M.K. Mehendale vs Commissioner of Income Tax

S.P. Bharucha, J.—Two questions are raised in this reference at the instance of the assessee, made u/s 256(1) of the income tax Act, 1961 (''the Act''). The questions read thus : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the transaction resulted in excess realisation over the written down value of the asset ?

Whether, on the facts and in the circumstances of the case, the amount of Rs. 68,337 was correctly computed as profit u/s 41 of the income tax Act, 1961 ?

We have read the statement of the case and have heard the counsels. Our attention has been drawn to the judgments of the Supreme Court in Commissioner of Income Tax, West Bengal Vs. Hind Construction Ltd., and in Sunil Siddharthbhai Vs. Commissioner of Income Tax, Ahmedabad, Gujarat, . We find that in both these cases there was a clear finding of fact that the erstwhile sole proprietor had brought into the partnership firm that he formed the assets of the sole proprietary concern as his contribution to the capital of the partnership firm. In the statement of the case before us, and, indeed, from the deed of partner ship, we are unable to ascertain whether the assessee had brought into the partnership firm that he formed with his wife the assets of his sole proprietary concern as his contribution to the capital of the partner ship firm or whether the transaction was of some different nature. This factual position not having been ascertained, we do not find it possible to answer the questions that have been posed and the counsels for the assessee and the revenue have fairly agreed that that is so.

We must, therefore, send the matter back to the Tribunal to ascertain the aforesaid. It shall also ascertain whether the creation of the partnership was a colourable device, having regard to the ratio of the judgment in Sunil Siddharthbhai''s case (supra).

The Tribunal shall hear the parties afresh and shall permit them to lead further evidence, should they so desire. The Tribunal shall then pass a fresh order according to law. In the circumstances, and with the consent of the counsels, the reference is returned unanswered. No order as to costs.