COMMISSIONER OF INCOME TAX Vs. KAMALA DEVI

JUDGEMENT

(1.) IN compliance with the order of this court, dated March 28, 1983, the Tribunal referred the following question for the opinion of this court under Section 256(2) of the INcome-tax Act, 1961 (hereinafter referred to as "the Act") :

(2.) THERE was a partnership firm consisting of five partners, which purchased a property on July 4, 1962, and on June 14, 1973, the partners withdrew the property from the firm and held it as co-owners, and thereafter, on February 25, 1974, the five partners sold the property. The Income-tax Officer assessed the capital gains arising from the property as short-term capital gains on the basis that it was sold in the year in which it was acquired by the partners from the firm. On appeal, the Appellate Assistant Commissioner also agreed with the conclusion arrived at by the Income-tax Officer. On further appeal, the Appellate Tribunal found that in Section 2(42A) short-term capital asset means a capital asset held by an assessee for not more than 60 months immediately preceding the date of its transfer. Section 49(1)(iii)(b) referred to capital assets becoming the property of an assessee on distribution of assets on the dissolution of the firm. The Appellate Tribunal found that on the principles enunciated by the Supreme Court in the case of Malabar Fisheries Co. v. CIT , conversion of joint property into separate property was only a matter of agreement and the individual partners were, therefore, the owners of the property from the time of purchase initially as partners of the firm and later as individuals. THEREfore, it was found that the capital asset had been held by them for more than 60 months and the capital gains arising from the transfer could not, therefore, be assessed as short-term capital gains.

(3.) IN Addanki Narayanappa v. Bhaskara Krishnappa, , the Supreme Court, while considering a question of similar nature, held as under (page 1303) :