VIMAL CHAND HIRAWAT Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) The Income-tax Appellate Tribunal has referred the following two questions of law arising out of its order dated May 5, 1982, in respect of the assessment year 1977-78 under Section 256(1) of the Income-tax Act, 1961 :

(2.) The brief facts of the case are that the assessee made a declaration under Section 3(1) of the Voluntary Disclosure Scheme, 1975, of income of Rs. 24,720 on December 30, 1975. The said income represented the stock of cut emeralds. The assessee transferred the entire stock worth Rs. 24,720 after revaluing the same at a figure of Rs. 32,980 to the firm, Messrs. Prakashchand Vimalchand, in which the assessee was a partner. The capital account of the assessee was credited by Rs. 32,980 in the books of the firm. The Income-tax Officer took the view that there was a transfer of a capital asset by the assessee under Section 2(47) and, therefore, the gain of Rs. 8,260 (32,980-24,720) was liable to tax as a short-term capital gain. A plea was raised by the assessee that the stock of cut emeralds represented the assessee's stock-in-trade and the case was covered by the exception as laid down in Clause (i) of Section 2(14) of the Income-tax Act. The dispute was as to whether the cut emeralds constituted the assessee's stock-in-trade or were "capital assets". The Income-tax Officer found that the assessee had never dealt on his own in precious stones and, therefore, the cut emeralds Could not be considered as stock-in-trade.

(3.) On the second question, it was found that in view of the decision of the Karnataka High Court in the case of Addl. CIT v. M.A.J. Vasanaik [1979] 116 ITR 110 and the Kerala High Court in the case of A. Abdul Rahim, Travancore Confectionery Works v. CIT[1977] 110 ITR 595 [FB], there was a transfer within the meaning of Section 2(47) and, therefore, the gain arising to the partner is liable to capital gains tax.