ORDER
U.T. Shah, Senior Vice-President
1. The assessee and his learned counsel had requested the President of the Income-tax Appellate Tribunal for constituting a Special Bench to dispose of his appeal as according to them, in the case of Jamnalal Sons Ltd. (ITA No. 150 (Nag) of 1986, dated June 16, 1988), [1989] 29 ITD 164 (Bom), the Tribunal has not considered in proper perspective the facts obtaining in that case vis-a-vis the decision of the Hon’ble Supreme Court in the case of Sunil Siddharthbhai [1985] 156 ITR 509. Further, the Tribunal had not considered certain orders in other cases which supported the stand taken by the assessee in that case. The assessee, therefore, had an apprehension that a Division Bench of the Tribunal would not be inclined to differ from the said order of the Tribunal even though certain other orders of the Tribunal which are in his favour would be placed before the Division Bench.
2. When the matter was placed before the Division Bench, the Members constituting the Bench made the following entry in the order sheet on February 26, 1991.
“The issue involved in this appeal pertains to the applicability of the decision of the Hon’ble Supreme Court in the case of Sunil Siddharthbhai [1985] 156 ITR 509. In the case of Jamnalal Sons Ltd., [1989] 29 ITD 164 (Bom) the Tribunal has decided the appeal against the assessee. However, a contrary view has been taken by the Tribunal in the cases of Dr. Gaur Hari Singhania, Mahavir Prasad Taparia, HUF., LP, Gas Transport and Bottling Co. Ltd. and Sushil Kishore Premchand.
Apart from conflicting views expressed by the various Benches of the Tribunal, the issue involved in this appeal is also of great importance. We would, therefore, direct that the appeal papers may be placed before the President for constituting a Special Bench to dispose of this appeal. ”
and referred the matter to the President of the Income-tax Appellate Tribunal with a proposal to constitute a Special Bench to dispose of the appeal of the assessee. The President has, therefore, constituted the present Bench to hear and dispose of the assessee’s appeal.
3. The assessee is an individual and is an employee of M/s. Bajaj International Pvt. Ltd. with effect from April 1, 1980. Apart from the salary income, the assessee has income by way of dividend and earns director’s fees from a number of other companies. The assessment year is 1981-82 and the relevant previous year ended on March 31, 1981.
4. During the previous year relevant to the assessment year 1980-81, the assessee became a partner in the firm of M/s. Bajaj Trading Company (Bajaj Trading). The assessee also became a partner in M/s. Anant Trading Company (Anant Trading) in the previous year relevant to the assessment year under consideration. He is, therefore, having share of income/loss in the said firms.
5. The facts of the case emerging from the record are :
(1) The assessee owns a number of shares in his investment portfolio, including those in M/s, Bajaj Auto Ltd. (Bajaj Auto) and M/s. Bajaj Tempo Ltd. (Bajaj Tempo).
(2) On May 8, 1979, the assessee entered into partnership with some of the other members of the same group (Bajaj Group), wherein he has brought in as his capital 3,000 shares of Bajaj Auto after converting them into stock-in-trade.
(3) The other partners of Bajaj Trading are M/s. Jamnalal Sons Ltd., S/Shri. Rahulkumar Kamalnayan Bajaj, Shirshirkumar Kamalnayan
Bajaj, Nirajkumar Ramkrishna Bajaj, Shekhar Bajaj (HUF) and Madhan Bajaj (HUF).’
(4) The individual and Hindu undivided family partners brought in the shares of Bajaj Auto as their capital contribution after converting them into stock-in-trade, while M/s. Jamnalal Sons Ltd. brought in plots of land known as Janki Kutir, Juhu, and the shares of M/s. Bajaj Electricals Ltd. as its capital contribution, after converting them into stock-in-trade. It also brought in Rs. 2 lakhs (in cash) as its capital.
(5) During the relevant previous year, the assessee converted 2,000 shares of Bajaj Auto and 45,000 shares of Bajaj Tempo into stock-in-trade on January 8, 1981, and March 18, 1982, respectively,
(6) The fact about the aforesaid conversion was intimated to the Income-tax Officer by the assessee, vide his letters dated January 9, 1981, and March 18, 1981, respectively.
(7) On February 18, 1981, the assessee entered into yet another partnership, viz., Anant Trading, with some of the members of the Bajaj group to which he transferred the aforesaid shares of Bajaj Tempo by way of his capital contribution.
