1984 (12) TMI 87 - AT - Income Tax

Transfer of shares to partnership firm as capital contribution constitutes 'transfer' under Income-tax Act

The Appellate Tribunal ruled in favor of the Revenue, holding that the transfer of shares by an individual to a partnership firm as capital contribution ... A Firm, A Partner, Capital Gains, Extinguishment Of Right Issues:1. Whether the transfer of shares by an individual to a partnership firm as capital contribution amounts to a 'transfer' under section 2(47) of the Income-tax Act, 1961, giving rise to capital gains.2. Whether the share of loss of the assessee's wife from the firm, in which the assessee is a partner, should be considered in calculating the assessee's total income.Analysis:1. The first issue in this appeal pertains to the transfer of shares by an individual to a partnership firm as capital contribution and whether it constitutes a 'transfer' under section 2(47) of the Income-tax Act, 1961, resulting in capital gains. The Revenue contended that there was a relinquishment of the individual's rights in the shares upon transfer to the firm, thereby attracting capital gains tax. The Revenue cited rulings of the Hon'ble Gujarat High Court to support their argument. Conversely, the assessee argued that such a transfer does not amount to a 'transfer' under section 2(47) and referred to judgments from the Hon'ble Madras and Andhra Pradesh High Courts. The Appellate Tribunal analyzed the legal precedents cited by both parties and held that the transfer of shares to the partnership firm constituted a 'transfer' under section 2(47), resulting in capital gains. The Tribunal reversed the Commissioner (Appeals) order and upheld the Revenue's position on this issue.2. The second issue raised in the appeal concerns the inclusion of the share of loss of the assessee's wife from the firm, in which the assessee is a partner, in the calculation of the assessee's total income. Both the Revenue and the assessee's counsel referred to previous tribunal orders on similar matters for guidance. The Tribunal, after considering the arguments presented by both sides, upheld the direction of the Commissioner (Appeals) that the share of loss of the assessee's wife from the firm should be factored into the computation of the assessee's total income. Consequently, the Tribunal partially allowed the appeal filed by the Revenue, affirming the inclusion of the wife's loss share in the assessee's total income.In conclusion, the Appellate Tribunal ruled in favor of the Revenue regarding the capital gains arising from the transfer of shares to the partnership firm. Additionally, the Tribunal upheld the decision to consider the wife's loss share from the firm in calculating the assessee's total income, based on previous tribunal orders.