P. L. LAMBA v. INCOME TAX OFFICER
[Citation -1986-LL-1223-4]

Citation 1986-LL-1223-4
Appellant Name P. L. LAMBA
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 23/12/1986
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags capital contribution • compulsory deposit • sham transaction • accrued interest • current account • succeeding year • interest income • deposit scheme • capital asset • receipt basis • share capital • account book • capital gain • share income
Bot Summary: The facts are that the assessee was the owner of 11402 shares in M/s Pure Ice Cream Company Pvt. Ltd. having purchased them for Rs. 57,010. As his capital contribution, the assessee contributed among others 11,402 shares aforesaid on 1st Jan., 1978 amounting to Rs. 4,17,313. The reply of the assessee was that the shares in question were introduced in the firm M/s K.R.I.C. Co. as his capital contribution and that the surplus on the valuation of the shares at the rate of Rs. 36.60 per share as against the normal value of Rs. 10 per share did not involve any capital gains since the conversion of a personal asset of a partner into partnership asset did not amount to sale. In the appeal before us, it was pointed out on behalf of the assessee by Shri O.P, Vaish that the decision of the Gujarat High Court in the above case had gone up to the Supreme Court by which its decision reported as Kartikeya V. Sarabhai vs. CIT 49 CTR 172: 156 ITR 509 had held that though the introduction of the capital asset by a partner in the firm amounted to transfer but that the partners received no consideration and that the real profit or gain did not accrue and so no capital gain could be taxed. The case of the assessee was that the amount was offered on receipt basis in the next year and had been taxed accordingly. The ITO taxed the amount in the assessment year in question on the ground that the interred taken was credited in the assessee s C.D.S. Account Book on 9th Oct., 1978. The assessee had offered the amount in question for taxation in the succeeding year on receipt basis, since the amount was actually realised on 20th Feb., 1979.


assessee is aggrieved of order dt. 17th Dec., 1984 of ld. CIT(A)- IX, New Delhi, for asst. yr. 1979-80. assessee who is individual, derives share income from M/s K.R.I.C. Company (1978). first ground relates to disallowance of Rs. 2,13,175 as capital gains. facts are that assessee was owner of 11402 shares in M/s Pure Ice Cream Company (1967) Pvt. Ltd. having purchased them for Rs. 57,010. By means of partnership deed dt. 15th Feb., 1978, he entered into partnership with M/s K.R.I.C.Co (1978) having 40 per cent share therein. As his capital contribution, assessee contributed among others 11,402 shares aforesaid on 1st Jan., 1978 amounting to Rs. 4,17,313. value of these shares was calculated at rate of Rs. 36.60 per shares. ITO required assessee to explain why capital gains on said transaction be not charged. reply of assessee was that shares in question were introduced in firm M/s K.R.I.C. Co. (1978) as his capital contribution and that surplus on valuation of shares at rate of Rs. 36.60 per share as against normal value of Rs. 10 per share did not involve any capital gains since conversion of personal asset of partner into partnership asset did not amount to sale. It was also submitted by assessee that for purposes of WT there was no change in position of assessee since capital in his hands was on same value and there had been no extinguishment of asset, However ITO, relying on decision of Gujarat High Court in CIT vs. Kartikeya vs. Sarabhai (1981) 24 CTR (Guj) 184: (1981) 131 ITR 42 (Guj) held that transaction amounted to transfer within meaning of s. 45 r/w s. 2(47) of it Act, 1961 and that addition of Rs. 2,13,175 had to be made by way of capital gains after allowing deduction under s. 80T. computation in that regard has been given in para 1 of order of ITO. In appeal, on same basis, addition was confirmed by ld. CIT(A). In appeal before us, it was pointed out on behalf of assessee by Shri O.P, Vaish that decision of Gujarat High Court in above case had gone up to Supreme Court by which its decision reported as Kartikeya V. Sarabhai vs. CIT (1985) 49 CTR (SC) 172: (1985) 156 ITR 509 (SC) had held that though introduction of capital asset by partner in firm amounted to transfer but that partners received no consideration and that real profit or gain did not accrue and so no capital gain could be taxed. On other hand, Shri T.R. Talwar, learned Departmental Representative relied upon observation of Supreme Court in above case at page 523 and submitted that transfer by assessee of shares in question to partnership firm did not represent genuine intention to contribute to share capital of firm for purposes of carrying on partnership business and that it was merely device or ruse for converting asset into money which substantially remained available for his benefit with liability to IT on capital gain and that, therefore, IT authorities were justified in going behind transaction and in examining whether transaction of creating partnership was genuine or sham transaction and that even where partnership was genuine, transaction of transferring shares to partnership firm represented real attempt to contribute share capital of purposes of carrying on partnership firm for purposes of carrying on partnership business or was nothing but device or ruse to convert personal asset into money substantially for benefit of assessee while avoiding tax on capital gains. He, therefore, kly argued that orders of income-tax authorities were liable to be confirmed. We have considered rival submissions of both sides. No doubt, Supreme Court had made certain observations at pages 523 and 524 of its decision as referred to on behalf of Department, but Supreme Court had decided matter on assumption that partnership in question was genuine firm and that transfer by partnership business. However, there is no finding of IT authorities that transaction was sham or colourable or that it was merely device or ruse for converting shares into money. On these facts, therefore, decision of Supreme Court was fully applicable. Accordingly, question of levying any capital gains did not arise. We hold accordingly. next ground relates to inclusion of Rs. 7,558 as accrued interest income on Compulsory Deposits under Compulsory Deposit Scheme (ITP) Act, 1974. case of assessee was that amount was offered on receipt basis in next year and had been taxed accordingly. assessee had explained that original pay order dt. 9th Oct., 1978 had been lost and, therefore, he had obtained duplicate pay order and had actually realised amount on 20th Feb., 1979 i.e. in next prevision year. However, ITO taxed amount in assessment year in question on ground that interred taken was credited in assessee s C.D.S. Account Book on 9th Oct., 1978. He held that interest had accrued to assessee under s. 8 of Compulsory Deposit Scheme (ITP) Act, 1974. ld. CIT(A) confirmed order of ITO. We have considered rival submissions of both sides on this point. We find that same amount cannot be taxed in two years. assessee had offered amount in question for taxation in succeeding year on receipt basis, since amount was actually realised on 20th Feb., 1979. No appeal had been filed by assessee for that year. Accordingly, there was no justification for rejecting assessee s claim. only other ground relates to inclusion of Rs. 22,737 as interest on fixed deposit of Rs. 4,25,000. This case of assessee was that amount of interest was actually received on 3rd Feb., 1979 when it was credited to his current account. However, ITO took view that amount was to be taxed in assessment year in question. We have considered rival submissions of both sides. accounting year relevant to asst. yr. 1979-80 was upto 31st Dec., 1978. New Bank of India vide its certificate dt. 10th April, 1982 had certified that interest amounting to Rs. 22,725.50 for year ending 31st Dec., 1978 on FDR No. 114/79 in name of assessee had been paid to credit of his current account on 3rd Feb., 1979. This is confirmed by copy of bank account of assessee. copy of assessment order for succeeding asst. yr. 1980-81 shows that assessee had offered this amount for taxation in that year and it had been taxed accordingly. assessee could choose receipt first time. There was, therefore, no justification for taxing amount in question for asst. yr. 1979-80. In result, appeal is allowed. *** P. L. LAMBA v. INCOME TAX OFFICER
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