(8) The other partners of Anant Trading are M/s. Jamnalal Sons Ltd. and S/Shri Rahulkumar Kamalnayan Bajaj, Shirshirkumar Kamal-nayan Bajaj and Shekhar Bajaj.
(9) In Anant Trading, all the partners brought in their shares of Bajaj Tempo as their capital contribution after converting them into stock-in-trade. Further, M/s. Jamnalal Sons Ltd. also brought in Rs. 5,000 (in cash) as its capital.
(10) Bajaj Trading started selling plots of land of Janki Kutir and received advances from the buyers of the said plots of land. The advances so collected were distributed amongst the partners and credited to their respective capital accounts whereby all the partners got their capital back (in cash) which they had contributed by way of land/shares after converting them into stock-in-trade.
(11) In the subsequent years, the assessee had also converted shares of certain other companies into stock-in-trade, traded in them and had offered for taxation the profits/loss therefrom.
(12) Both Bajaj Trading and Anant Trading have been granted registration under Section 185 of the Income-tax Act, 1961 (” the Act”), and are assessed as registered firms, ever since their formation on May 8, 1979, and Janu’ary 18, 1981, respectively. Their first years of assessment are 1980-81 and 1982-83, respectively.
6. On the aforesaid facts, the assessee filed his return of income for the assessment year under consideration wherein he had not disclosed any capital gains in the aforesaid transactions but had shown the share of profit from Bajaj Trading which the Income-tax Officer had taken at Rs. 20,920 with the remarks “subject to rectification”.
7. The Income-tax Officer, however, was of the view that, on the aforesaid transaction, the assessee was liable to tax on capital gains. He, therefore, called upon the assessee to explain as to why capital gains should not be worked out and included in his total income. The assessee resisted the action of the Income-tax Officer, vide his letter dated March 8, 1984, wherein it was submitted that capital gains are attracted only in the case of transfer of capital assets as contemplated under Section 2(14) of the Act. Since the said section specifically excludes “stock-in-trade ” from the definition of ” capital asset”, he was not liable to tax on capital gains. In support of his submission, reliance was placed on the decision of the Hon’ble Supreme Court in the case of Bai Shirinbai K. Kooka [1962] 46 ITR 86. Relying on yet another decision of the Hon’ble Bombay High Court in the case of Hind Commission Agents [1963] 48 ITR 615, the assessee also contended that since an individual can carry on business either himself or through a partnership, the business carried on by the partnership should be treated as the business carried on by the individual himself and, therefore, no transfer was involved in the aforesaid transactions. The assessee had also relied on the decision of the Hon’ble Supreme Court in the case of K. P. Varghese [1981] 131 ITR 597.
8. The Income-tax Officer, however, rejected the assessee’s contention by relying on the decision of the Hon’ble Gujarat High Court in the case of Kartikey V. Sarabhai [1981] 131 ITR 42. According to him, the aforesaid transactions would constitute “transfer” within the meaning of Section 45 read with Section 2(47). He, therefore, worked out the capital gains at Rs. 15,77,780 in respect of the shares of Bajaj Auto and at Rs. 33,90,750 in respect of the shares of Bajaj Tempo. In this way, he included capital gains of Rs. 49,68,530 in the total income of the assessee. However, he granted the 40 per cent, deduction contemplated under Section 80T of the Act.
9. In appeal before the Commissioner of Income-tax (Appeals), the assessee resisted the action of the Income-tax Officer on the grounds that-
1. The Income-tax Officer failed to appreciate that what was transferred to the firm was stock-in-trade and not capital assets.
2. The Income-tax Officer erred in holding that since the assessee had not traded in these shares subsequent to the date(s) of their conversion the conversion itself cannot be treated as valid conversion into stock-in-trade.
3. The Income-tax Officer failed to appreciate that the business carried on by a firm is nothing but the business carried on by its partners and, therefore, no transfer was involved in the aforesaid transaction.
4. The Income-tax Officer failed to appreciate that the partnership is not a legal entity apart from the partners constituting it.
5. The Income-tax Officer failed to appreciate that the assessee had effectively converted the shares of Bajaj Auto and Bajaj Tempo into stock-in-trade and had in fact, intimated to him in this regard.
6. The conversion of capital asset into stock-in-trade and bringing them into the firm by way of capital contribution was bona fide/genuine and valid.
