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TMI Blog1987 (3) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had filed details of such transfer in the wealth-tax proceedings; but the wealth-tax miscellaneous record is in different parts for the year and the order-sheet entries are not complete and hence the assertion of the assessee that such disclosure was made in the wealth-tax return has to be accepted. 2. In the income-tax return no mention was made of the transfer. The ITO in completing the original assessment on 23-5-1978 did not also bring to tax any capital gains from such transfer. However, on 31-3-1982, the ITO recorded the following note: "Note : On 14-1-1976 the assessee had transferred the following properties to the firm M/s Naidu's Continental Packers. Rs. (i) Land at Saidapet &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,000 in respect of the Adyar property and Rs. 7,930 in respect of the Triplicane High Road property. 3. The assessee appealed and contested before the CIT (A) the validity of the reopening. The CIT (A) held that it was not correct to say that there was any failure on the part of the assessee to disclose fully and truly all material facts because the assessee had disclosed the transaction in the wealth-tax assessment and the firm was also assessed by the same ITO and, further, in view of the decision of the Madras High Court in D. Kanniah Pillai v. CIT [1976] 104 ITR 520, there was no extinguishment of any right. Therefore, the CIT (A) accepted the plea that the reopening was without jurisdiction. The CIT (A) also held that on merits the capital gains could not be brought to tax and in this regard made a reference to the decision of the Madras High Court in the case of CIT v. H. Rajan and H. Kannan [1984] 149 ITR 545. The reassessment was accordingly annulled. The department is aggrieved and is in appeal before us. 4. The learned departmental representative took us through all the facts. His submission was that there was no doubt the decision of the Madras High Court reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which followed the earlier decision in CIT v. Janab N. Hyath Batcha Sahib [1969] 72 ITR 528 (Mad.) and it was clear that where the partner brought in his personal assets into the firm's books, provisions of section 45 did not apply and where the provisions of section 45 did relevant particulars even if no mention was made in income-tax proceedings could not factually arise. The learned counsel emphasised that the factual position alone at the material time when the return was filed had to be examined to see whether there was any omission or failure on the part of the assessee to disclose material facts and any subsequent declaration of the law could not alter the factual position. According to the learned counsel even in March 1982 the decision of the High Court prevailed in Madras and the ITO could not have initiated proceedings on 31-3-1982 since he could not have formed the belief that there was escapement of capital gains tax. He also placed great emphasis that disclosure made in the wealth-tax assessment was full and complete and since the same officer was handling both income-tax and wealth-tax proceedings as also the assessment of the firm, there was no question of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to. The decision of the Supreme Court, registration was not necessary. This was the declaration of the law as it always stood. The question that arises is whether such a declaration can be considered as leading to the conclusion that the ITO when he initiated the proceedings on 31-3-1982 for reopening could have formed the belief that there was escapement of capital gains tax. As observed earlier, factually on 31-3-1982 the decision which prevailed was that of the Madras High Court in D. Kanniah Pillai's case. If the ITO could have formed some belief reasonably the adequacy of such belief cannot be gone into by us. But, if no belief at all could have been formed, then we certainly can hold that the initiation was void. In ITO v. First Leasing Co. of India Ltd. [1985] 13 ITD 234 (Mad.) (a Special Bench decision to which one of us, that is the Accountant Member, was a partly expressing the minority view), a question had arisen and there is a discussion in some depth as to the effect of the subsequent decisions in relation to the validity of the initiation of proceedings. The majority view of the then Vice-President (SZ) and the Judicial Member, who were also parties to the Special Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fact by virtue of the retrospective amendment, it should be considered that the non-charging of the interest by the ITO could have had reason to believe, when he initiated proceedings on 31-3-1982, that the question of assessment of the capital gains tax had to be gone into. In Sunil Siddharthbhai's case the Supreme Court has no doubt held that though there is a transfer, the consideration received by the assessee did not fall within the comtemplation of section 48 and no profit or gain could, therefore, arise for purposes of section 45. But the Supreme Court went on to observe as under at pp. 532 & 524: "We have decided these appeals on the assumption that partnership firm in question is a genuine firm and not the result of a sham or unreal transaction and that the transfer by the partner of his personal asset to partnership firm represents a genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnership business. If the transfer of the personal asset by the assessee to a partnership which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Cr. Dr. "As assets A/c. in connection with the proposal for expansion of business in Packing Contracts and manufacture of dealwood & other boxes the properties hitherto belonging to Shri K. V. Sundaram. Some of which have already been used by the firm for the purpose of the business are brought into and taken over by the firm as part of its assets accordingly value debited to assets a/c. 1,78,530-00 Rs. Land at Saidapet 1,50,000 Land at Adyar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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