As the expression "Capital Gains" would suggest, it is a gain or profit arising in respect of a Capital asset and hence is of a capital nature. Ordinarily such gains or profits cannot be brought within the category of income as commonly understood, Income Tax being a tax contemplated to be levied on revenue income. Gains accruing on, or arising from, any capital asset would not have been taxable under the Income Tax Act but for the provisions contained in Cl. (vi) of Section 2(24) which specifically brings capital gains, as income chargeable to tax under the Income Tax Act 1961. To bring capital gains within the purview of section 45, which is the charging section for capital gains, the two most important basic requirements to be fulfilled are that : -

A further dimension was provided in this respect by the Supreme Court through its decision in the case of CIT Vs B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) by laying down the rule that, there should also be some cost of acquisition of the capital asset transferred, so as to satisfy the provisions of section 48. Accordingly it was held that where the cost of acquisition of a capital asset was nil, no capital gain tax would be attracted u/s 45.

The term "capital asset" has been defined by section 2(14) of the Income Tax act to mean "property of any kind held by an assessee, whether or not connected with his business or profession" with certain exceptions. The exceptions provided interalia include :

Thus though "capital asset" is defined to include property of any kind, the term "property" itself has not been defined. Hence one has to take the meaning of that term in its widest sense. In this regard the Supreme Court has observed in Ahemed G. H. Ariff V CWT (1970) 76 ITR 471 that "property is term of widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can hold and enjoy". In this respect property can be said to consist of a bundle of rights and the holder of which has freedom to use, exercise, and enjoy to the exclusion of all others, provided it does not infringe any law of the state. Such rights may be tangible or intangible.

Immovable property, though has not been specifically identified as a "capital asset" in the definition given to that term in section 2 (14) as cited above, as it is includable in the widest meaning that is attributed to the term `property' as seen from the discussion above, immovable property is also a capital asset within the definition of the term "capital asset" as contained in section 2(14).

An important aspect of the immovable property is the rights in the immovable property. Any property either movable or immovable consists of several rights embodied in them. Though the definition of the term "capital asset" as contained in section 2(14), does not specifically mention these rights attached to any property as being "capital asset", by implication such rights are also capital assets. Further, each of such rights can separately be alienated by the owner of such rights, giving rise to capital gains, subject to the various provisions of the act. Some of such rights in an immovable property are :

According to the decision of the Supreme Court in the case A. R. Krishnamurthy and Anr. VS CIT (1989) 176 ITR 417, a person who acquires ownership rights in a property by purchase, is deemed to have acquired all these rights. Hence it was held in that case that leasing rights in an immovable property though were not separately acquired by the assesses, he is deemed to have acquired such leasing rights along with the purchase of the property and that, when a portion of such property was leased out, there was a transfer of capital assets, giving rise to capital gains, within the meaning of section 45, attracting Income tax. One important point to be noted in this regard is that the purchaser of the immovable property, should have acquired the property free of all encumbrances. If the property was purchased with any encumbrances the purchaser will not have such rights, in the property which were alienated by the earlier owner by creating such encumbrance.

We have seen in the earlier paras that lease hold right is one of the rights vested in the immovable property. However one important point to be noted here is that where leasing of residential premises or commercial premises is done as a business venture, no transfer of capital asset is deemed to be involved. It seems, it is on this proposition that the Supreme Court's decision in the case of Sarabhai Management Corporation Limited (1991) 192 ITR 151(SC) and the decision of Bombay High Court in the case of Richardson Hindustan Limited 169 ITR 516, are based.

Another important right involved in the immovable property is the Tenancy right. The tenancy right has been recognised as a capital asset. However till very recently the transfer of such tenancy right was not burdened with capital gain tax on the ground that there was no cost of acquisition, involved in the acquisition of such tenancy, following the Supreme Courts decision in the case of B. C. Srinivasa Setty as referred to in Para 1.2 supra. None the less, in a few cases, transfer of tenancy right was held, to attract charge of Income Tax, it being income of casual and nonrecurring nature as referred to in section 10(3), CIT Vs Gulab Chand 192 ITR 495 (All). However most of the high courts have held that tenancy right though is a capital asset, no capital gain should be deemed to arise on the transfer of the tenancy right, as no cost of acquisition was involved in acquiring such tenancy rights, in view of the ratio laid down by the Supreme Court in the case of B. C. Srinivasa Setty. The position has changed now, since the insertion of a new clause (a) in section 55(2) w.e.f. 01-04-94.    