7. The Income-tax Officer failed to appreciate that both Bajaj Trading and Anant Trading are genuine firms and have been granted registration under Section 185 of the Act, by their respective Income-tax Officers.
10. The assessee also relied on certain reported decisions which were cited before the Income-tax “Officer during the assessment proceedings.
11. In his order under appeal, the Commissioner of Income-tax (Appeals) upheld the finding of the Income-tax Officer that the shares in question constituted capital assets in the hands of the assessee right up to the point of transfer. The Commissioner of Income-tax (Appeals) also upheld the action of the Income-tax Officer in that the contribution of “stock-in-trade” by the assessee to the two firms would be “transfer” within the meaning of Section 2(47) of the Act as held by the Hon’ble Supreme Court in the case of Sunil Siddharthbhai [1985] 156 ITR 509. The Commissioner of Income-tax (Appeals), however, deleted the addition of Rs. 49,68,530 from the total income of the assessee in the following words :
“In the course of the appeal, it is submitted that the decision of the Supreme Court above referred to is to the effect that although contribution of an asset to a partnership does amount to a transfer, no capital gain arises as the transfer cannot be said to be for a definite consideration as contemplated in Section 48 of the Income-tax Act. It is submitted that even if it is held in this case that there was a transfer of the shares by the appellant to the firm, no capital gains can be said to have arisen in terms of Section 45 in view of the Supreme Court decision. It is further submitted that the firm to which the shares have been transferred were genuine firms. It is pointed out that M/s. Bajaj Trading Co. is assessed by the Income-tax Officer, B-Ward, Wardha, who has, in his assessment order for the assessment year 1980-81 passed on February 28, 1981, held the said firm to be genuine and granted registration for that assessment year and the subsequent assessment years up to the assessment year 1982-83. The firm of M/s. Anant Trading Co., it is pointed out, is assessed by the First Income-tax Officer, Wardha, who has held the firm to be genuine. It is also pointed out that the transferee firms have continued to carry on the business of share dealing right up to date and that it is not the case that the firms were the result of a sham or unreal transaction. It is submitted that the partnership firms in this case were genuine and the transfer by the appellant of his personal assets to the firm represented his genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnership business. It is submitted that the transfers were not a mere device for converting the assets into money. The assets transferred to the firm were not all sold away soon after the transfer and the firms had substantial and real business continuing for years together. It is submitted that the observations of the Supreme Court at para 20 of the order referred to above, do not, on the facts and circumstances of this case, apply to the appellant and no taxable capital gains arise. After consideration, I find sufficient force in the submissions of the appellant, I hold that no capital gains arise to the appellant. The other connected ground against the estimate under Section 52 of the consideration for the transfer of the shares becomes infructuous in view of the decision recorded above. Respectfully following the decision of the Supreme Court, I direct the Income-tax Officer to delete from the assessment of the appellant the amount of Rs. 49,68,530 assessed by him by way of capital gains.”
12. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue has come up in appeal before the Tribunal. At the outset, learned standing counsel for the Revenue objected to the propriety of constituting a Special Bench when the order of the Tribunal was already available in the same group in the case of Jamnalal Sons Ltd. According to him, there was no need for constituting a Special Bench and, by doing so, the interest of the Revenue has been jeopardised. In any event, he submitted that, before constituting a Special Bench, the Revenue ought to have been given an opportunity of explaining as to why a Special Bench was not necessary in the instant case. He further submitted that, since the facts and circumstances obtaining in the instant case are identical with those obtaining and considered by the Tribunal in the case of Jamnalal Sons Ltd., [1989] 29 ITD 164 (Bom), the President ought not to have constituted a Special Bench and the Division Bench before which this appeal had come up for hearing, should have followed the order of the Tribunal in the case of Jamnalal Sons Ltd. In support of his submissions, he relied on the decision of the Hon’ble Madras High Court, in the case of L.G. Ramamurthi [1977] 110 ITR 453.
13. Learned counsel for the assessee, on the other hand, submitted that the Revenue ought not to have raised the preliminary objection as, according to him, the discretion exercised by the President to constitute a Special Bench is not justiciable. Inviting our attention to the order sheet entry reproduced above, he pointed out that once the Tribunal’s attention was drawn to the fact that there were other orders taking a contrary view on the issue involved, the Division Bench felt that it would be better that this appeal be heard and disposed of by a Special Bench. Under these circumstances, the Division Bench had referred the matter to the President who constituted this Special Bench for the disposal of the present appeal.
