M. C. AGARWAL, J. M.: This is assessee s second appeal against additions of Rs. 4,206 and Rs. 4.850 on account of alleged capital gains. We have heard ld. counsel for assessee and ld Departmental Representative. facts are that assessee was sole owner of business carried on in name of Central India Dairy & Creamery, Bhopal. From 16th Jan., 1979 assessee converted this business into partnership firm taking his two sons Kishore Gupta and Anil Gupta, as partners. assessee owned certain machinery and vehicles which were used in said business. These items we revealed on 16th Jan., 1979 and amount was credited to assessee s capital account. According to ITO, on account of this revaluation assessee earned some profit within meaning of s. 41(2) and also long term capital gain of Rs. 4,206 on machinery and short term capital gain of Rs. 4,850 on car. On appeal, ld. CIT(A) deleted profit under s. 41(2) holding that there was on transfer when assessee employed his individual assets by way of his capital in partnership firm but surpassingly enough confirmed addition on account of capital had been transferred to firm by way of transfer of these two assets to partnership firm, ITO s charging capital gain on ground that there is extinguishment of right in such assets, as perfectly in order. At hearing before us, learned counsel for assessee relied upon recent ruling from Hon ble Supreme Court of India in Sunil Siddharthbhai vs. CIT (1985) 49 CTR 172: (1985) 156 ITR 509 (SC) in which it has been held that in circumstances like those mentioned above, although there is transfer of assets, no capital gain arises because no actual consideration is received. Hon ble Supreme Court in said case observed as below: "It is apparent therefore, that when partner brings in his personal assets into partnership firm as his contribution to its capital, asset which originally was subject to entire ownership of partner becomes now subject to rights of other partners in it. It is not interest which can be evaluated immediately, it is interest which is subject to operation of further transactions of partnership, and it may diminish in value depending on accumulating liabilities and losses with fall in prosperity of partnership firm. evaluation of interest takes place only when there is dissolution of firm or upon his retirement from it. "Therefore, what was exclusive interest of partner in his personal asset is, upon its introduction into partnership firm as his share to partnership capital, transformed into shared interest with other partners in that asset. Qua that asset, there is shared interest. During subsistence of partnership value of interest of each partner qua that asset cannot be isolated or carved out from value of partner s interest in totality of partnership assets. And in regard to latter value will be represented by his share in net asset on dissolution of firm or upon partner s retirement. "What is profit or gain which can be said to accrue or arise to assessee when he makes over his personal assets to partnership firm as his contribution to its capital? consideration, as we have observed, is right of partner during subsistence of partnership to get his share of profits from time to time and after dissolution of partnership or with his retirement from partnership to receive value of share in net partnership assets as no date of dissolution or retirement after deduction of liabilities and prior charges. When his personal asset merges into capital of partnership firm corresponding credit entry is made in partner s capital account in books of partnership firm, but that entry is made merely for purpose of adjusting right of partners inter se when partnership is dissolved or partner retires. It evidences no debt due by firm to partner. Indeed, capital represented by notional entry to credit of partner s account may be completely wiped out by losses which may be subsequently incurred by firm, even in very accounting year in which capital account is credited. Having regard to nature and quality of consideration which partner may be said to acquire on introducing his personal asset into partnership firm as his contribution to its capital, it cannot personal asset into partnership firm as his contribution to its capital, it cannot be said that any income or gain arises or accrues to assessee in true commercial sense which businessmen would understand as real income or gain. This ruling covers assessee s case on all fours and amounts in question have to be deleted as no capital gain has arisen to assessee. appeal is accordingly allowed and amounts of Rs. 4,206 and Rs. 4,850 added to assessee s income on account of capital gains are hereby deleted. appeal is allowed. *** LAXMINARAIN GUPTA v. INCOME TAX OFFICER