HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Shri Sunil Siddharthbhai etc. v. Commissioner of Income Tax, Ahmedabad etc.
Civil Appeal No. 1841 of 1981 / Civil Appeal No. 1777 of 1981
[1985] Supp. (3) SCR 102 ·
2(47) · 45 · 48
Sources & disclosures includedDownload original judgment / order
Three-judge bench · P.N. Bhagwati, CJI · R.S. Pathak, J. · Amarendra Nath Sen, J.
Assessment years: 1974-75, 1973-74
01 · Facts of the case
The appeals concerned partners who contributed shares held as personal capital assets to partnership firms. In CA 1841/1981, involving Suvas Trading Company and AY 1974-75, the Commissioner used revision jurisdiction after the assessment did not charge the asserted gain. The Tribunal treated the contribution as a transfer but found no taxable capital gain. The report contains an unresolved numerical reversal: the narrative gives book value Rs.1,60,279, market value Rs.1,49,819 and a Rs.10,460 debit, while the referred question gives acquisition cost Rs.1,49,819 and market value Rs.1,60,279. No corrected quantum is assumed in this note (SCR 109 D-110 C).
In CA 1777/1981, the assessee and his wife were partners in Rajka. On 22 March 1973 he introduced two shareholdings costing Rs.1,81,106, and the firm credited his capital account with Rs.4,75,136. For AY 1973-74 the Income-tax Officer assessed the Rs.2,94,030 difference as capital gain. The first appeal failed, but the Tribunal held there was no transfer and therefore did not examine consideration. Both references were decided for Revenue by the Gujarat High Court’s common judgment dated 30 April/1 and 4 May 1981 (SCR 110 D-111 G).
Source: See the proposition-specific paragraph and PDF-page references below.
02 · Discussion by the Hon’ble Court
The Court accepted that a partnership firm is not a separate legal entity for the property-law proposition under consideration and that contributing an asset is not a sale. Those points did not answer the wider statutory transfer question. Section 2(47) was inclusive, not exhaustive. Reducing exclusive ownership of a personal asset to a shared interest with the other partners involved a transfer, despite the contributor retaining an abridged interest. The Madras decisions in Abdul Khader Motor and Lorry Service and H. Rajan/H. Kannan were not accepted insofar as their no-transfer conclusion treated the enumerated definition as exhaustive (SCR 113 A-114 H and 118 A-B).
The Court explained the character of partnership property by reference to Addanki Narayanappa. During the firm’s subsistence a partner cannot isolate or dispose of a particular item as exclusively his own; his rights include sharing profits and, on dissolution or retirement, realising his share of net assets after liabilities. The dissolution/retirement authorities were distinguished: realisation of an existing shared interest is different from introducing an exclusively owned asset into common partnership ownership. The Registration Act argument likewise did not negate a transfer: authorities dispensing with a written transfer instrument or registration rested on intention and agreement, not on absence of any transfer. The actual assets here were shares, and no general conveyancing or registration dispensation is decided for every immovable-property transaction (SCR 114 G-117 H).
The second step was independent. Applying B.C. Srinivasa Setty’s integrated charging-and-computation approach, the Court held that the consideration received by the contributing partner could not be evaluated as section 48 required. His consideration comprised profit-sharing and a future share in net assets; future liabilities, losses and the date of exit could not then be ascertained. A capital-account entry was a notional inter-partner adjustment, not the true presently computable consideration or a debt payable by the firm. Accordingly the computation machinery could not operate (SCR 118 C-119 C).
The Court also concluded that no real income or gain accrued in the commercial sense. The entry could be exhausted by subsequent losses, even during the same accounting year. Revenue’s objection that this legal aspect had not been referred or previously argued was rejected because it was fundamental to, and within, the questions referred. These were reasons for absence of a taxable capital gain under the then scheme, not a reversal of the holding that a transfer occurred (SCR 119 D-121 C).
Both answers expressly rested on genuine firms and genuine business capital contributions. Authorities could examine a sham partnership and could also scrutinise an asset contribution to an otherwise genuine firm if it was a device to convert the asset into money substantially available to the contributor while avoiding capital-gains tax. Relevant indicators included a family-only firm, rapid subsequent sale, absence of substantial business and lack of a genuine need for the capital; the judgment did not treat any single indicator as automatically conclusive (SCR 121 D-122 A).
Source: See the proposition-specific paragraph and PDF-page references below.
