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TMI Blog1996 (2) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; profit contribution or loss ---------------------------------------------------------------------- D.K. Panduranga Shetty(HUF) 60% Rs. 5,00,000 (by way of contributing prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cks remained as they were. There were no transactions during that year also excepting payment of Corporation tax, light and water charges. The ITO also mentions that the firm M/s. Kalpana Construction Co. did not file its returns of income after assessment year 1982-83. The assessee-HUF retired from the abovementioned firm on 15-1-1988 and the property which had originally been transferred to the firm was received back by the assessee. The same was sold by it for Rs. 7.50 lakhs in March 1988. 3. So far as the question of exigibility to capital gains on transfer of the property by the assessee to the firm in the present assessment year is concerned, it was pleaded by the assessee that in view of the decision of the Supreme Court in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 no such capital gains could be considered to be liable to be taxed. The ITO, however, quoted from the abovementioned judgment of the Supreme Court and came to the conclusion that inasmuch as the partnership firm, viz., M/s. Kalpana Construction Co., had been formed by the assessee-HUF along with the wife and daughter of its karta and the karta himself, and since no real business activities had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me into stock-in-trade. The partnership firm started selling plots of land and also shares contributed as capital by the others belonging to the group including the assessee. The advances so collected were distributed amongst the partners and credited to their respective capital accounts whereby all the partners got their capital back (in cash) which they had contributed by way of land/shares after converting them into stock-in-trade. The firm under consideration was treated as a registered firm. Ultimately however, the Tribunal, by following the discussions made in the last portion of the decision in the case of Sunil Siddharthbhai held that although the firm formed by the assessee along with others might be genuine and recognised as such, under section 185 of the Act, the transaction might not, however, be genuine. The Tribunal finally held that the Bajaj Group as a whole, had adopted a device with a view to avoid huge amounts of tax on capital gains on sale of assets which the partners of the newly formed firm had brought into the firm by way of their share capital, and hence, the assessee was liable to tax on capital gains in the aforesaid transaction. 7. In the other case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and his wife and children or substantially limited to them whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership has no substantial or real business or the record shows that there was no real need for the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the Income-tax Officer enters upon a scrutiny of the transaction, for the task of determining whether a transaction is a sham or an illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth. " In the instant case, many of the facts as suggested by the Supreme Court to be examined tend to affect the genuineness of the partnership firm formed by the assessee. The firm under consideration was formed by the assessee-HUF, its karta and the wife and daughter of the karta. There were very limited activities of the firm although the CIT(A) has mentioned that on account of certain practical difficulties, the firm was not in a position to carry on its regular business. It is also difficult to find out the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate the property ultimately. The discussions made by the Supreme Court, in the case of Sunil Siddharthbhai rest with considering whether the contribution of the property towards the capital of the firm by itself tantamounts to transfer of the property by the assessee at higher amount of consideration than the original price of the property. There is no doubt about the case that the facts are not so in the instant case. In the other two cases, the property ultimately passed out of the hands of the respective assessees and they got adequately compensated for the same. Capital gains tax was found to be exigible therefore, on the transfer of the property accordingly. In the instant case, the property remained with the firm for a long period of more than seven years and was not sold to outsiders during this period. The ultimate sale of the property was again effected by the assessee itself and not by the firm. The Supreme Court clearly held in the case of Sunil Siddharthbhai that although there is a transfer of a capital asset within the terms of section 45, when a partner of a firm makes over capital assets which are held by him to the firm as his contribution towards capital, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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