Law:

Section:

section 2(47) of the income-tax act, 1961-transfer-whether there is transfer when assessee-partner brings his capital asset into partnership as capital contribution since assessee's exclusive interest in capital asset is reduced to shared interest-held, yes section 45, read with section 48, of the income-tax act, 1961-capital gains-chargeable as-whether on partner's bringing in his capital asset into partnership as capital contribution, no consideration is received by partner within meaning of section 48, nor does any profit or gain accrue to him in commercial sense, and, therefore, no capital gain chargeable under section 45 arises-held, yes Facts The assessee-partner brought in certain shares held by them as their capital contribution to the partnership at their market value. The department took the view that such contribution by the partners constituted a transfer and that the difference between the cost of acquisition of the shares to the assessees and their market value at which they were entered in the books of the partnership would be liable to capital gains. The High Court upheld the departmental view. On appeal before the Supreme Court, the assessee contended, inter alia, that no profit or gain could be said to arise to a partner when he brought his personal asset into a partnership firm as his contribution to its capital and that the capital gains chargeable under section 45 were real capital gains computed on the ordinary principles of commercial accounting. The revenue objected to the submission being raised for the first time before the Supreme Court. Held It is true that when a partner hands over a business asset to the partnership firm as his contribution to its capital, he cannot be said to have effected a sale. But while the transaction may not amount to a sale, can it be described as a transfer of some other kind! The definition of 'transfer' in section 2( 47) is inclusive merely and does not exhaust other kinds of transfer. In its general sense, the expression 'transfer of property' connotes the passing of rights in the property from one person to another. In one case, there may be a passing of the entire bundle of rights from the transferor…

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