Signature: Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE M.S.SHAH ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- SARALADEVI SARABHAI ( P - 1 )D - TRUST Versus COMMISSIONER OF INCOME-TAX -------------------------------------------------------------- Appearance: SERVED BY RPAD - (N) for Petitioner MR MANISH R BHATT for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE M.S.SHAH Date of decision: 09/01/2001 ORAL JUDGEMENT (Per : MR.JUSTICE M.S.SHAH) In this Reference, at the instance of the assessee, following question is referred for our opinion with reference to Assessment Year 1974-75 :- \"Whether,on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the contribution in the partnership firm amounted to transfer within the meaning of section 2(47) of the Income-tax Act, 1961 resulting into capital gains chargeable to tax ?\" 2. At the hearing of the Reference, Mr. R.K.Patel, learned counsel for the assessee and Mr. Kureshi, learned counsel for the Revenue state that the controversy raised herein is squarely covered by the decision in SUNIL SIDDHARTHBHAI v. COMMISSIONER OF INCOME-TAX, AHMEDABAD, (1985) 156 I.T.R. 509. 3. In the aforesaid decision, the Apex Court has held that where a partner in a firm makes over his personal assets as his contribution to its capital, though there is a transfer of such assets, but the cosideration which a partner receives on making over his personal assets to the firm as its contribution, cannot fall within the terms of section 48 of the Income Tax Act, 1961 and as that provision is fundamental to the computation machinery incorporated in the scheme relating to the determination of the charge provided in section 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether. 4. Mr. Kureshi,learned counsel for the Revenue, however, invited our attention to the caveat sounded by the Apex Court in the penultimate paragraph of the aforesaid decision and submitted that liberty may be reserved to the Assessing Officer to consider whether the partnership firm or the transaction in question was genuine or sham and also to consider other issues referred to in the aforesaid caveat. 5. Mr. Patel,learned counsel for the assessee on the other hand submitted that such a request was considered, but rejected by this Court in COMMISSIONER OF INCOME-TAX v. HARIKISHAN JETHALAL PATEL, (1987) 168 I.T.R. 472. 6. In the case of HARIKISHAN JETHALAL PATEL (supra), this Court has already observed that in cases where foundational facts do not exist raising even a remote doubt regarding the genuineness of the firm and/or the transaction in question, a second innings should not be permitted to the Revenue, as it would result in avoidable hardship and harassment to hundreds of assessees whose cases stand covered by the aforesaid decision of the Supreme Court. We are of the opinion that there are no foundational facts on the record of this Reference raising doubt regarding genuineness of the partnership firm and/or the transaction in question and, therefore, a second innings should not be permitted to the Revenue for reconsidering the entire matter, more particularly when the Reference is with reference to Assessment Year 1974-75. Permitting the Revenue to have the second innings in the facts of the case would result into avoidable hardship and harassment to the present assessee. 7. In view of the aforesaid discussion, we are not inclined to grant any liberty to the Revenue to make any de-novo inquiry about the genuineness of the partnership firm or the transaction in question. 8. In the result, the question referred to us is answered as under : Though handing over of personal assets by the partner to the firm as his contribution to its capital did amount to transfer, the transaction did not attract any liability to capital gains under section 45 of the Act. 9. The Reference stands disposed of accordingly, with no order as to costs. (J.M.Panchal,J.) ( M.S.Shah, J.) (patel) "