RATANSI NARAYAN PATEL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal, Nagpur Bench, Nagpur, has referred the following question to this court for its opinion under Section 256(1) of the Income-tax Act, 1961 (" the Act "):

(2.) FOR the purpose of answering the aforesaid question, it may be pointed out that the assessess are Ramji Narayan Patel and Ratansi Narayan Patel. The relevant assessment year is 1976-77. The facts in a nutshell which are necessary to be taken notice of for answering the aforesaid question and are clear from a perusal of the appellate order passed by the Tribunal, its order dated April 7, 1982, passed on an application for correction of certain mistake in paragraph 2 of the aforesaid order and the statement of the case drawn up by the Tribunal are that, to start with, there was a partnership in the name of Ramji Narayan Patel & Co. constituted on November 3, 1967. This firm, consequent upon the death of one of the partners, was reconstituted on December 17, 1971, in the same name of Ramji Narayan Patel & Co. On November 6, 1972, this firm was dissolved and all the assets and properties of the firm on the dissolution were allotted to the present assessees, Ramji Narayan and Ratansi Narayan. Thereafter, on November 7, 1972, Ramji Narayan and Ratansi Narayan contributed the assets and properties which they had got on the dissolution of the firm, Ramji Narayan Patel & Co., to a new partnership in the name of Vikas Timber Co. This newly constituted firm, Vikas Timber Co., was dissolved on January 3 1, 1975. At that time, there were seven partners in the firm, Vikas Timber Co., two of them being Ramji Narayan and Ratansi Narayan, the present assesses. All the co-owners of the assets of the dissolved firm aforesaid, sold the assets of the dissolved firm by a sale deed dated July 8, 1975. One of the questions which arose for consideration in the assessment proceedings of the present assesses, Ramji Narayan and Ratansi Narayan, was as to whether the capital gains which these assesses had obtained as a consequence of the sale deed dated July 8, 1975, were to be treated as short-term capital gains or long-term capital gains. The case of the present assesses was that the capital gains should be treated as long-term capital gains. The plea of the assesses did not find favour with the income-tax authorities and was also repelled by the Tribunal. However, on an application made on their behalf, the question stated above has been referred to this court for its opinion.

(3.) APPLYING the principle laid down by this court in the case of Narsi-bhai Patel [1981] 127 ITR 633, namely, that even during the Subsistence of a partnership, the deposits made by the partnership in a bank are in law held by the partners in proportion to their shares in the partnership, it would be seen that notwithstanding reconstitution of the firm, Ramji Narayan Patel & Co., on the death of one of the partners, the constitution of a new partnership in the name of Vikas Timber Co. consequent upon the dissolution of Ramji Narayan Patel & Co. and Subsequent dissolution of Vikas Timber Co., the assessees, Ramji Narayan and Ratansi Narayan, at every point of time right from November 3, 1967, held assets to the extent of 25% each. That being so, the assets held by these two asses-sees on July 8, 1975, the date of the sale deed, were obviously held by them for more than 60 months and consequently fell within the definition of ' long-term capital asset ' as contained in Clause (29A) of Section 2. Since capital gains in the instant case arose from the transfer of a long-term capital asset, these capital gains would be long-term capital gains as defined in Clause (29B) of Section 2.