C.I.T.PATIALA vs. PARKASH CHAND JAIN

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ITR/173/1989HC Punjab & HaryanaPHHC01022544198914 February 2007Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE M.M. KUMAR2 pages
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What did the High Court hold?

The High Court held that there was no transfer of asset within the meaning of Section 2(47) of the Income Tax Act, 1961. The Court relied on the Supreme Court's decision in N. Kadhervali Saheb and another (Decd. by L.Rs.) Vs. N. Gudu Sahib (Decd.) and others (2003) 261 ITR 1, which stated that a partnership is a compendium of partners and property owned by the firm is owned by the partners. Therefore, it cannot be held that there was any transfer of land by the partners to the firm, which would entail the levy of capital gains tax. The addition of Rs. 19,170/- was deleted. The question of law was answered against the revenue and in favour of the assessee. The reference was disposed of accordingly.

What were the facts?

The assessee contributed a piece of land as his share capital to a firm, M/s Solvent Oil Works, which was formed on March 1, 1974. The partnership deed was dated March 8, 1974. The assessee's capital account was credited with Rs. 36,000, representing the value of the land contributed. The Revenue sought to levy capital gains tax on the difference between the assessed cost price of the land and the amount credited to the assessee's capital account. The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, vide its order dated October 30, 1981, deleted the addition of Rs. 19,170, holding that there was no transfer of asset within the meaning of Section 2(47) of the Income Tax Act, 1961. The High Court was considering a reference under Section 256(1) of the Act for the assessment year 1975-76.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there was no 'transfer' of any asset within the meaning of Section 2(47) of the I.T. Act, 1961 and deleting the addition of Rs. 19,170/- in respect of Capital Gains arose to the assessee? Assessee's Contention: The judgment does not record any specific arguments made by the assessee before the High Court. However, the ITAT's decision, which was upheld, implies that the assessee argued that contributing land to a partnership as capital does not constitute a 'transfer' under Section 2(47) of the Income Tax Act, 1961, and therefore, no capital gains tax is exigible. Revenue's Contention: The Revenue contended that the difference between the cost price of the land and the amount credited as capital introduced by the partner in the firm on account of the land contributed would amount to a transfer exigible to capital gains tax.

Which sections of the Income-tax Act were involved?

Section 2(47),Section 256(1)

AI-generated summary — verify with the full judgment below

I.T.R.

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.

Date of decision: 14.2.2007 The Commissioner of Income-Tax (Central), Ludhaina ...Petitioner Versus Shri Parkash Chand Jain, Patiala ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.Yogesh Putney, Advocate for the Revenue. **** RAJESH BINDAL, J. The Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short , ‘the Tribunal) has referred under Section 256(1) of the Income Tax Act, 1961 the following question of law which emerges from its order dated 30.10.1981 in ITA No.440/Chandi/80 for the assessment year 1975-76:- “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there was no “transfer” of any asset within the meaning of Section 2(47) of the I.T.Act, 1961 and deleting the addition of Rs. 19,170/- in respect of Capital Gains arose to the assessee?” Briefly the facts, as noticed in the statement of the case are that the assessee contributed a piece of land as his share capital in a firm styled as M/s Solvent Oil Works, which came into existence with effect from 1.3.1974 vide partnership deed dated March 8, 1974. The assessee's account was credited with an amount of Rs. 36,000/- representing the value of the land contributed by him. The issue involved is as to whether difference in the cost price of land assessed and the amount credited as capital introduced by the I.T.R.

-2- *** Hon'ble the Supreme Court has categorically held that partnership is nothing else but a compendium of partners. Property owned by the firm is owned by the partners. Keeping this in view it cannot possible be held that there is any transfer of land by the partners to the firm, which would entail levy of capital gain tax. In view of the our above discussions, the question referred is answered against the revenue and in favour of the assessee. The reference is disposed of accordingly. (Rajesh Bindal) Judge Feburary 14,2007 (M.M.Kumar) Pka Judge

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