Ajit K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, the following questions of law have been referred to this court for the assessment year 1971-72 : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the assessee-firm was at no time the legal owner of the immovable property at Behala and so could not transfer the same and/or whether such finding of the Tribunal was otherwise arrived at by ignoring relevant materials and/or relying on irrelevant materials? If the answer to question No. 1 is in the negative, then whether, on the facts and in the circumstances of the case and having regard to the admitted fact that the property at Behala had been purchased out of the funds of the assessee-firm and was all along disclosed as an asset of the assessee-firm, the interest and rights of the. assessee-firm in the said property represented a capital asset within the meaning Section of 2(14) of the Income-tax Act, 1961 ? Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that there was no transfer of a capital asset of the assesse-firm within the meaning of Section 45 of the Income-tax Act, 1961, and/or whether such finding of the Tribunal was otherwise vitiated, having been arrived at by ignoring relevant evidence and relying on irrelevant materials ? Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that no income chargeable to Income-tax under the head 'Capital gains' within the meaning of Section 45 of the Income-tax Act, 1961, arose to the assessee-firm ?"
(2.) The question relates to "capital gains" purportedly arising to the firm in respect of the immovable property in the wake of the transfer of the property in favour of the senior partner by necessary book entries in the accounts of the firm.
(3.) The background relating to this immovable property is that the property situate at Behala was purchased with the funds of the firm in the name of the said senior partner, viz., Shri Kedar Nath Poddar, some time during the second World War. The deed of conveyance was also registered at the time of purchase in the name of Shri Kedar Nath Poddar. However, the said partner allowed the assessee-firm to use the said property for business purposes of the assessee-firm and the firm took the assets in its accounts by crediting the value thereof to the capital account of Shri Kedar Nath Poddar. But, in the instant previous year, the assessee-firm made certain book entries whereby the aforesaid house property was transferred to the said senior partner and it ceased to be treated as the asset of the firm. Simultaneously, the value of the asset on the date of such entry was debited to the account of the said partner and the surplus in the asset account was transferred to the Capital Reserve Account. This led the Income-tax Officer to the view that the assessee-firm had transferred the aforesaid property to the said partner, Shri Kedar Nath Poddar, and such transfer involved the relinquishment of the rights of the firm in the said property within the meaning of Section 2(47) of the Income-tax Act, 1961, attracting capital gains tax under Section 45 which he computed at Rs. 39,105.;