ITR No. 29 of 1997 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No. 29 of 1997 (O&M) Date of decision: November 9, 2009 The Commissioner of Income Tax, Patiala ...Appellant Versus M/s Sood Harvestors, Patiala ...Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE GURDEV SINGH Present: Ms. Urvashi Dhugga, Advocate, for the revenue. ORDER 1. At the instance of the revenue, following question of law has been referred for the opinion of this Court by the Income-Tax Appellate Tribunal, Chandigarh, arising out of its order dated 27.6.1996 in I.T.A. No. 1368/Chandi/1990 relating to assessment year 1986-87:- “(i) Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that profit on sale of combine and capital gains could be at best assessed in the asstt. Year 1985-86 when sale took place on 17.10.1985 and income from running of combine upto 17.10.1985 amounting to Rs. 12,000/- was held to be assessable in the hands of the firm in the asstt. Year 1986-87 and in earlier year also it was held that transfer before sale was a device to avoid tax on profit on sale u/s 41 (2) and capital gains ?” 2. The assessee firm had three partners and sold its harvestor ITR No. 29 of 1997 2 combine to one of its partners. The said partner became partner of another firm and she transferred the said combine to that firm. Thereafter, the combine was further sold by the firm to two individuals. 3. The Assessing Officer held that by transferring the harvestor to the partner and thereafter to another firm of which the said partner had become partner was just a device and, thus, the harvestor continued to be that of the assessee firm. Income derived from use of the said harvestor combine was required to be added to the income of the assessee, apart from capital gain to be calculated with reference to ultimate sale price. The Assessing Officer added income from running of the combine and profit on sale under Section 41 (2). This order was upheld by CIT (A) but the Tribunal reversed the addition by holding that the transaction was not a device but genuine. It was further held that capital gains were required to be added in the hands of the second firm i.e. M/s S.V. harvestor Co. 4. The findings of the Tribunal are as follows:- “...We, therefore, hold that the income from the said combine shown in the hands of M/s S.V. harvestor Co. was correctly assessable in the hands of the assessee firm. Since the income of Rs. 12,000/- had been taken upto 16.10.1985, the same is in order. We hold accordingly. 10. As regards the assessability or otherwise of profit u/s 41 (2) and capital gains, the facts clearly show that the transfer of the third combine to Smt. Santosh Sood partner on its WDV of Rs. 3,847/- took place on 3.4.1984 relevant to assessment year 1985-86. She had already become a partner of M/s S.V. harvestor Co. on 1.4.1984. She in turn transferred the combine ITR No. 29 of 1997 3 to M/s S.V. harvestor Co. in 1984 relevant to assessment year 1985-86. To this extent, there was a device by the assessee firm. But the transfer by Smt. Santosh Sood to M/s S.V. harvestor Co. had taken place in the year relevant to assessment year 1985-86 and, therefore, the assessment of profit u/s 41 (2) and capital gains in the hands of the assessee firm for assessment year 1986-87 was not in order. At best, it could be assessed in the hands of the assessee firm for assessment year 1985-86. When the transfer to S/Shri Manjit Singh and Ranjit Singh took place on 17.10.1985, it was M/s S.V. harvestor Co. which transferred the combine and not the assessee firm or Smt. Santosh Sood. In that view of the matter, on the sale of Rs. 3,50,000/-, profit u/s 41 (2) and capital gains, if any, were to be assessed in hand hands of M/s S.V. harvestor Co. for assessment year 1986-87. In either view of the matter, so far as assessment year 1986-87 in the case of the assessee firm is concerned, there was no warrant for assessing profit u/s 41 (2) and capital gains in its hands. We, therefor, order the deletion of profit u/s 41 (2) of Rs. 53,817/- and capital gains of Rs. 1,40,602/- from the total income of the assessee. This appeal is partly allowed.” 5. We have heard learned counsel for the parties. 6. Learned counsel for the appellant submits that neither registration was done with the competent authority under the provisions of Motor Vehicle Act, nor the partner to whom sale was made was earlier partner of the earlier firm. She became partner only two days before the ITR No. 29 of 1997 4 sale. The price of harvestor in favour of partner was at WDV of Rs. 3,847/- and further sale was for Rs. 3,50,000/-, which shows that there was device to avoid tax. The Tribunal itself noticed that device was employed but wrongly observed that transaction in the next year could not affect income of assessee for the earlier year. 7. Even though there may be substance in the submissions made, having regard to the fact that the matter relates to period of more than 20 years ago and the amount is not substantial nor the issue is of recurring nature, we do not consider it appropriate to take a final view on merits and consider it proper to return the reference unanswered, leaving the question open. 8. Reference is returned unanswered. (ADARSH KUMAR GOEL) JUDGE November 9, 2009 (GURDEV SINGH ) prem JUDGE