The special Bench of I.T.A.T. Bombay in a recent case, [Cadell Weaving Mill Company Private Limited Vs Asst. CIT (ITR 217 513(ATI)] has added a new dimension to the issue. It has been held in this case that every tenancy rights is not a capital asset and that it is only such tenancy right which are legally capable of being transferred i.e. where either under a statute or by way of private agreement etc. a tenant is permitted to transfer his interest in the tenancy right to another, that can be recognised to be a capital asset.

It was further held in that case that the tenancy rights, which are forbidden from being transferred to others, or where such rights of transfer have not been specifically conferred on the tenant, cannot give rise to a capital asset. In such cases, the tenant is said have merely a right of occupation of the premises, which right cannot be equated with a capital asset. It was further held by the Tribunal that the compensation received by the tenant from the landlord for surrendering such tenancy right was income of casual and non- recurring nature, assessable to Income Tax. The matter now is before Bombay High Court and it will be an interesting decision in either case as and when it is pronounced.

An interesting decision on the tenancy right is contained in the decision of the Bombay High Court in the case of CIT Vs Mrs. Shirinbai P. Pundole (1981) 121 ITR 448 (Bom) wherein it was held that on surrender of the tenancy right in exchange for an ownership of a flat in another building no liability to capital gain tax is attracted. The ratio of this case was later on applied in the case of Nila Products Limited Vs CIT (1984) 148 ITR 99(Bom). Though no detailed reasons have been made available for arriving at such a decision in both the cases by their lordships, obviously ratio laid down by the Supreme Court in the case of B. C. Srinivasa Setty seems to have been followed.

The quantum of the cost of acquisition is immaterial for the purpose of section 48. Even where the cost of acquisition of an asset is very insignificant as compared to its real value the ratio of B. C. Srinivasa Setty's case cannot be attracted. In such a case if the Revenue takes the value of stamp duty paid, or registration charges incurred, or even the cost of share certificate acquired to become the member of the Co-operative Housing Society in which the flat are situated as the cost of acquisition, it seems, the ratio of Srinivas Shetty's case may not help the assessee. Hence it will be of importance that the tenancy holders in such cases see to it that even such small insignificant expenditures involved in transfer of flats in their name for the consideration of the tenancy right surrendered are borne by other party so as to acquire the flats in actual reality free of cost.

There are several other rights in connection with immovable property which give rise to some very interesting point in law. While a mere right to live in a house even for life time of possessor of such right is not a Capital asset as held in [186 ITR 421 (AP)] and 174 ITR 459 (MP)], life interest in a property is a capital asset. Such life interest being capable of transfer to others, they form a capital asset [180 ITR 289 (Ker) and 196 ITR 752 (Guj)].

Thus right in immovable property though are not specifically cited as capital asset in section 2(14) of the act, rights in immovable properties are important constituents of capital asset.

Another important ingredient which gives rise to capital gains is transfer of a capital asset. The definition given to this term in relation to a capital asset by section 2(47) is an inclusive definition and not exhaustive. The word "transfer" has been defined in sub-section (47) of section 2. It now consists of six clauses. The first three sub-clauses constituted the original definition which was given to the word "transfer" and which earlier stood as a combined clause related to (1) sale, exchange or relinquishment, (2) extinguishment of rights in any capital asset and (3) compulsory acquisition under any law. In these above stated cases of transfer, the legal ownership to the property is changed from one person to another by virtue of transfer.    

Clauses (iv), (v) and (vi) were inserted to get over certain decisions of some of the High Courts and Supreme Court. Clause (iv) was inserted with effect from 1-4-1985 to get over the legal hurdles created by the Supreme Court's decision in the case of Shirinbai Kooka [46 ITR 86 (SC)], which had the effect of avoiding payment of tax on the capital gains arising on the transfer of capital assets which had earlier been converted into stock-in-trade by the assessee. Clauses (v) and (vi) were inserted with effect from 1-4-1988 so as to enable the Government to bring to tax the capital gains immediately on the execution of the transfer deed and part performance of a contract of the nature referred to in Section 53 A of Transfer of Property Act as also on completing a transfer which has the effect of allowing the other party to the transaction in the enjoyment of property. These two clauses were inserted with a view to overcome the impasses posed by the decisions in the cases of Alapati Venkatramaiah (57 ITR 185) by the Supreme Court, in the case of Amarchand Agarwal (142 ITR 402) by the Bombay High Court, and a host of other cases which had the effect of postponing the charge of capital gains tax till such time when the title deeds were registered. The real effect of the insertion of these two clauses is that the charge of capital gains no longer depends upon the registration of the conveyance deed which has the effect of transferring legal ownership of the property but is relatable to handing over of the physical possession and allowing enjoyment of the property by the transferee to the exclusion of others including the transferor.

