Kerala H.C : The ITO could not be considered to have, in actual fact, invoked the provisions of s. 52(2) when he has taken action under s. 52(1)

High Court Of Kerala

CIT vs. Dr. P.A. Varghese

Section 52

Asst. Year 1974-75

T. Kochu Thommen & K.P. Radhakrishna Menon, JJ.

IT Ref. No. 105 of 1982

20th November, 1987

Counsel Appeared

P.K.R. Menon, for the Revenue : M.C. Sen, for the Assessee

T. KOCHU THOMMEN, J.:

The following question has been, at the instance of the Revenue, referred to us by the Tribunal, Cochin Bench: ” Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the ITO could not be considered to have, in actual fact, invoked the provisions of s. 52(2) when he has taken action under s. 52(1) ? “

The assessment year in question is 1974-75. The assessee is a medical practitioner. He brought the assets and liabilities of his dispensary after closing down the practice and discharging the staff into a partnership firm when he became one of its partners. The other partners are his close relatives. The ITO found that there was transfer of assets, but in so far as only the book value was shown in the accounts of the firm as the value of the assets brought in by the assessee, there was suppression of a portion of the actual value so as to attract the provisions of s. 52(1) of the IT Act, 1961. On appeal by the assessee, the AAC found that the fact that only the book value was shown in the books of account of the firm did not justify the inference that s. 52(1) was attracted. This finding was, on appeal by the Revenue, confirmed by the Tribunal.

The facts stated by us clearly attract the principle laid down by the Supreme Court in Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC), where it is stated : ” In the circumstances, we are unable to hold that the consideration which a partner acquires on making over his personal asset to the partnership firm as his contribution to its capital can fall within the terms of s. 48. And as that provision is fundamental to the computation machinery incorporated in the scheme relating to the determination of the charge provided in s. 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether …….. Inasmuch as we are of the opinion that the consideration received by the assessee on the transfer of his shares to the partnership firm does not fall within the contemplation of s. 48 of the IT Act and further that no profit or gain can be said to arise for the purposes of the IT Act, we hold that the these cases fall outside the scope of s. 45 of the Act altogether.” This principle shows that when the assets were transferred by the assessee to the partnership firm on his entry as a partner, none of the provisions relating to capital gains was attracted, and there was, therefore, no scope for the application of any of the provisions of s. 52. In the circumstances, it is unnecessary for us to answer the question. We decline to answer the same.

We direct the parties to bear their respective costs in this tax referred case.

Decision in favour of Answer Declined.

[Citation : 172 ITR 550]

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