COMMISSIONER OF INCOME TAX Vs. HARIKISHAN JETHALAL PATEL

JUDGEMENT

(1.) THE assessee is a member of an HUF. The said HUF had received agricultural land on partial partition of the bigger HUF some time in Oct., 1955 (S.Y. 2011). Except for carrying out certain agricultural operations, this land was not put to any other use. It is the case of the assessee that on 8th Feb., 1975, this land was converted into stock in trade in the books of the assessee and the said stock in trade was transferred on the very same day as contribution of the HUF in the partnership firm of M/s H.J. Traders wherein the HUF had 28 paise in a rupee as share in the profit and loss of the said partnership firm. The value of the transferred land was taken as Rs. 1,99,045 as against its original cost of Rs. 17,817. The sum of Rs. 1,99,045 was credited to the account of the HUF in the partnership firm as contribution towards capital.

(2.) THE assessee, a member of the HUF, filed a return declaring the taxable income at Rs. 17,515 for the asst. year 1976 77. While filing the said return, the assessee did not show any income from the partnership firm of M/s H.J. Traders. However, in the course of hearing and during scrutiny, it was realised that the firm of M/s H.J. Traders was assessed to tax for the asst. year 1976 77 by the ITO, Circle II, Ward J, Ahmedabad, by his order dt. 8th Jan., 1979. According to the said assessment order, the assessee had earned a profit of Rs. 2,095 during the said assessment year. It was also realised that the assessee had on the transfer of the agricultural lands to the firm of M/s H. J. Traders earned a profit of Rs. 1,81,229 (Rs. 1,99,045 Rs. 17,817) which was exigible to tax under S. 45 of the IT Act, 1961 (hereinafter called "the Act"). Since the variation was likely to exceed Rs. 1,00,000, the ITO prepared and forwarded the draft of the proposed assessment order to the assessee on 21st March, 1979, as required by Sub S. (1) of S. 144B of the Act. On receipt of objections from the assessee, the ITO forwarded the draft order together with the objections to the IAC, AR. II, Ahmedabad, as required by Sub S. (4) of S. 144B of the Act. The IAC gave the necessary direction as per his letter dt. 4th June, 1979. The ITO after giving an opportunity to the assessee of being heard through his Chartered Accountant came to the conclusion that the agricultural land which was transferred by the HUF to the partnership firm constituted transfer of a capital asset within the meaning of S. 2(14) r/w S. 2(47) of the Act and the profit realised on the transfer thereof amounted to capital gains and was liable to tax under S. 45 of the Act. In this view that he took, he added an amount of Rs. 1,32,172 after permitting admissible deductions for working out the net income of the assessee. The assessee's net total income was assessed at Rs. 1,54,782 and the ITO directed demand notice and Challan to issue after adjusting pre paid taxes, if any, and further directed initiation of penalty proceeding under S. 271(1)(c) of the Act for concealment of income from Messrs. H.J. Traders.

(3.) THE Revenue, feeling aggrieved by this order of the CIT(A), carried the matter in further appeal to the Tribunal. The ground raised in the appeal before the Tribunal was whether the CIT(A) had erred in law in holding that there was no transfer within the meaning of S. 2(47) of the Act when the assessee contributed the agricultural land to the firm of M/s H.J. Traders. At the time of hearing before the Tribunal, the Departmental Representative submitted that the question was required to be answered in favour of the Revenue in view of the decision of the Supreme Court in Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC). He further requested the Tribunal that the matter should be remanded for further processing on the basis of fresh facts with a view of finding out the genuineness of the transaction and the firm. This request was made on the basis of the observations made by the Supreme Court on page 523 of its judgment in the case of Sunil Siddharthbhai (supra). The Tribunal confirmed the decision of the CIT (A) on the basis of the aforesaid judgment of the Supreme Court on the premise that even though there was transfer of a capital asset, its value could not be evaluated, and the book entry of Rs. 1,99,045 could only be taken to be notional. The Tribunal refused to accede to the request for remanding the matter for an inquiry into the genuineness of the transaction and the firm as requested by the Departmental Representative. In the view that the Tribunal took, the appeal was dismissed.