A.M. Ahmadi, J.
1. The assessee, an individual, had income from dividends as sole beneficiary of certain trusts. She and the trusts of which she was the sole beneficiary contributed the shares to M/s. Kalpana, a partnership, after converting the said capital into stock-in-trade. She and the trusts thus contributed various shares of companies as capital contribution to the said firm. The entries were made in the books of account of the assessee to the effect that the said shares were converted into stock-in-trade. The Income-tax Officer held that the conversion was not proper as the said shares were not easily marketable. He, therefore, came to the conclusion that the assessee had transferred her shares to the partnership of M/s. Kalpana within the meaning of section 2(47) of the Income-tax Act, 1961, and had, therefore, made herself liable for capital gains tax which he levied as per the assessment order finalised by him. He took the same view in regard to the contribution made by the trusts of which he was the sole beneficiary.
2. Feeling aggrieved by the order passed by the Income-tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner, Ahmedabad. The Appellate Assistant Commissioner came to the conclusion that the so-called conversion of shares into stock-in-trade was not acceptable as there was no evidence to support the same and on account of non-marketability of the shares in question, the firm of M/s. Kalpna had not done any business worth the name and as the only transaction appears to be in regard to the sale of the so-called share contribution to the associated companies, the share contribution can be said to be a camouflage for transferring the shares from the assessee to the order companies, in fact that the real transaction was the transfer of shares from the assessee to the other companies and even if it is presumed that the business was genuine and the shares were genuinely contributed as capital, capital gains tax would be attracted. He, therefore, came to the conclusion that the Income-tax Officer was justified in levying capital gains tax on the share contribution. The appeal of the assessee, therefore, failed to the above extent.
3. The assessee carried the matter to the Income-tax Appellate Tribunal. The Tribunal took the view that the assessee had every right to plan her affairs in such a manner that capital gains tax is not attracted. On the facts of the case, the Tribunal held that there was no transfer of a capital asset within the meaning of section 2(47) of the Income-tax Act and, consequently, the question of consideration did not arise. It, therefore, overturned the decisions of the authorities below to the effect that the assessee was liable to pay capital gains tax on the transfer of shares to M/s. Kalpna, a partnership firm.
4. The Revenue, feeling aggrieved by this order, sought a reference under section 256(1) of the Income-tax Act. The Tribunal has made a reference on the following two points :
'(1) Whether, on the facts and in the circumstances of the case, the amount of Rs. 42,84,874 as long-term capital gains and Rs. 2,82,288 as short-term capital gains were includible in the assessee's total income for the assessment year 1974-75
(2) Whether, on the facts and in the circumstances of the case, a sum of Rs. 34,78,587 was includible in the assessee's total income for the assessment year 1974-75 on account of capital gains being income from Leena A. Sarabhai Trusts ?'
5. After hearing counsel for the Revenue as well as the assessee, we are of the view that in order to bring out the real controversy between the parties, it is necessary to reframe the questions which arise for our determination. Both learned counsel agree that the questions which arise for determination in the present reference are similar to the questions which arose for this court's consideration in CIT v. Kartikey v. Sarabhai : [1981]131ITR42(Guj) . By consent, therefore, we reframe the questions for decision as under :
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the contribution in the form of shares in the partnership firm of M/s. Kalpna did not amount to a transfer within the meaning of section 2(47) of the Income-tax Act
(2) If not, whether the Tribunal erred in not considering whether the transfer is with or without consideration ?'
6. In Sunil Siddharthbhai v. CIT : [1985]156ITR509(SC) , the Supreme Court came to the conclusion that such a transaction would amount to transfer within the meaning of section 2(47) of the Income-tax Act. In other words, the Supreme Court confirmed the view taken by this court in Kartikey v. Sarabhai : [1981]131ITR42(Guj) , in this behalf. We must, therefore, answer the first question in favour of the Revenue and against the assessee and hold that the transactions in question amounted to transfer within the meaning of section 2(47) of the Income-tax Act.
7. The Tribunal did not go into the question whether the transfer in question was with or without consideration as it held that there was no transfer within the meaning of section 2(47) of the Income-tax Act. Since the finding recorded by the Tribunal on the question of transfer cannot be sustained in view of the decision of the Supreme Court in Sunil Siddharthbhai : [1985]156ITR509(SC) , it is obvious that the question of consideration must be answered. We are, therefore, of the opinion that the Tribunal was in error in not considering whether the transfer was with or without consideration. We must, therefore, answer the second question in the affirmative, that is to say, that the Tribunal committed an error in not going into the question of consideration.
8. Mr. Soparkar, learned counsel for the Revenue, invited our attention to the observations of the Supreme Court in the case of Sunil Siddharthbhai : [1985]156ITR509(SC) and contended that it was open to the Revenue to argue and establish that the transactions in question were sham and illusory or a device or a ruse to avoid the payment of tax. We have noticed that the Appellate Assistant Commissioner had in his order observed that the share contribution to M/s. Kalpna was camouflage for transferring the shares from the assessee to the other companies and the real transaction was the transfer of the shares from the assessee to the other companies. He, therefore, submitted that when the matter was sent back to the Tribunal for determination of the consideration in respect of the transaction in question, it would be open to the Revenue to urge that the entire transaction in question, was a ruse or a device to avoid the payment of tax. It is clear from the decision of the Supreme Court in Sunil Siddharthbhai's case : [1985]156ITR509(SC) , that if the facts and circumstances of the case so warrant, the Revenue would be entitled to show that the transaction was not a genuine one but was merely an illusory transaction arranged with a view to avoiding the payment of tax. In other words, if the facts so warrant, it would be open to the Tribunal to permit the Revenue to show that the transaction is not a genuine one and is merely eyewash to avoid the payment of tax. We do not propose to make any observations as to the nature of the transaction and would leave it to the Tribunal to decide the question if urged by the Revenue in the facts and circumstances of the present case.
9. Mr. Soparkar apprehended that our observations in ITR No. 25 of 1987, decided on April 9/16, 1987 (CIT v. Harikishan Jethalal Patel : [1987]168ITR472(Guj) ), may stand in the way of the Revenue. He particularly invited our attention to the observations in the paragraph beginning with the words 'in the present case' in support of his case that on account of these observations, the Tribunal may foreclose the issue. Those observations were made in the facts of that case where there was not even a germ in the orders of the authorities below doubting the genuineness of the deal unlike here where the Appellate Assistant Commissioner described it as camouflage. In our view, the apprehension is ill-founded because our observations could never be interpreted to run counter to the observations of the Supreme Court in Sunil Siddharthbhai : [1985]156ITR509(SC) .
10. In view of our decision on the two reformulated questions, the matter must go back to the Tribunal for disposal in accordance with law.
11. The reference is disposed of accordingly with no order as to costs.