Partner's capital contribution to firm not treated as real consideration, so no taxable capital gains arise on transfer of personal assets.

When a partner introduces immovable property or other personal assets as capital into a partnership firm, the credit in the partner's capital account is treated as an internal adjustment of mutual rights, not as real consideration. Applying Sunil Siddharthbhai, the transfer does not create a debt owed by the firm and does not amount to consideration received on extinguishment of the partner's proprietary interest. On that basis, the contribution of the share in land to the firm was treated as not giving rise to taxable capital gains under the capital gains provisions of the Income-tax Act, 1961.

---

---

Issues: Whether transfer of a partner's immovable property or non-monetary contribution as capital to a firm gives rise to taxable capital gains, and whether such introduction of personal assets into partnership capital involves consideration within the meaning of the capital gains provisions.

Analysis: The Supreme Court's ruling in Sunil Siddharthbhai was applied to hold that when a partner introduces personal assets into the capital of a partnership firm, the credit entry in the partner's capital account is only an internal adjustment of rights inter se and does not evidence any debt owed by the firm. In such a situation, no real consideration is received by the partner on extinguishment of rights in the proprietary asset, and the transaction does not produce income or gain in the commercial sense required for capital gains taxation under the relevant provisions.

Conclusion: The questions were answered in the affirmative, against the Revenue and in favour of the assessee; the transfer of the share in land to the firm did not give rise to taxable capital gains, and there was no consideration receivable on extinguishment of the partner's interest for the purposes of sections 45 and 48 of the Income-tax Act, 1961.

---