JUDGMENT

PATHAK, J. :— This and the connected appeal, filed by certificate granted by the High Court, raise the interesting question whether the capital contribution by a partner to the assets of a partnership firm at an appreciated value can be said to give rise to a capital gain in his hands liable to income-tax.

2. In Civil Appeal No. 1841 of 1981, the facts are as follows. The appellant, who is the assessee, was a partner in Messrs. Suvas Trading Company, a partnership firm constituted under a deed of partnership dated Sept 27, 1973. As his contribution to the capital of the partnership firm the assessee made over certain shares of limited companies which were held by him as his capital assets. The book value of those shares in his account books was shown as Rs. 1,60,279/-, (sic) but on the date when he contributed those shares to the partnership firm he revalued the shares at the market value of Rs. 1,49,819/- (sic), and debited the resulting difference of Rs. 10,460/-to his capital account.

3. The Income-tax Officer, when drawing up the assessment order for the assessment year 1974-75 in respect of the assessee, did not include the difference in the assessable income. The Commissioner of Income-tax, however, being of opinion that the difference between the market value of the shares and the cost of acquisition of the shares to the assessee should. have been brought to tax as capital gains in view of S. 45 of the Income-tax Act 1961, exercised his revisional jurisdiction, and reopening the assessment he remanded the case to the Income-tax Officer directing him to revise the assessment after computing the capital gains arising out of the transfer. The assessee appealed to the Income-tax Appellate Tribunal, and the Appellate Tribunal held that while the transaction did amount to a transfer within the meaning of sub-sec. (47) of S. 2 of the Income-tax Act it did not result in capital gains liable to tax. The Appellate Tribunal allowed the appeal and set aside the order of the Income-tax Officer. Subsequently the Appellate Tribunal referred the case to the High Court of Gujarat for its opinion on the follwing questions of law :

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that no capital gains resulted from the transfer of the shares held by the assessee to the partnership firm as his capital contribution, the cost of acquisition of the shares to the assessee being Rs. 1,49,819/- and the market value of the shares being Rs. 1,60,279/-?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was a transfer within the meaning of sub-s. (47) of S. 2 of the income-tax Act 1961 of the shares contributed by the assessee as capital to the partnership firm in which he was a partner?

4. In Civil Appeal No. 1777 of 1981, the appellant was a partner in a registered partnership firm, Messrs. Rajka, of which the other partner was his wife. The partnership was constituted under an agreement dated Feb. 25, 1973. The partnership deed recited that the partnership business had commenced on Jan. 1, 1973, that it was a partnership at will and further provided that the assessee would initially contribute Rs. 9,000/- in cash to the share capital of the firm and his wife would contribute Rs. 1,000/- in cash. It was provided that when any addition to the capital was required for the purposes of the partnership, the partners would contribute such additional capital from time to time. It was further provided that if any asset was brought in by a partner as capital contribution the account of such partner would be credited with the fair market value on the date the asset was brought in. The assessee had in his possession 580 ordinary shares of the Ahmedabad Manufacturing and Calico Printing Company Limited which had been purchased at Rs. 1,55,440/-. He had also 82 ordinary shares of Karamchand Premchand Private Limited p