RAMANUJAM J.


The assessee in this case is a partner in a partnership firm known as Oriental Enterprises. The assessee was the owner of property at No. 20, G. N. Chetty Road, Madras. During the previous year relevant to the assessment year 1976-77, the assessee made a declaration to the effect that the property situate at No. 20, G. N. Chetty Road, will thereafter be the property of the firm, Oriental Enterprises. The consideration agreed to was Rs. 1, 20, 000 as against the book cost of Rs. 76, 000. The declaration was followed by book entries by which the assessee's account in the firm was credited with the sum of Rs. 1, 20, 000 while a corresponding debit entry was made in the books of the firm. In the course of the assessment proceedings for the assessment year 1976-77, the assessee claimed before the Income-tax Officer that the profit of Rs. 44, 000 was not assessable to tax as capital gains since there was no transfer involved in the conversion of individual property into partnership property. The Income-tax Officer rejected the claim of the assessee and held that the profit derived on transfer of property to the firm was liable to tax. Aggrieved by the decision of the Income-tax Officer, the assessee went before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the contention of the assessee and held that the assessee was not liable to tax on capital gains since the transfer was not effected through a registered document, that the declaration executed by the assessee on stamp paper of the value of Rs. 5 followed by mere book entry could not effectively transfer the title of the property, that in the absence of a sale deed executed by the assessee in favour of the transferee, the purported transfer could not constitute an effective sale and that in the absence of a valid transfer through a registered document, there was no sale to attract the charge of capital gains on the surplus realised on the transaction. Dissatisfied with the order of Appellate Assistant Commissioner, the Revenue appealed to the Appellate Tribunal. Before the Tribunal, it was contended that the conversion of individual property into property of the firm did not require registration and the transfer was valid even in the absence of a registered document. On the other hand, the contention of the assessee before the Tribunal was that it was not liable to tax on capital gains in view of the fact that there was no transfer involved in the conversion of individual property into partnership property and that there cannot be any valid transfer in the absence of a registered sale deed. Aggrieved by the view taken by the Tribunal, the Revenue is seeking a direction in this reference petition to the Tribunal to refer the following question for the opinion of this court.



"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that no capital gains arose on the sale of the property by the assessee to the firm and accordingly there was no liability to capital gains for the tax assessment year 1976-77 ?" *


It is seen from the order of the Tribunal that it has given two reasons for holding that the transaction is not liable to tax on capital gains. One is that there is no valid registered document of transfer and, therefore, the transaction will not attract tax on capital gains. The second is that when an individual property is converted into a partnership property, no transfer is involved and, therefore, there is no liability to tax on capital gains. As we are inclined to agree with the first reasoning of the Tribunal that in the absence of a registered document, there could be no valid transfer of the property from the assessee to the partnership, we are not going to make an order for reference. Admittedly, the property said to have been transferred is valued between the parties at Rs. 1, 20, 000. For the transfer of a property which is worth more than Rs. 100, a stamped and registered document of transfer is necessary under the provisions of the Stamp Act as well as the Registration Act. Therefore, both the Appellate Assistant Commissioner and the Tribunal are right in holding that unless there is a valid registered document of transfer transferring the immovable property at door No. 20, G. N. Chetty Road, Madras, there is no liability to tax on capital gains. Since this finding of the Tribunal is sufficient to justify its conclusion that there is no liability to tax on capital gains in this case, we are not going into the conclusion of the Tribunal that the conversion of individual property into partnership property does not involve any transfer of property as that question is

not free from difficulty. Therefore, while sustaining the finding of the Tribunal that since there is no registered document, there is no transfer of immovable property and hence no liability to tax on capital gains, we are not expressing any opinion on the finding of the Tribunal that conversion of individual property into partnership property does not involve transfer of property. In this view of the matter, we do not see any justification for directing a reference in this case. The tax case petition is dismissed. No costs.