Partner's asset contribution to a firm was a transfer, but capital gains tax did not apply under the computation rules.

A partner's contribution of personal assets to a partnership firm was held to be a transfer, but it did not give rise to capital gains tax because the consideration could not be computed under section 48, so section 45 did not apply. The Court also refused the Revenue's request for a fresh inquiry into the genuineness of the firm or transaction, since no foundational facts created a real doubt and a de novo probe would amount to a second innings. The reference was answered in favour of the assessee, and the Revenue could not reopen the genuineness issue.

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Issues: (i) Whether a partner's contribution of personal assets to the capital of a partnership firm amounted to a transfer giving rise to liability to capital gains tax under the Income-tax Act, 1961. (ii) Whether the Revenue could be granted liberty to conduct a fresh inquiry into the genuineness of the partnership firm or the transaction in question.

Issue (i): Whether a partner's contribution of personal assets to the capital of a partnership firm amounted to a transfer giving rise to liability to capital gains tax under the Income-tax Act, 1961.

Analysis: The reference was answered in the light of the governing principle that although such contribution does constitute a transfer, the consideration received by the partner does not fall within the computation mechanism under section 48, and section 45 cannot be applied to tax the transaction as capital gains.

Conclusion: The contribution amounted to a transfer, but it did not attract capital gains tax under section 45.

Issue (ii): Whether the Revenue could be granted liberty to conduct a fresh inquiry into the genuineness of the partnership firm or the transaction in question.

Analysis: No foundational facts were found to raise any real doubt about the genuineness of the firm or the transaction, and permitting a fresh inquiry would amount to giving the Revenue a second innings in a matter covered by settled law.

Conclusion: Liberty to make a de novo inquiry was refused.

Final Conclusion: The reference was answered in favour of the assessee by holding that the transaction did not result in capital gains liability, and the Revenue was not allowed to reopen the genuineness issue.

Ratio Decidendi: A partner's contribution of personal assets to a firm is a transfer, but in the absence of a workable consideration for computation under section 48, the transaction falls outside capital gains taxation under section 45; a fresh inquiry into genuineness will not be permitted without foundational facts creating a real doubt.

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