14. We have carefully considered the rival submissions of the parties and we do not find any merit in the preliminary objection raised by the Revenue. It is quite clear from the provisions of Section 255(3) of the Act that the President of the Tribunal has been given power to constitute a Special Bench of three or more members in disposing of an appeal. In fact, in the aforesaid decision of the Hon’ble Madras High Court, it has been held that a Division Bench of a Tribunal should not differ from the decision of another Bench where the facts and circumstances obtaining in the cases are identical. However, if a Division Bench was of the view that it was not possible to subscribe to the earlier decision or the earlier decision required reconsideration, in view of various circumstances including certain decisions of High Courts/Tribunals, it is expected of the later Division Bench to refer the matter to the President of the Tribunal for constituting a Special Bench instead of taking a contrary view and creating avoidable confusion. It is under these circumstances that, in the present case, the Division Bench had referred the matter to the President, vide its aforesaid order sheet entry and the President, after being satisfied that the appeal should be decided by a Special Bench, had constituted this present Bench for disposing of the appeal.
15. In view of the aforesaid discussion on the preliminary objection raised by the Revenue, we requested learned standing counsel for the Revenue to make his submissions on the merits of the case.
16. Placing a copy of the order of the Tribunal in the case of Jamnalal Sons Ltd. [1989] 29 ITD 164 (Bom) learned standing counsel for the Revenue submitted that this is a typical case where the Tribunal has clearly demonstrated how a device was adopted by the said company and other partners of Bajaj Tradings including the assessee, to avoid tax on capital gains. In this connection, he pointed out that the Tribunal has elaborately discussed the issue involved not only with reference to the facts and circumstances obtaining in that case but also in the case of Bajaj Trading as a whole and has come to the conclusion that all the partners of Bajaj Trading have adopted a device to avoid tax on the capital gains which each of them would have been required to pay, if they had sold the assets in the market instead of bringing the same by way of their capital contribution in the two firms after converting them into stock-in-trade. Inviting our attention to the relevant portions of the said order of the Tribunal, he further pointed out that each of the partners got back their capital in cash out of the advances received by Bajaj Trading in respect of the sale of plot of land of Janki Kutir and thus avoided huge tax on the capital gains by adopting the device of converting capital assets into stock-in-trade and bringing them as their capital contribution in the firms which were specifically formed for this purpose. According to learned counsel for the Revenue, the letters dated January 9, 1981, and March 18, 1981, addressed to the Income-tax Officer intimating the fact of conversion of shares is of no consequence as the Income-tax Officer is not supposed to act on such letters or to give his consent to such conversion. In any event, the so called declarations by way of letters to the Income-tax Officer were nothing but self-serving documents to which no credence could be given. He, therefore, submitted that we should uphold the action of the Income-tax Officer in bringing to tax Rs. 49,68,530.
17. Learned counsel for the assessee was fair enough to state that, in the assessment year 1980-81, the Income-tax Officer had not made any attempt to work out the capital gains and include the same in the total income of the assessee. However, the Commissioner of Income-tax took action under Section 263 of the Act and passed an order after rejecting the assessee’s contentions that no capital gains arose on the transfer of 3000 shares of Bajaj Auto to the firm of Bajaj Trading after converting them into stock-in-trade. He, therefore, directed the Income-tax Officer to bring to tax the capital gains which accrued/arose to the assessee on account of introduction of 3000 shares of Bajaj Auto as capital in the firm of Bajaj Trading on May 8, 1979. Against the said order of the Commissioner of Income-tax, the assessee preferred an appeal before the Tribunal and the Tribunal, vide its order dated March 30, 1990, in I.T.A. No. 2880/ Bom/85 set aside the order of the Commissioner of Income-tax on the ground of merger of the order of the Income-tax Officer with that of the Commissioner of Income-tax (Appeals). In doing so, tht Tribunal followed the decision of the Hon’ble Bombay High Court, in the case of P. Muncherji and Co. [1987] 167 ITR 671.
