Law:

Section:

Section 2(47) of the Income-tax Act, 1961-Transfer-Assessee brought capital asset as his capital contribution in firm of which he is a partner-Whether it would constitute transfer-Held, yes Section 45, read with section 2(47), of the Income-tax Act, 1961-Capital gains-Charge-ability of-Assessee introduced capital asset in form of shares soon after formation of partnership with his wife-Market value of shares, being far in excess of cost of aquisition of shares, credited in assessee's capital account in firm-whether transfer was for consideration-Held, on facts, yes-Whether difference between amount credited in firm's books and cost of acquisition of shares was taxable under section 45-Held, yes Facts The assessee and his wife formed a partnership. Soon after the formation of said partnership, the assessee brought certain shares as his capital contribution in the firm. The market value of the said shares, being far in excess of the cost of acquisition to the assessee, was credited in the assessee's capital account in the firm. The ITO taxed under section 45 the difference between the amount credited in the assessee's capital account and the cost of acquisition of the said shares. Eventually, the Tribunal set aside the ITO's order. On reference: Held 1. A partner does not remain owner of the property which is introduced by him in the firm of which he is a partner. He no longer has any power to dispose of the whole or any part of it or any interest therein as his property. In fact, the partner cannot have any specific interest in the specific partnership properties. His right is restricted to claim a share in the profits during the subsistence of the firm and to claim a share in the residue or surplus remaining after payment of debts and discharge of liabilities at the time of the dissolution of the firm. Accordingly, his erstwhile title in respect of the said property would stand extinguished from the point of time when it is introduced as a capital asset in the firm of which he is a partner. This would constitute "transfer" within the meaning of section 2(41). 2. Section 5 of the Transfer of Property Act does very much contemplate a transfer from a person to…

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