SHRL SUNIL SLDDHARTHBHAL ETC versus COMMISSIONER OF INCOME TAX, AHMEDABAD ETC.

Citation: [1985] SUPP. 3 S.C.R. 102 · Decided: 27-09-1985 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
102 
SHRl SUNIL SlDDllARTllBHAl ETC. 
V• 
COMMISSIONER OF INCOME TAX, AllMEDABAD ETC. 
SEPTEMBER 27, 1985 
[P.N. llHAGWATI, CJ., R.S. PATHAK AND A(1ARENDRA NATH SEN, JJ.] 
Transfer of a capital asset - When the assessee brings the 
shareS' of the limited companies into the 
partn~rship firm as 
his contribUtion to its capital, whether there was 
a transfer 
within the definition of section 2 (47) of capital asset within 
the terms of section 45 of the Income Tax Act, 1961. 
c 
Capital gains, scheme of - Sections 45 and 48 of the Income 
D 
E 
F 
Tax, 1961, scope of - When the assessee transferred his shares to 
the partnership firm, whether he can be said to have received a 
consideration within the meaning of section 48 of the Income Tax 
Act, 1961 and that a profit of gain accrued to him for the 
purpose of section 45 ibid. 
In Civil Appeal No. 1841 of 1981, the appellant-assessee 
was a partner in Messrs 
Suvas Trading Company, a partnership 
firm constituted under a deed of partnership dated September 27, 
1973. As his contribution to the capital of the partnership firm, 
the assessee made over certain shares of limited companies which 
were held by him as his capital assets. The book value of the 
said shares in his account books was shown as Rs. 1,60,279 but on 
the date when he contributed those shares to the partnership firm 
he revalued the shares at the market value of Rs. 1,49,819, and 
debited the resulting difference of Rs. 10,460 to his capital 
account. Since the Income Tax Officer, when drawing up the 
assessment order for the assessment year 1974-75 in respect of 
the assessee did not include the difference in the assessable 
income, the Commissioner of Income Tax, being of the opinion that 
the difference between the market value of the shares and the 
cost of acquisition of the shares to the assessee is liable to 
tax as capital gains under section 45 of the Income Tax Act, 1961 
exercised 
his 
revisions! 
jurisdiction 
and 
reopening 
the 
. G assessment, remanded the case to the Income Tax Officer directing 
him to revise the assessment after computing the capital gains 
arising out of the trall$fer. The assessee appealed to the Income 
Tax· Appellate Tribunal, which held that while the transaction did 
amount to a transfer within the meaning of sub-section (47) of 
H 
s; SIDDHARTHBHAI v. c.I.T •. 
103 
section 2 of the Income Tax Act, 1961, it did not result in· 
capital gains liable to tax. Subsequently the Appellate Tribunal 
ref erred the case to the High Court of Gujarat for its opinion on 
the said two issues. 
In Civil Appeal No. 1777/1981, the appellant was a partner 
in a registered partnership firm, M/s. Rajka, constituted under 
an agreement dated February 24, 1973 of which the other partner 
was his wife. The assessee had in his possession 580 ordinary 
shares of the Alunedabad Manufacturing and Calico Printing Co. 
Ltd. and 82 ordinary shares of Karamchand Premchand Private Ltd., 
the total cost of purchase being Rs. 1,81,106. On March 22, 1973, 
the assessee introduced the two share holdings in the partnership 
firm as his capital contribution and the firm credited his 
account with the market value of the shares, namely Rs. 475,136. 
In the assessment proceedings for the assessment year 1973-74, 
the Income Tax Officer took the view that the contribution by the 
assessee of the shares to the assets of the partnership 
constituted a transfer within the meaning of sub"'.section (47) of 
section 2 of the Income Tax Act, 1961 and that the assessee was 
liable to income tax on a capital gain of Rs. 2,94,030, being the 
difference between the market price at which the shares were 
entered in the booka of the partnership firm and the cost of the 
shares to the assessee. The appeal before the Appellate Assistant 
Commissioner failed, but in second appeal, the Appellate Tribunal 
took the view that there was no transfer of a capital asset 
within the meaning of section 45 read with sub-section ( 47) of 
section 2 of the Income Tax Act and consequently deleted the item 
from the assessment. In the circumstances the Tribunal did not go 
into the question whether the transfer was without consideration. 
At the instance of the Commissioner of Income Tax a reference was 
made to the High Court on the correctness of the Tribunal's 
views. By a cOUDDOn judgment .dated April 30/May l and 4, 1981 the 
High Court answered the questions referred in favour of the 
Revenue and against the assesse

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