18. Thereafter, learned counsel for the assessee invited our attention to the deed of partnership dated May 8, 1979 of Bajaj Trading, more particularly, Clauses (1), (4), (5) and (7) thereof to urge that there was nothing unusual in the formation of the said partnership so as to come to the conclusion that the assessee and other partners had adopted a device to avoid tax on capital gains on the transfer of shares and other properties after converting them into stock-in-trade. He further submitted that it would be his endeavour to impress upon us that the order of the Tribunal in the case of Jamnalal Sons Ltd. would not have any bearing in deciding the point at issue. According to him, in deciding the appeal in favour of the Revenue in that case, the Tribunal appeared to be influenced by the fact that Jamnalal Sores Ltd. had brought in large plots of land of Janki Kutir after converting them into stock-in-trade and Bajaj Trading started receiving advances from the would be purchasers of the said plots of land. In this connection, he further submitted that the Tribunal had failed to take into consideration the fact that Bajaj Trading had traded in shares. In fact, there is no discussion in the said order of the Tribunal on the shares transferred by Jamnalal Sons Ltd. after converting them into stock-in-trade. In the instant case, he pointed out that not only did Bajaj Trading have dealings in shares in subsequent years but the assessee also had dealings in shares in his individual capacity in the year under consideration, as well as in the subsequent years. In this connection, he pointed out that the assessee held shares both as an investor, as well as a trader. He also pointed out that Bajaj Trading is being assessed right from the assessment year 1980-81 and is being granted registration under Section 185 of the Act from the assessment year 1980-81 onwards. According to him, once Bajaj Trading has been treated as a genuine firm, the Incpme-tax Officer was not justified in coming to an adverse inference against the assessee merely on the ground that he had brought in 2,000 shares of Bajaj Auto, after converting them into stock-in-trade, by way of his capital contribution. He referred to supplemental paper book No. 2 containing copies of the assessment orders in the cases of both Bajaj Trading and Anant Trading, statement giving details of dealings in shares for and from the assessment years 1984-85 to 1991-92 both in the case of the assessee as well as in the cases of Bajaj Trading and Anant Trading. He also made reference to the decision in the cases of Bai Shirinbai K. Kooka [1962] 46 1TR 86 (SC) and Hind Commission Agents [1963] 48 ITR 615 (Bom). According to him, the ratio laid down in the case of Sunil Siddharthbhai [1985] 156 ITR 509 (SC) has no application to the facts and circumstances obtaining in the instant case. He, therefore, submitted’that, since there was no ruse or device to avoid tax on capital gains, the Income-tax Officer was not justified in working out the capital gains at Rs. 15,77,780 in respect of the shares of Bajaj Auto brought in by the assessee in Bajaj Trading, by way of his capital contribution.
19. As regards Anant Trading, learned counsel for the assessee submitted that the assessee’s case is much stronger in as much as Anant Trading is dealing in shares apart from the shares of Bajaj Tempo brought in by the partners, by way of their share capital. He strongly objected to the action of the Income-tax Officer in valuing the shares of Bajaj Tempo at Rs. 95 per share in place of the cost price of Rs. 19.65 taken by the assessee. According to him, since no evidence has been brought on record to show that the assessee had brought in shares of Bajaj Tempo at a price higher than that disclosed by him, the Income-tax Officer was not justified in working out the capital gains at Rs. 33,90,750 and including the same in the total income of the assessee. Here also, he emphasised the fact that Anant Trading has been granted registration under Section 185 of the Act and the same is being continued from year to year. In other words, here also, he wanted to impress upon us that once the genuineness of the firm is not in doubt, the Income-tax Officer was not justified in working out the capital gains on certain presumptions/assumptions.
20. Learned counsel for the assessee further submitted that, since the Income-tax Officer has not doubted the genuineness of the transaction nor has he taken up any ground to that effect before the Tribunal, the Revenue should not be allowed to raise and argue such ground at this stage. He also submitted that, since the Hon’ble Supreme Court has reversed the decision of the Hon’ble Gujarat High Court in the case of Kartikey V. Sdrabhai [1981] 131 ITR 42 on which the Income-tax Officer had placed strong reliance, no fault could be found in the order of the Commissioner of Income-tax (Appeals) deleting the amount of capital gains included in the total income of the assessee.
