COMMISSIONER OF INCOME TAX Vs. SARABHAI

JUDGEMENT

(1.) THE four pillars on which the approach bridge to taxation matter is built are :

(2.) COMMONSENSE as also the letter and the spirit of the law will have to be by and large sacrificed and the aforesaid pillars will have to be dismantled in order to uphold the startling proposition that

(3.) IF this view were correct, all that one has to do to escape with impunity the liability to pay tax on capital gains is, (1) to form a partnership with one's wife (as was done by the assessee in Reference No. 34/80), (2) credit one's capital account in the firm with the appreciated market value of the asset in question, (3) sell it at the prevailing appreciated value on the third day (as was done by the assessee in Reference No. 34 of 80), and (4) dissolve the firm on the fourth day and get back one's share in the appreciated value thereby pocketing the capital gains without paying a single rupee as tax on capital gains. It is a device or a scheme (the expression is not used in any derogatory or condemnatory sense) which can easily be resorted to in order to defeat and thereby virtually repeal S. 45 pertaining to capital gains tax, the repeal being effected not by Parliament but by the resourceful assessee whose viewpoint is sustained by the Tribunal. And the scheme or device resorted to is a widespread epidemic as is evident from the fact that there are more than 125 matters raising this identical question which are being disposed of along with matters at hand, apart from about 100 or more matters which are pending. And we come across a dozen or so every week on the admission day. And, counsel for the Revenue states that the tax impact may well be in the neighbourhood of Rs. 1 crore in Gujarat alone. The assessee cannot be prevented from taking recourse to this device and having his pound of flesh (the expression is used to denote a success on super technical considerations) provided there is any compulsion of law or logic and the Court is obliged to be a helpless and a hapless spectator. But such compulsion there is none. In fact, a Full Bench of the Kerala High Court and a Division Bench of the Karnataka High Court have taken the view that such a transaction falls within the four corners of the definition of "transfer" as defined by S. 2(47) of the IT Act of 1961. We are, however, being persuaded to take a contrary view which we are unable to do for reasons which will become evident in the course of what follows :