Stock-in-trade is an asset excluded from the definition of "capital asset" as contained in Section 2(14) of the Income Tax Act. However conversion of a capital asset into stock-in- trade tantamounts to a transfer within the meaning of clause (iv) of section 2(47) and attracts charge of capital gains tax in view of the provisions contained in section 45(2). As already discussed in earlier para 4.2 supra, clause (iv) of sub-section 2(47) and sub-section (2) of section 45 of the Income Tax Act were inserted in the Act with effect from 1-4-1985, so as to plug the loop holes created by the decision of the supreme court in the case of Shirinbai Kooka (46 ITR 86). The sub-section 45(2) provides that the profits arising from the transfer by way of conversion by the owner of a capital asset into or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to Income Tax as his income of the previous year in which such stock-in- trade is sold or otherwise transferred and for the purposes of section 48 the fair market value of the asset on the date of such conversion or treatment constitutes the consideration for computing capital gains.

As per the above provisions though the charge on capital gains is attracted on conversion of capital asset into or its treatment as stock-in-trade of the business carried on by the holder of such capital asset, the actual levy of tax is deferred to the previous year in which such stock-in-trade is sold or otherwise transferred. Thus there is a time lag between accrual of tax liability and actual levy of tax in such cases. Now if in this time period, if the asset is subjected to certain transfers as contemplated under section 45(3) and 45(4), interesting situations may arise with regard to the chargeability of capital gains tax especially with reference to immovable property.

One of the tools of tax planning in avoiding capital gain tax was by firstly introducing a capital asset in a firm or association of person by way of capital contribution and later on transferring such property to the intended transferee by way of distributing the assets to the partners or members of the firm/A.O.P. as the case may be. Such a tool of tax planning though could be used in respect of any items of property its use was more effective in respect of such assets the appreciation in value of which was sharp due to inflationary trend in economy. Accordingly such tool was more frequently used in the mater of transfer of immovable properties and few movable such as Bullion, jewellery etc. Favourable decisions of the Supreme Court and some High Courts in this regard strengthened the effectiveness of this tool of tax planning.

However, the Government has now sought to seal the loop holes by inserting the provisions of sub sections 45 (3) and 45(4) by the Finance Act 1987, with effect from 1-04-1988 i.e. A.Y. 1988-89. However these amendments in the provisions of section 45 have not been very effective in view of the inherent infirmities contained in these amendments. Hence, one may, despite the insertion of the deeming provisions of sections 45(3) and 45(4) succeed in transferring capital assets enjoying high appreciation in value especially land, buildings and other immovable properties as well as some movable which too enjoy sharp appreciation in value, without attracting capital gain tax. The proposition can be examined in detail by means of a case study in the paras to follow. I have analysed in detail the implications of the provisions of the sub sections (3) and (4) of section 45 and their effectiveness by means of the case study.

However, I may caution here, that the trend in the view of the judiciary in appreciating such tax planning measures has undergone a sea change in favour of the revenue since the pronouncement of the judgement by the Supreme Court in McDowell Co. Ltd. case [154 ITR 148 (SC)]. Accordingly the present trend in judicial thought is wedded to the Rule of construction that any anti tax avoidance provision should be interpreted in the light of the mischief sought to be plugged. Hence, unless the facts and the provisions of the concerned law are not fully and thoroughly analysed tax planning may misfire.

Before I take up the case study it is necessary to examine the provisions of sub sections (3) and (4) of 45 and ratios of case laws which were instrumental in forcing the Government to enact these amendments so as to appreciate the case study more meaning fully.

The provisions of sub-section 45(3) were inserted in the Act with effect from 1-4-1988 to overcome the impass created by the Supreme Court's decision in the case of Sunil Sidharthbhai vs CIT 156 ITR 509. It was held in this case that introduction of a capital asset by a partner into a firm as his capital contribution is though a transfer within the meaning of clause (ii) of section 2(47), it does not give rise to charge of capital gains tax u/s 45 as the consideration arising from such transfer is not the true consideration. It was further held by the Supreme Court that the amount credited to the partner's capital account in the books of the firm does not represent the true value of the consideration. The true consideration for such transfer, in the opinion of the Supreme Court is the right to a share of profits during the subsistence of the partnership and the right to get the value of his share in the net partnership asset upon dissolution or retirement. As it was impossible to evaluate this true consideration, applying the ratio in the case of CIT vs B.C. Srinivasa Setty 128 ITR 294, it was further held by the Supreme Court that no capital gain tax would be attracted by such transfer of capital asset. It was with a view to get over this hurdle that the provisions of sub-section 45(3) were inserted by the Finance Act 1987 with effect from 1-4-88. This provision deems that the amount recorded in the books of the firm as the value of the capital asset introduced by the partner, to be the full value of the consideration received or accruing to the partner as a result of the introduction of the asset into the firm.