21. Learned standing counsel for the Revenue, in his reply, submitted that the fact that Bajaj Trading and Anant Trading have been granted registration under Section 185 of the Act or that they are genuine firms would not be of any consequence as, in the instant case, we have to decide whether the transaction of bringing in assets in these firms after converting them into stock-in-trade is genuine or not. In this connection, he referred to the observation of the Hon’ble Supreme Court at page 523 of the report, in the case of Sunil Siddharthbhai [1985] 156 ITR 509. In this view of the matter, he strongly urged that the Commissioner of Income-tax (Appeals) was not justified in deleting the capital gains of Rs. 49,68,530 from the total income of the assessee merely on the ground that both the firms of Bajaj Trading and Anant Trading have been held to be genuine and have been granted registration under Section 185 of the Act. Learned standing counsel for the Revenue further submitted that as there was no difference between the facts/circumstances obtaining in Anant Trading and those obtaining in Bajaj Trading, the Income-tax Officer was justified in working out capital gains at Rs. 33,90,750 in respect of 45,000 shares,of Bajaj Tempo brought in by way of capital contribution in the firm of Anant Trading. He also supported the value of Rs. 95 per share adopted by the Income-tax Officer.
22. During the course of hearing, the decision in the cases of Bai Shirinbai K. Kooka [1962] 46 ITR 86 (SC), Hind Commission Agents [1963] 48 ITR 615 (Bom), K. P. Varghese [1981] 131 ITR 597 (SC), Sunil Siddharthbhai [1985] 156 ITR 509 (SC), Kartikey V. Sarabhai [1981] 131 ITR 42 (Guj), L. G. Ramamurthi [1977] 110 ITR 453 (Mad), Jehangir B, Jeejeebhoy [1988] 169 ITR 552 (Bom), Harikishan Jethalal Patel [1987] 168 ITR 472 (Guj), Dhirajben R. Amin [1988] 174 ITR 307 (SC), Durga Prasad More [1971] 82 ITR 540 (SC) and the orders of the Tribunal, in the cases of Jamnalal Sons Ltd. [1989] 29 ITD 164 (Bom) and Dr. Gaur Hari Singhania [1986] 16 ITD 1 (Bom) were referred to.
23. We have considered the rival submissions of the parties and have very carefully gone through the order of the Tribunal, in the case pf Jamnalal Sons Ltd., as well as the material already brought on record and we do not find any compelling reasons to differ from’the view taken by the Tribunal in the case of Jamnalal Sons Ltd. The assessee may be at liberty to say that the view in favour of Jamnalal Sons Ltd. was possible but that fact by itself, could not be made a plank to say that the view taken by the Tribunal requires reconsideration or that it should not be followed in this case. In fact, no distinguishing features have been brought out between the facts and circumstances obtaining in the case of Jamnalal Sons Ltd. and those obtaining in the assessee’s case. On the contrary, learned standing counsel for the Revenue has very rightly pointed out that, while deciding the issue in the manner it did in the case of Jamnalal Sons Ltd., the Tribunal has not only considered the facts and circumstances obtaining in that case but has also considered the facts and circumstances obtaining in the case of Bajaj Trading as well as its partners, including the assessee. We do not find anything wrong in the approach adopted by the Tribunal as it accords with the decision of the Hon’ble Supreme Court in the case of Sunil Siddharthbhai [1985] 156 ITR 509, more particularly, the observations appearing at page 523 of the report. It is no doubt true that both the firms, namely, Bajaj Trading and Anant Trading, are genuine firms and have been treated as such by their respective Income-tax Officers. However, in the instant case, we are concerned with the bona fides/genuineness of converting shares held as investments so far into stock-in-trade and then bringing them as capital contribution in the firms of Bajaj Trading and Anant Trading. Again, it is pertinent to note that, prior to the formation of these two firms, all the partners were holding shares and/or lands as investments. It was only when M/s. Jamnalal Sons Ltd. had to pay large amounts of tax on capital gains in some land transactions earlier, that the Bajaj group, as a whole, thought of a device to convert some of their assets into stock-in-trade and then bringing them as capital contribution in the firms of Bajaj Trading and Anant Trading with a view to altogether avoid huge amount of tax on capital gains in the sale of plots of land of Janki Kutir, as well as the shares of Bajaj Auto and Bajaj Tempo as and when assets are sold in future. Again, it was only from the assessment year 1981-82 that the assessee started dealing in shares, perhaps with a view to establish that he too is engaged in the business of share dealing. Similarly, both Bajaj Trading and Anant Trading had dealings in shares after their coming into existence. However, that fact by itself would not make bringing in the shares of Bajaj Auto and Bajaj Tempo by the partners of the two firms any the less “transfer” so as not to attract the provisions relating to capital gains. In