- (1.) In respect of the assessment year 1968-69, the Income-tax Tribunal had referred the following question of law to the High Court : "Whether, on the facts and in the circumstances of the case, it has been rightly held that there was no transfer of assets in the assessee's case within the meaning of sec. 2(47) read with sec. 45 of the Income-tax Act, 1961 -
(2.) It appears that one Damodaran Nair was carrying on business as an individual till 31.03.1967. On 1.04.1967, he converted the individual business into a partnership business in which he admitted two of his nephews as partners giving them 1/4th share each. The Income-tax Officer was of the view that there was transfer of the assets for Less than the market value and the business being of a transporter, the Income-tax Officer valued the buses at Rs. 3 lakhs as against the book value of Rs.2,46,260 and taxed the difference of Rs. 53,740.00 as capital gains. He also added Rs. 1 lakh to this figure as representing the value of the route permit. The Appellate Assistant Commissioner reduced the quantum of the capital gains but the Tribunal, on a further appeal by the assessee came to the conclusion that on conversion of individual business into a partnership it did not result in any transfer as envisaged by sec. 45 read with sec. 2(47) of the Income-tax Act. It accordingly directed the amount of capital gains to be deleted. On a reference application being filed, the aforesaid question of law was referred. The High Court vide its judgment under appeal came to the conclusion that there was no transfer of assets and, therefore, no capital gains could be levied.
(3.) In Sunil Siddharthbhai V/s. CIT, 1985 156 ITR 509, this court had to consider a similar question. In that case also a partner had introduced capital assets into the firm and the question arose whether this amounted to there being a transfer of capital assets and, secondly, whether there was any capital gains which had resulted from this transfer. It was held by this court that inasmuch as the exclusive interest of a partner in personal asset was reduced and the said asset becoming an asset of the firm in which the other partners got an interest, there was a transfer of interest in law. It was, however, held that for such a transfer no consideration was received within the meaning of sec. 48 and, therefore, no profit or gain had accrued to the transferor for the purposes of sec. 45 of the Act. Therefore, there was no capital gains which could be taxed.;