Alongwith the insertion of the provisions of sub-section 45(3) as discussed above, the provisions of sub- section 45(4) were also inserted simultaneously with effect from 1-4-1988. The object of insertion of this sub-section was to bring to tax the deemed profits or gains arising out of the distribution of capital assets amongst the partners of a firm on its dissolution. Such deemed gain is further deemed to arise to the firm and accordingly the tax is chargeable in the hands of the firm. This again was a measure to overcome the impediment created by the Supreme Court in this regard. The Supreme Court in the case of Malabar Fisheries Co. 120 ITR 49 had observed that the firm has no separate existence apart from its partners and, therefore, it cannot have its own right, as distinct from those of its partners, in the property of the firm. Accordingly it was further held by Supreme Court that upon the distribution of capital assets on dissolution of the firm there cannot be any extinguishment of any of its rights in the capital assets and that such distribution on dissolution was a mere adjustment of pre-existing right of the partners of the firm.

As mentioned in pare 6.2 I shall now take up the case study. In this case study, in addition to the involvement of sub-section (3) and (4) of section 45, the deeming provisions of sub section (2) of section 45 have also been involved. We have already seen in para 5.1 supra the historical back ground in which the provisions of clause (iv) of sub section (47) of section 2 and sub section (2) of section 45 were inserted in the act w.e.f. 1-4-1985, hence they are not repeated.

`A' an individual inherited a plot of land on 01-04- 1974 the value of which was Rs. 1 lakh. He subdivides the plot of land into small saleable plots for construction of houses and holds such plots as his stock- in-trade of the business carried on by him with effect from 1-4-1992. As on 1-4-1992 the fair market value of the piece of land so converted as stock-in-trade is say Rs. 18 lakhs and its fair market value as on 1-4-81 was Rs. 8 lakhs.

Thereafter, on 1-10-1992 he becomes a partner in the firm of XYZ Co. wherein one of his sons, `B' is a partner alongwith two others. He transfers the piece of land converted by him into stock-in-trade as his capital contribution and Rs. 18 lakhs are recorded in the books of the firm as the value of the said asset. The firm treats the asset as its stock-in-trade ever since its introduction in the firm.

On 31-3-97 `B' who is the son of `A' retires from the partnership and he is allotted the plot of land in question alongwith some other assets, in full and final settlement of his interest in the partnership firm. The market value of the plot of land as on 31-3-97 is found to be Rs. 30 lakhs.

Now let us analyse these facts and attempt appreciating the consequences of such successive transfers of the plot of land which was subjected to transfer within the ambit of the provisions of sub-section 45(2), 45(3), 45(4) from the angle of charge of capital gain tax.

Firstly as the land was in possession of A, since 1-4-74, he has an option to substitute the cost of acquisition at its fair market value as on 1-4-81, which is given in this case to be Rs. 8 Lakhs. This land was converted into stock-in-trade of his business on 1-4-92, thus attracting tax liability under the provisions of section 45(2), though actual levy of tax is deferred to the year in which such stock-in-trade is sold or otherwise transferred.

Secondly `A' transfers the plot of land under consideration to the firm XYZ & Co. on 1-10-92 as his capital contribution on having been admitted as a partner of the firm. The firm records in its books the value of this land to be Rs. 18 lakhs. At this stage a question will naturally arise as to whether such a transfer of plot of land to the firm as capital contribution, tantamounts to a transfer of capital asset within the meaning of section 45(3), giving rise to charge of capital gains tax. As per the ratio laid down by the Supreme Court in the case of Sunil Sidharthbhai (156 ITR 509), there is a transfer of asset involved in this case. However no tax liability will arise u/s. 45 for the reason to be stated in succeeding para.