03 · Judicial decision
The common answers were: (1) the contribution of shares to partnership capital was a transfer; (2) on the assumed genuine transactions, no consideration within section 48 and no profit or gain for section 45 arose. Both answers were expressly subject to the Court’s genuine-transaction/device reservations. Civil Appeals 1841 and 1777 of 1981 were partly allowed, with no order as to costs. The operative order does not separately direct a remand or quantify a final assessment (SCR 122 B-E).
Source: See the proposition-specific paragraph and PDF-page references below.
04 · Outcome / in whose favour
In whose favour: Assessees on capital-gains charge; Revenue on existence of transfer
Both appeals partly allowed; no order as to costs
Transfer established, but then computation/real-gain requirements not satisfied on the stated assumptions
Not a no-transfer holding or unconditional exemption. Sham/device scrutiny expressly preserved. Subsequent section 45(3) materially limits automatic later-period use.
Source: See the proposition-specific paragraph and PDF-page references below.
05 · AKHB REVIEW POINT
Keep the two legal steps separate: an introduction of personal property into partnership ownership can be a transfer even where the then charging/computation system yields no taxable gain. Record the nature of the asset, partnership agreement, capital entry, subsequent disposal, use of funds and real business need. The judgment’s stated assumptions must be tested; it does not validate a tax-free conversion scheme or equate every family partnership with a sham.
A bounded check of the Income Tax Department’s 1993-version section 45(3) and footnote 3 confirms a later provision inserted by the Finance Act, 1987 with effect from 1 April 1988. It charges gains on a person’s capital-asset contribution or other transfer to a qualifying firm, association or body in which that person is or becomes a partner/member, and deems the amount recorded in that entity’s books to be consideration for section 48. That later rule directly addresses the computation obstacle discussed here. The 1985 no-charge outcome therefore cannot automatically govern transactions falling under it. This check establishes a historical legislative change only; it does not certify current-law interactions, comprehensive later judicial treatment or 2025 mapping.
Source: See the proposition-specific paragraph and PDF-page references below.
Proposition-specific source paragraphs and PDF pages
- topic
- Identity and exact two-appeal grouping
- source url
- Open cited source
- pdf pages
- 1; 7; 8
- paragraphs
- SCR 102 A-B; 108 D-H; 109 A-C
- source role
- reported metadata and judicial text
- topic
- Lead appeal facts and conflicting referred values
- source url
- Open cited source
- pdf pages
- 8; 9
- paragraphs
- SCR 109 D-110 C
- source role
- judicial text
- topic
- Rajka facts, amounts, year and references
- source url
- Open cited source
- pdf pages
- 9; 10
- paragraphs
- SCR 110 D-111 G
- source role
- judicial text
- topic
- Headnote/body inconsistencies
- source url
- Open cited source
- pdf pages
- 2; 8; 9
- paragraphs
- SCR 103 A-F versus 109 C and 110 D-G
- source role
- editorial headnote and judicial text
- topic
- Then sections 45 and 48
- source url
- Open cited source
- pdf pages
- 10; 11
- paragraphs
- SCR 111 H-112 C
- source role
- judicial text
- topic
- No sale does not mean no transfer; inclusive section 2(47)
- source url
- Open cited source
- pdf pages
- 12; 13
- paragraphs
- SCR 113 A-114 H
- source role
- judicial text
- topic
- Partnership property and dissolution distinction
- source url
- Open cited source
- pdf pages
- 14; 15; 16
- paragraphs
- SCR 115 A-117 E
- source role
- judicial text
- topic
- Registration argument confined to absence of required instrument
- source url
- Open cited source
- pdf pages
- 16
- paragraphs
- SCR 117 E-H
- source role
- judicial text
- topic
- Transfer conclusion and computation obstacle
- source url
- Open cited source
- pdf pages
- 17; 18
- paragraphs
- SCR 118 A-119 C
- source role
- judicial text
- topic
- Real gain, capital entry and scope of reference
- source url
- Open cited source
- pdf pages
- 18; 19; 20
- paragraphs
- SCR 119 D-121 C
- source role
- judicial text
- topic
- Genuine-transaction assumptions and scrutiny indicators
- source url
- Open cited source
- pdf pages
- 20; 21
- paragraphs
- SCR 121 D-122 A
- source role
- judicial text
- topic
- Two conditional answers, partly allowed and no costs
- source url
- Open cited source
- pdf pages
- 21
- paragraphs
- SCR 122 B-E
- source role
- judicial text
- topic
- Bounded later legislative change; not part of the judgment
- source url
- Open cited source
- provision
- Section 45(3), official page labelled year 1993; footnote 3 records Finance Act, 1987 insertion effective 1 April 1988
- source role
- later official statutory text
Additional statutory context, not separate holdings
Revision jurisdiction (provision number not expressly stated in this judgment)Judicial authorship and separate opinions
R.S. Pathak, J.Act identified in the reviewed source
Income-tax Act, 1961Specified later statutory change and limits of the check
- status
- verified limited
- source url
- Open cited source
- source version
- Income Tax Department, Income-tax Act, 1961, section 45, year 1993
- provisions read
- 45(3); footnote 3
- finding
- Capital-contribution charge and book-value deemed consideration inserted by Finance Act, 1987, effective 1 April 1988. This differs materially from the computation law applied to the 1973-74/1974-75 appeals.
