TMI Blog1992 (6) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the partnership, it was agreed among the partners that the property would be introduced in the form of capital contribution of the assessee and it was also agreed that the other partners shall contribute a total sum of Rs. 20 lakhs and if any further capital was required it would be contributed by the other partners. The land had been appearing in the books of account of the assessee as a fixed asset at the value of Rs. 63 only. The plot was revalued at Rs. 1.20 crores and the land was transferred to the books of the firm on the same value. The difference between the original cost and there valued figure was debited by the assessee-company to its capital reserve account. The Assessing Officer afforded an opportunity to the assessee to show cause as to why the difference between the book value of the land and its value adopted during the year in question, i.e., Rs. 1.20 crores should not be taken as the company's profit. The Assessing Officer also confronted the assessee with the decision of the Bombay Bench of the tribunal in the case of Jamnalal Sorts Ltd. v. IAC [1989] 29 ITD 164. The assessee-company resisted the notice and stated that the land was transferred to the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exercise of transfer of capital asset by the company to the newly constituted partnership firm was nothing but a device to evade payment of capital gain tax which would have been otherwise payable by the assessee. The Assessing Officer then ascertained the value of the land as on 1-1-1974 and found that such value was Rs. 19,77,700. He accordingly treated this value as the cost of acquisition and after deducting the same from the revaluation figure of Rs. 1,20,00,000 treated the balance of Rs. 1,00,22,300 as long-term capital gains and taxed it as such. 4. The assessee took the matter to the learned Commissioner(Appeals) and challenged the order of the Assessing Officer on both counts. The first challenge was on the ground that since the land has been transferred as a capital contribution of the assessee-company to the newly constituted firm and since no consideration had been received by the assessee, such transfer could not give rise to capital gains. The second ground of challenge before the learned Commissioner(Appeals) was that the valuation of the property as on 1-1-1974 was improper. The learned Commissioner(Appeals) in his original order dated 5-11-1990 dealt with the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Jamnalal Sons Ltd. the transferor of the land had received a consideration of Rs. 1,16,00,000 in respect of the land transferred to the new firm. It was on the basis of this factual position that the Tribunal held that the real purpose of the transfer was only to convert the personal asset of the partner into money for its own benefit while avoiding liability to pay the capital gains tax. As against this, in the present case, the assessee has not received any amount from the firm of M/s. Habitat in respect of the land contributed into it. In this connection, the learned counsel explained that the sum of Rs. 20,28,487 debited to the assessee's account in the books of the firm of M/s. Habitat represented the loan and advance. Since on account of the procedural difficulties under the Urban Land Ceiling Act, the project of construction on the plot in question could not start and the amount of capital contribution made by the other partners was lying idle, that amount was given over to the assessee as a loan and advance. That amount in no way represented any payment of price for the land contributed by the assessee to M/s. Habitat. 6. As against this, it was contended by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip and was to be repaid as provided for in clause (7) (emphasis provided). The other partners were to contribute as and by way of capital a total sum of Rs. 20,00,000 for the purpose of partnership business in such proportion as they deemed fit. (clause 5) (iv) It was agreed to among the partners that in order to pay, discharge and satisfy the excess capital to the tune of Rs. 1,00,00,000 (emphasis provided) contributed and standing to the credit of the assessee-company in the books of the firm M/s. Habitat, the firm was to construct, allot and make available to the assessee-company for its sole and exclusive ownership, benefit, enjoyment and use such units in proportionate share of residential and commercial users in buildings to be constructed by the firm of the value of Rs. 1,00,00,000 and the said value was to be ascertained on the basis mentioned in clause 7(a). (Clause 7) (v) Upon the building plans being passed the built up area of such building can be ascertained. Upon commencement of each building the parties will decide the number of units to be allotted to the assessee-company and upon the partnership handing over possession of such units the value as ascertained was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved or the partner retires. It evidences no debt due by the firm to the partner. " (Emphasis provided) 10. As has already been stated, the partnership of M/s. Habitat clearly evidences that the excess capital amounting to Rs. 1,00,00,000 represented debt due by the firm to the assessee-company. Since the consideration for the transfer of the land had actually been computed and was promised to be paid in future the transaction of transfer of land did constitute a transfer within the meaning of clause (47) of section 2 of the Income-tax Act. 11. So far as the genuineness of the firm is concerned, on the basis of the material available before us, we see no reason to dispute such genuineness, but then, the more pertinent and vital question before us is as to whether the transaction of transfer of land by the assessee-company to M/s. Habitat represented a genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnership business. In other words, we have to see whether or not the transaction of transfer was a sham or unreal transaction or whether it was merely a device or ruse for converting the asset into money which would substantially ..... X X X X Extracts X X X X X X X X Extracts X X X X
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