A close scrutiny of the provision of sub-section 45(3) would show that incidence of capital gains tax under the said sub-section would be attracted only when a "capital asset" and not any other asset is transferred. >From the facts of the case study it would be seen that 'A' had converted the plot of land in question into stock-in-trade on 1-4-92. Hence, what was transferred to the firm by 'A' on 1-10-92 by way of his capital contribution was stock-in-trade, which is specifically excluded from the definition of capital asset u/s. 2(14)(i) and since what is transferred is not a capital asset no capital gains tax can be levied on such transfer. Besides there would be no difficulty even if the firm had treated the assets introduced by 'A' as its "capital asset", despite the fact that 'A' had treated it as his stock-in-trade. However in the case under consideration, the firm has also treated the asset as its stock-in-trade. Thus no tax liability is attracted at this stage.

By transferring the plot of land in question to the firm as his share of capital contribution in the firm, A invites tax liability under section 45(2) as he had earlier converted this plot of land into stock-in- trade, which was originally held by him as capital asset. Though such a transfer of the asset to the firm is not a sale of the stock-in-trade, there is a transfer within the meaning of expression used in sub-section 45(3) namely "such stock-in-trade is sold or otherwise transferred by him" as per ratio laid down by the Supreme Court in the case of Sunil Sidharthbhai as referred earlier. Now as per the provisions of section 45(2), for the purpose of section 48, the fair market value of the asset on the date of such conversion is deemed to be the full value of the consideration received or accruing as a result of such transfer. It is stated in the case study that the fair market value of the land as on the date of conversion was Rs. 18 lakhs.

In the third stage it is seen that `B' partner of XYZ Co. retires from the firm on 31-3-97 and that he is allotted the plot of land in question alongwith some other assets in full and final settlement of his interest in the firm as its partner. It may be recalled that the plot of land in question was treated by the firm as its stock-in-trade. The fair market value of this land was seen to be Rs. 30 lakhs on 31-3-97. The question that now arises is whether the allotment of the plot of land to the retiring partner, alongwith a few other assets, would be a transfer of capital asset within the meaning of section 45(4) attracting tax liability under section 45 or not.

A close scrutiny of the provisions of section 45(4) would show that three basic elements should be present in such a transaction to invite chargeability of capital gains tax under section 45 which are as under :

Before going into the matter any further it has first to be determined whether the provisions of sub-section 45(4) are attracted on the distribution of capital asset of the firm only on its dissolution or even otherwise. In other words whether the harsh provisions of sub-section 45(4) would attract tax liability on allocation of the assets to the partners even on retirement or resignation of any one or more partners. This is a grey area where conflicting views are possible. As per the Income Tax department and a few others, the latter view, that is, the provisions of Section 45(4) would be attracted where there is a distribution of capital assets amongst the partners whether on dissolution of the firm or on retirement or resignation of partners from the firm is prevalent. According to them, in interpreting the expression "on the dissolution of a firm or otherwise" the principle of "ejusdem generis" has to be applied, which will accordingly take its colour from the preceding key word "dissolution" and would cover only analogous case of distribution on retirement or resignation of a partner even when unaccompanied by dissolution. Thus as per this view if upon retirement or resignation of a partner, any capital asset (not any other asset) of the firm is distributed in settlement of his right to the net assets of partnership, chargeability of capital gain tax would be attracted u/s. 45 in the hands of the firm, on the basis of the market value of capital asset so distributed.

The other view, which appears to be more logical and reasonable is that the provisions of sub-section 45(4) would be attracted only when the distribution is preceded by dissolution of the firm. The expression "distribution" as used in the context of transfer of assets to partners in sub-section 45(4) connotes an idea of apportionment between more than one person as held by the Calcutta High Court in the case of Jamnadas Srinivas Pvt. Ltd. 76 ITR 656. Further, it involves an idea of division between several persons (see Punjab Distilling Industries Ltd. 57 ITR 1 (SC)). Again the said expression would mean giving to each a share as held by the Supreme Court in the case of Bombay Mineral Supply Co. Ltd. 112 ITR 577 (SC). Such an act of transfer of asset through "distribution" can take place only when there is a dissolution of a firm and not otherwise. In the case of retirement of a partner from a firm, there is no dissolution of firm except of course in certain circumstances such as where the firm constituted only two partners and retirement of one partner automatically dissolves the partnership or where the partnership deed itself provides that the retirement of any partner would dissolve the firm. In such case of retirement the retiring partner is paid his share of interest in the net assets of the firm either by cash or by allotting some assets of the firm.

This cannot be said to be distribution of assets amongst partners. Hence the view that where any distribution of capital assets takes place amongst partners on retirement or resignation of a partner or partners from the firm, provisions of section 45(4) would not be attracted, is more logical and reasonable.

