COMMISSIONER OF INCOME TAX Vs. VIMAL KUMAR SURANA

JUDGEMENT

(1.) THESE reference applications under Section 256(2) of the Income-tax Act, 1961, have been submitted against the order of the Income-tax Appellate Tribunal, Delhi Bench "C", New Delhi, dated June 28, 1983, in respect of the assessment year 1977-78 on the ground that the Income-tax Appellate Tribunal was not justified in referring the matter to this court under Section 256(1) of the Act, vide its order dated January 10, 1984. The questions which were raised under Section 256(1) were as under :

(2.) THE facts giving rise to the present application are that the assessee is a Hindu undivided family, represented by its karta, Shri Vimal Kumar Surana. THE return for the period ending Diwali, 1976, i.e., assessment year 1977-78, was filed on June 29, 1977, declaring a total income of Rs. 44,970. Along with the return, the capital account of the firm, Mannalal Nirmal Kumar Surana and Co., along with other documents was also filed in which the credit entry dated January 4, 1976, was existing and was shown as "by precious cut stones rupees 15,32,000". THE assessee was asked to explain the said credit entry. A reply dated July 26, 1977, was submitted stating that the said amount has been received on various partial partitions of his father's Hindu undivided family known as Mannalal Nirmal Kumar Surana (hereinafter referred to as the "bigger Hindu undivided family"). Up to the assessment year 1976-77, the assessee was unmarried and was assessed as an individual in respect of his individual income as well as income derived from the assets received on the partial partitions dated July 1, 1970, April 27, 1971 and January 4, 1976. THE assessee married on March 2, 1976 and, therefore, two returns were filed, one in the individual status declaring the income from the share in the firm, Hazarimal Milapchand Surana, and the other in the Hindu undivided family status showing income from assets received on partial partitions of the bigger Hindu undivided family. THE amount of Rs. 15,32,000 was received on partial partition on January 4, 1976, which was stated to be in the form of precious cut stones and was contributed by the Hindu undivided family, as capital in the firm, Mannalal Nirmal Kumar Surana and Co., a partnership firm in which the Hindu undivided family became a partner. THE assessment was completed by the Income-tax Officer, Special Survey Circle-I, Jaipur, on August 3, 1977. Subsequently, the jurisdiction of the case was assigned under Section 127 to the Income-tax Officer, Central Circle-II, Jaipur. He found that the Income-tax Officer, Special Survey Circle-I, Jaipur, completed the assessment taking that the value of Rs. 15,32,000 fully covered by the voluntary disclosure made by the bigger Hindu undivided family, whereas in accordance with the declarations under section 3(1) of the Voluntary Disclosure of Income and Wealth Act, 1975, the declaration was made on December 30, 1975, in respect of precious cut stones weighing 2,800 carats and were valued at Rs. 23,00,000. On the same day, the said Hindu undivided family revalued those precious stones at Rs. 46,00,000 and thereafter a partial partition was made on January 4, 1976, in which the assessee received cut stones of Rs. 15,32,000. According to the Income-tax Officer, Central Circle, since the disclosure was at 50 per cent, of the value, therefore, the balance 50 per cent, was liable to capital gains. Notice under Section 148 read with Section 147(a)/147(b) for the assessment year 1977-78 were issued on January 4 ,1979. THE Income-tax Officer also proposed to the Commissioner of Income-tax to take action under Section 263 of the Act as, according to him, the order passed was erroneous/prejudicial to the interests of the Revenue. THE Income-tax Officer passed an order on May 6, 1980, which was the order of reassessment as well as a fresh assessment and subjected the amount of Rs. 7,66,000 to capital gains tax considering the introduction of the precious cut stones into the firm as his capital by the assessee which constituted the transfer Within the meaning of Section 2(47) of the Act which is liable to tax in accordance with the provisions of Section 47 read with Section 49 and it was treated as a short-term capital gain.