Law:

Section:

Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as -Assessment year 1981-82 - Assessee who was earlier co-owner of a property contributed his share therein as his share in capital of a partnership firm -After assessment was completed by ITO, Commissioner initiated proceedings under section 263 on ground that there was element of transfer in transaction of contributing property as share capital and gain earned in that process was liable to capital gains tax - However, Commissioner as well as Tribunal held transaction to be genuine - Whether Tribunal, following decision of Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509, was right in holding 'hat even though that transaction involved transfer, assessee was not liable to capital gains tax - Held, yes FACTS The assessee was co-owner of a property having one-third share therein. During the relevant accounting year, on 2-7-1980, this property was brought in as an asset of a firm consisting of six partners, out of whom three, including the assessee, were the co-owners of property. The property was contributed in lieu of the contribution of the three co-owners, each co-owner's contribution being Rs. 9 lakhs. On 30-7-1981 one of the partners, W who was a co-owner earlier, retired from the firm and he received his share of Rs. 9 lakhs in the capital of partnership. The firm was then reconstituted. On 30-4-1985 the assessee and another partner J who was also the co-owner, retired from the firm. In the meanwhile on 30-12-1983 the assessee was assessed to income-tax by the ITO for the relevant year 1981-82. This order was revised by the Commissioner under section 263 on the ground that contribution of share in immovable property as share capital of the partnership resulted in a 'transfer' of an asset and in the said process whatever gain was earned was liable to capital gains tax. On appeal by the assessee, the Tribunal following the decision of the Supreme Court in Sunil Siddharthbhai's case (supra) held that even though contribution of property towards capital of the firm involved a transfer, the assessee was not liable to capital gains tax. The revenue contended that the transaction…

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