Commissioner of Income Tax vs T.M.B. Mohamed Abdul Khader

Ramanujam, J.—The assessee in this case is a partner in a partnership firm known as oriental Enterprises. The assessee was the owner of a

property at No. 20, G. N. Chetty Road, Madras. During the previous year relevant to the assessment year 1976-77, the assessee made a

declaration to the effect of that the property situated at No. 20 G. N. Chetty Road, Madras. During the previous year relevant to the assessment

year 1976-77 the assessee made a declaration to the effect that the property situated at No. 20 G. N. Chetty Road, will thereafter be the property

of the firm, Oriental Enterprises. The consideration agreed to was Rs. 1,20,000 as against by the book cost of Rs. 76,000. The declaration was

followed by the book entries by which the assessee account in the declaration was followed by book entries by which the assessee account in the

firm was credited with the sum of Rs. 1,20,000 while a corresponding debit entry was made in the books of the firm. In the course of the

assessment proceeding for the assessment year 1976-77, the assessee claimed before the Income Tax officer that the profit of Rs. 44,000 was not

assessable to tax as capital gains since there was no transfer involved in the conversion of the individual property into partnership property. The

Income Tax Officer rejected the claim of the assessee and held that the profit derived on transfer of property to the firm was liable to tax.

Aggrieved by the decision of the Income Tax Officer, the assessee went before the Appellate Assistant Commissioner. the Appellate Assistant

Commissioner accepted the contention of the assessee and held that the assessee was not liable to tax on capital gains since the transfer was not

effected through a registered document, that the declaration executed by the assessee on stamp paper of the value of Rs. 5 followed by mere book

entry could not effectively transfer the title of the property, that in the absence of sale deed executed by the assessee in favour of the transfer the

purported transfer could not by the assessee in favour of the transfer the purported transfer could not constituted an effective sale and that in the

absence of the a valid transfer through a registered document there was no sale to attract the charge of the capital gains on the surplus realized on

the transaction. Dissatisfied with the order of Appellate Assistant Commissioner, the Revenue appealed to the Appellate Tribunal. Before the

Tribunal it was conceded that the conversion of individual property into property of the firm did not require registration and the transfer was valid

even of the in the absence of a registered document. on the other hand, the contention of the assessee before the Tribunal was that it was not liable

to tax on capital gains in view of the fact that there was no transfer involved in the conversion of the individual property into partnership property

and that there cannot be any valid transfer in the absence of a registered sale deed. Aggrieved by the view taken by the Tribunal, the Revenue is

seeking a direction in this reference petition to the Tribunal to refer the following question for the opinion of this court :

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that no capital gains arose on the

sale of the property by the assessee to the firm and accordingly there was liability to capital gains for the tax assessment year 1976-77 ?

It is seem from the order of the Tribunal that it has given two reason for holding that the transaction is not liable to tax on capital gains. One is

that there is no valid registered document of transfer and therefore, the transaction will not attract tax on capital gains. The second is that when an

individual property is converted into a partnership property no transfer is involved and therefore is no liability to tax on capita gains. As we

declined to agree with the firm reasoning of the Tribunal that in the absence of a registered document, there could be no valid transfer of the

property from the assessee to the partnership we are not going to make an order for reference. Admittedly, the property said to have been

transferred is valued between the parties at Rs. 1,20,000. for the transfer of a property which is worth more that Rs. 100 a stamped and registered

document of transfer is necessary under the provisions of the Stamp Act as well as the Registration Act. Therefore both the Appellate Assistant

Commissioner and the Tribunal are right in holding that unless there is a valid registered document of transfer transferring the immovable property

at door No. 20, G. N. Chetty Road, Madras, there is no liability to tax on capital gains. Since this finding of the Tribunal is sufficient to justify it

conclusion that there is no liability to tax on capital gains in this case, we are not going into the conclusion of the Tribunal that the conversion of

individual property into partnership property does not involve any transfer of property as that question is not free from difficulty. Therefore while

sustaining the finding of the Tribunal that since there is no register document there is no transfer of immovable property and hence no liability to tax

on capital gains, we are not expressing any opinion on the finding of the Tribunal that conversion of individual property into partnership property

does not involved transfer of property. In this view of the matter, we do not see any justification for directing a reference in this case. The tax case

petitioner is dismissed. No costs.