- not claimed
- No comprehensive later-treatment, current-law, section 45(4)/9B interaction or 2025 Act audit; the amendment is not described as retrospectively governing these appeals.
Other statutory provisions and their separate scope
Indian Partnership Act, 1932, section 14 and partnership-property principles; Registration Act, section 17(1)(b), discussed to explain why absence of a registrable instrument does not establish absence of a transfer; Income-tax Act, 1961, later section 45(3): bounded subsequent legislative check only, not part of the 1985 holdingIndividual appeal groups and their disposition
- case numbers
- Civil Appeal No. 1841 of 1981
- assessment years
- 1974-75
- partnership
- Suvas Trading Company
- origin
- Gujarat High Court, Income Tax Reference No. 235 of 1980
- disposition
- Partly allowed on the common two answers, subject to genuine-transaction reservations
- costs
- No order as to costs
- case numbers
- Civil Appeal No. 1777 of 1981
- assessment years
- 1973-74
- partnership
- Rajka
- origin
- Gujarat High Court, Income Tax Reference No. 34 of 1980
- disposition
- Partly allowed on the common two answers, subject to genuine-transaction reservations
- costs
- No order as to costs
Source & verification
Download original judgment / order · Open cited source rendition
Identified source rendition: 21 PDF pages; SHA-256 f77a06ab92b7e2b400aeecc0eeeead21210ab9aec161ac53f7149bf152407424. Original bytes preserved. Complete unnumbered judicial text begins at physical page 8/SCR 109 C (Pathak J) and ends page 21/SCR 122 D-E with the two answers expressly subject to the genuine-transaction reservations, appeals partly allowed and no order as to costs. Headnote and report metadata occupy pages 1-8 before the judicial opening. No separate opinion or adjacent judgment.
- Printed running header is [1985] SUPP.3 S.C.R.; no second appellant name inferred from external descriptions.
- The lead narrative at SCR 109 E and its first referred question at SCR 110 B reverse the Rs.1,49,819/Rs.1,60,279 acquisition/market roles. The discrepancy is visible in the original report; no substituted amount or gain is calculated.; For Rajka the headnote says 24 February 1973 and 580 ordinary Ahmedabad-company shares (SCR 103), whereas the judicial narrative prints 25 February 1973 and 80 shares (SCR 110). The note uses the undisputed total cost, capital credit and disputed gain without repairing the share count.; The headnote describes special leave; the judicial opening at SCR 109 C says High Court certificate. The judicial account controls the route description.; No separate opinion appears. Editorial numbered holdings are not judicial paragraph numbers.; The Registration Act discussion concerns the no-transfer argument. It supplies no universal registration, title-transfer or stamp-duty exemption.; The later section 45(3) check is confined to the official 1993 statutory version and insertion footnote, not a current-law status certificate.
- AY 1974-75 belongs to CA 1841/1981 and AY 1973-74 to CA 1777/1981. The judicial opening describes appeals by High Court certificate; the headnote’s special-leave description is not adopted.
Statutory scope
No automatic current-law application or Income-tax Act, 2025 mapping. Identify the governing period and operative statutory text independently.
Later treatment
Source checked 2026-10-04. Subsequent appeals, reviews, stays, reversals and judicial treatment have not been comprehensively checked. Any bounded later statutory check is separately identified; this is not a citator status certificate.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
Identified source links
- reported judgment — PDF 21 pages
SHA-256: f77a06ab92b7e2b400aeecc0eeeead21210ab9aec161ac53f7149bf152407424
- later official statutory text
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