Partner's contribution of personal assets to a genuine firm is not capital gains taxable absent proof of sham or colourable device.

A partner's contribution of personal assets to a partnership firm can fall within the concept of transfer under section 2(47) and may engage capital gains under section 45, but taxability depends on whether the arrangement is shown to be a sham or colourable device. Where the firm is genuine and the Revenue does not establish that the transaction is a ruse to convert assets into money while retaining their benefit, capital gains do not arise on the contribution. On the stated facts, no such device was proved, so the issue was answered in favour of the assessee.

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Issues: Whether contribution of cut emeralds by a partner to a partnership firm constituted a transfer attracting capital gains under section 45 read with section 2(47) of the Income-tax Act, 1961.

Analysis: The question was answered by applying the rule that contribution of a partner's personal asset to a firm can amount to a transfer within the meaning of section 2(47) and may attract capital gains under section 45. However, taxable capital gain would arise only where the transaction is shown to be a mere device or ruse to convert assets into money while substantially retaining their benefit, or where the genuineness of the firm is doubted. On the record, no such case had been made out by the Revenue and the firm was treated as genuine.

Conclusion: The contribution was not shown to be a colourable device and the answer to the referred question was in favour of the assessee and against the Revenue.

Ratio Decidendi: A partner's contribution of personal assets to a genuine partnership firm is not taxable as capital gains unless the Revenue establishes that the transaction is a sham or a device to avoid tax.

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