V.K.SINGHAL, J. - (1.) THE Tribunal has referred the following two questions of law arising out of its order dt. 5th May, 1982, in respect of the asst. yr. 1977 -78 under s. 256(1) of the IT Act, 1961 : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that precious stones disclosed under the Voluntary Disclosure Scheme, 1975, were not 'stock -in -trade' but 'capital assets' within the meaning of s. 2(14) of the IT Act ? (2) Whether the Tribunal was justified in holding that the contribution of precious stones towards the capital in the partnership firm amounted to transfer of a capital asset within the meaning of s. 2(47) of the IT Act and gain arising out of that is liable to be taxed under s. 45 of the IT Act -
(2.) THE brief facts of the case are that the assessee made a declaration under s. 3(1) of the VDS, 1975, of income of Rs. 24,720 on 30th Dec., 1975. The said income represented the stock of cut emeralds. The assessee transferred the entire stock worth Rs. 24,720 after revaluing the same at a figure of Rs. 32,980 to the firm, M/s Prakashchand Vimalchand, in which the assessee was a partner. The capital account of the assessee was credited by Rs. 32,980 in the books of the firm. The ITO took the view that there was a transfer of a capital asset by the assessee under s. 2(47) and, therefore, the gain of Rs. 8,260 (32,980 _ 24,720) was liable to tax as a short -term capital gain. A plea was raised by the assessee that the stock of cut emeralds represented the assessee's stock -in -trade and the case was covered by the exception as laid down in cl. (i) of s. 2(14) of the IT Act. The dispute was as to whether the cut emeralds constituted the assessee's stock -in -trade or were "capital assets". The ITO found that the assessee had never dealt on his own in precious stones and, therefore, the cut emeralds could not be considered as stock -in -trade.
(3.) ON the second question, it was found that in view of the decision of the Karnataka High Court in the case of Addl. CIT vs. M. A. J. Vasanaik (1979) 116 ITR 110 (Ker) and the Kerala High Court in the case of A. Abdul Rahim, Travancore Confectionery Works vs. CIT (1977) 110 ITR 595 (Ker) (FB), there was a transfer within the meaning of s. 2(47) and, therefore, the gain arising to the partner is liable to capital gains tax. In appeal before the AAC, it was held that simply because the assessee had not declared the business dealing in cut emeralds in the earlier years, it cannot be considered that the cut emeralds are not capital assets. On an interpretation of the provisions of the Voluntary Disclosure Scheme, the appellate authority came to the conclusion that the said cut emeralds represented the assessee's capital assets. On the second question also he came to the conclusion that in view of the decisions of the apex Court in CIT vs. Hind Construction Ltd. 1974 CTR (SC) 157 : (1972) 83 ITR 211 (SC) and CIT vs. Dewas Cine Corporation (1968) 68 ITR 240, there was no transfer and, therefore, the addition is liable to be deleted.;