fact, the Commissioner of Income-tax (Appeals) has also held that there was transfer of the assets by the partners and the assessee has accepted the said decision of the Commissioner of Income-tax (Appeals) as he has not come up in appeal challenging that decision. The object and puYpose of converting the assets into stock-in-trade and then bringing them as capital contribution in the two firms are so obvious that they do not require any elaboration. Again, we do not approve of the view taken by the Commissioner of Income-tax (Appeals) that since the firms of Bajaj Trading and Anant Trading are genuine firms and recognised as such under Section 185 of the Act, there is no question of working out the capital gains in the manner done by the Income-tax Officer. In our opinion, the Commissioner of Income-tax (Appeals) has failed to comprehend the observations made by the Hon’ble Supreme Court at page 523 of the report in the case of Sunil Siddharthbhai [1985] 156 ITR 509. The Hon’ble Supreme Court has clearly held that even though a firm may be genuine and recognised as such under Section 185 of the Act, the transaction may not be genuine as there was possibility of a taxpayer adopting a device with a view to avoiding tax on capital gains. In the instant case, the Bajaj group, as a whole, has adopted such a device with a view to avoiding huge amounts of tax on capital gains on the sale of assets which the partners of Bajaj Trading have brought into the firm by way of their share capital. It is no doubt true that, in the case of Jamnalal Sons Ltd., the Tribunal has mainly focussed its attention on the land transaction of Janki Kutir. But it cannot be said that the Tribunal has altogether omitted to deal with the share transaction, if the order of the Tribunal is read as a whole as it should be. As the issue involved in the appeal mainly revolves round the facts obtaining in that case, no fault could be found in the order of the Tribunal, in the case of Jamnalal Sons Ltd. for not referring to other orders referred to at the time of hearing. We also do not deem it fit to refer to the reported decisions/orders as, according to us, the facts and circumstances obtaining in the present case are so clear and eloquent that no other view is possible but to hold that the assessee was liable to tax on capital gains in the aforesaid transactions.
24. It is pertinent to note that the Income-tax Officer had relied on the decision of the Hon’ble Gujarat High Court in the case of Kartikey V. Sarabhai [1981] 131 ITR 42 only with a view to hold that there was “transfer” in bringing into the firm as capital contribution shares of Bajaj Auto and Bajaj Tempo after converting them into stock-in-trade. In the case of Sunil Siddharthbhai [1985] 156 ITR 509, the Hon’ble Supreme Court has upheld the decision of the Hon’ble Gujarat High Court on this issue. However, the Hon’ble Supreme Court has decided the case (at page 523)” on the assumption that the partnership firm in question is a genuine firm and not the result of a sham or unreal transaction and that the transfer by the partner of his personal asset to the partnership firm represents a genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnersship business”. At page 523 of the report, however, the Hon’ble Supreme Court has further observed that” If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain” (emphasis* supplied). The Supreme Court pronounced the decision on September 27, 1985. Therefore, when the Income-tax Officer framed the assessments on September 11, 1984, he had no benefit to consider the guidelines emphasised above. Under the circumstances, neither in his orders nor in the appeal filed in the Tribunal on May 2, 1986, could the Revenue have made out its case on this aspect of the matter. In our opinion, the Commissioner of Income-tax (Appeals) ought to have considered this aspect of the matter instead of simply deleting Rs. 49,63,530 from the total income of the assessee on the grounds that Bajaj Trading and Anant Trading were genuine firms and registration was granted to them under Section 185 of the Act. However, that fact by itself would not debar the Revenue from contending that the appeal should be decided in the light of the said decision of the Hon’ble Supreme Court. This aspect of the matter has been considered by the Tribunal in the case of Jamnalal Sons Ltd. [1989] 29 ITD 164 (Bom) with which we fully concur, as it cannot be disputed that the Tribunal has to apply the said decision of the Hon’ble Supreme Court to the facts and circumstances obtaining in the present case.
25. In view of the above discussion, we have no hesitation in reversing the order of the Commissioner of Income-tax (Appeals). However, as the Commissioner of Income-tax (Appeals) has not dealt with the quantum of capital gains which could be brought to tax in view of the decision he took, we restore this aspect of the matter to his file, with a direction to give his decision in this regard after affording opportunity of being heard to both the parties.
26. In the result, the appeal is partly allowed.