In the present case there is no dissolution of the firm, but only retirement of one of the partners. The firm continues to exist without dissolution but with a changed constitution. This is not a case where the firm consisted only of two partners, where retirement or death of one partner causes automatic dissolution of the firm as per the ratio laid down by the Supreme Court in the case of CIT vs Seth Govindram Sugar Mills (57 ITR 510). Besides it is also not a case where as per the constitution of the firm that, on the retirement of any one or more partner the partnership stands dissolved. Thus in this case no dissolution is involved and hence the 1st element viz. dissolution of the firm required to attract the provision of section 45(4) is not present.

With regard to the second element namely the distribution of capital assets amongst partners let us see whether even this element is present in this case. The word "distribution" as discussed in para 8.8 above connotes an idea of apportionment between more than one person. It involves an idea of division between several persons giving them each their share. However withdrawal of capital assets of the firm by one of its partners is not an apportionment or division between several persons and hence does not constitute a "distribution". Thus even this second element is not present in the case under consideration to invoke the provisions of section 45(4).

Though the above discussion is not relevant to the matter under consideration, it is of importance to know that the edifices on which the provision of Section 45(4) stand are not stable. Coming to the matter under consideration it is seen that the first two elements of "dissolution" and "distribution of capital asset" are not present in the facts of the given case study.

Now examining the third element, it is seen that what has been allotted to the retiring partner in the case under consideration is not a capital asset but current asset in the form of stock-in-trade. Since what constitutes a deemed transfer under section 45(4) is only the distribution of capital asset and not every asset belonging to the firm, stock-in-trade being specifically excluded from the definition of "capital asset" as given in section 2(14), the provision of section 45(4) will not be attracted to the present case. Thus even on this score, no capital gain tax will be attracted to the facts of the given case study.

Thus, despite the insertions of the provisions of sub section 45(3) and 45(4) due to infirmities contained therein tax planning in avoiding capital gain tax through the media of firms/A.O.Ps is still possible. Besides, in the case of transfer of immovable properties, as is in the case with facts of the case study taken up, perhaps it seems, even the provisions of chapter XX-C of the act prescribing pre-emptive purchase of immovable properties in certain cases can also be bypassed. This again is because of the infirmities contained in the definition given to the term "transfer" in section 269UA(f)(1). That definition does not seem to cover situations of transfer of capital assets as contemplated in sub sections (3) and (4) of section 45 under which the immovable properties are transferred from one to another. To attract the provisions of chapter XX-C, the "transfer", as defined in section 269UA (f) (i), of immovable property has to be by means of sale, exchange or lease including allowing of the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of Transfer of property Act, 1882. In the given case study the transfer of the immovable property was neither by way of sale, exchange or lease but by relinquishment of the assets allotted to the retiring partner by the continuing partners or by extinguishment of their, (continuing partners) rights over such assets. No doubt it can be argued that there is a mutual exchange of the rights in net value of the properties of the firm by adjustment by the partners inter-se. But this appears to be stretching the meaning of word "exchange" unreasonably and illogically too far.

Further definition of the word "transfer" as given in sub clause (ii) of clause (f) of section 269UA is also not applicable in this situation and it seems to apply only in relation to acquisition of the interest in immovable property by way of becoming a member of, or by way of transfer of shares in a co-operative society or company or other association of persons etc. and not otherwise.

Besides it has been held by the Supreme Court in the case of A. Narayanappa & others v. Bhaskaran Krishnappa AIR 1966 SC 1300 that interest of a partner in the partnership assets is a `movable property' (and not a immovable property), though the partnership may hold immovable properties. The Court further held that a dissolution deed evidencing relinquishment of interest in the partnership assets by one partner in favour of the other who continues the business, was not compulsorily registrable u/s. 17(1)(c) of the Registration Act.

I admit that the propositions made above are highly controversial and requires detailed analyses of the relevant provisions. I do not propose to go into such a matter here as the scope of this article is limited to the examination of the capital gain tax arising out of transfer of immovable properties. Hence we may stop here as far as this point of discussion is concerned.

I have sought to high-light in this article some of the issues involved in the transfer of immovable properties specifically emerging due to the deeming provisions inserted in the Act in the recent past. My efforts have been directed towards dealing with these issues here selectively and not exhaustively. If this article has helped to set in motion the thinking process of the readers in this respect, I shall feel rewarded for the efforts taken to pen this article.