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16.7 In the instant case before us, we are called upon to determine the true and correct nature of the transaction of contribution of partners' personal asset as capital contribution in the firm in which he became a partner. The facts of the present case reveals that the assessee company was carrying on a business of real estate, besides others. In the course of carrying on business of developing and dealing in real estates, the assessee held certain lands and right in lands as stock in trade of its business. The assessee company entered into a partnership with four of its subsidiaries companies and one individual as evidenced by the memorandum of partnership executed at New Delhi on 23rd day of March, 1992, with a object to start and carry on the business of developing and dealing in real estate, construction of buildings and letting them out or selling them. The assessee company had 76% share, while the four subsidiary company held 5% share each and the individual 4% in the profits or loss of the firm. In pursuant to their intention to enter into partnership with the object to start and carry on the real estate business, the assessee had agreed to bring all its right in five plots of land measuring about 199.99 acres into the common stock of partnership, so that all the partners, who had agreed to entered into said partnership, may participate jointly in the development and construction of building there upon, which were to be let out for earning rental income there from or sale of individual units comprised in such buildings. In pursuance to the aforesaid mutual agreement, the assessee had brought all its right in the said plot of land into a common stock of partnership w.e.f. 16.03.1992, and all the rights of the assessee upon the said plot became the property of the partnership firm w.e.f. 16.03.1992. The assessee got the said plot of land brought into common stock of partnership valued by experts determining the value thereof at Rs. 1150 lacs. In consideration of the assessee having brought in all its right in the said plots of land into common stock of the partnership firm, the assessee's capital account was credited by Rs. 1150 lacs in the accounts of the partnership firm. The assessee also credited its books by said sum of Rs. 1150 lacs, and the difference between the cost reflecting in the assessee's account and the amount of Rs. 1150 lacs at which the assessee's capital account was credited, after considering all expenses incurred in respect of said land by the assessee has been credited to the profit and loss account of the assessee company. In the books of the assessee company, the transaction resulted into the surplus of Rs.6.01 crores, which was credited to the profit and loss account, but claimed as not exigible to tax in the return of income filed by the assessee for the assessment year in question. According to the assessee, the readjustment on account of the revaluation of stock in trade resulting in surplus of Rs. 6.01 crores was not its income as there was no transfer or sale of lands to any other person as in law, there could be no sale to itself, and the readjustment of the value of its lands held by the assessee as its stock-in- trade could not in law result in to any profit chargeable to tax. The assessee placed reliance upon the decision of Hon'ble Supreme Court in the case reported as CIT vs. Hind Construction Ltd. 83 ITR 211 (SC). 16.8 For ready reference, the relevant portion of recitals made in the deed of partnership executed on 23.03.1992 between the assessee and five other persons, and made effective from 16.03.1992, are being reproduced here as under:-

6. Mr. Rajinder Singh son of Late Sri Kartar Singh Lamba resident of C-36, Fateh Nagar, New Delhi 110 018 of the SIXTH PART;

WHEREAS the parties of the first to second parts are carrying on the business of developing and dealing in real estate and are engaged in the development of a Project known as "DLF QUTAB ENCLAVE COMPLEX" in Gurgaon, District of Haryana State which is hereinafter referred to as 'the said project' and WHEREAS it was agreed between the parties hereto that out of aforesaid land, five plots of land admeasuring about 16.98 acres and morefully described in the Schedule written hereunder (and hereinafter referred to as "the said plots") may be brought into the common stock of a partnership so that all the parties hereto participate jointly their further development and construction of buildings to be let out for earning rental income therefrom or sale of individual units comprised in such buildings; AND WHEREAS the parties of the Third to Sixth part also agreed to participate in the further development of the said plots and the construction of buildings thereon as aforesaid; AND WHEREAS in accordance with the aforesaid agreement the party of the first part brought all its right in the said plots into the common stock of partnership; AND WHEREAS with the effect from the 16th day of March, 1992 all the rights of the party of the first part in the said plots (including the area of land owned by it) became the property of the partnership firm; AND WHEREAS the parties hereto agreed that on the basis of expert valuation, the current value of the rights in the said plots is Rs.1150 lacs; AND WHEREAS the amount of Rs.1150 lacs was accordingly credited to the account of the party of the first part in the account books of the partnership firm on account of its having brought its right in the said plots into common stock of partnership to be treated as its contribution towards the capital of the partnership; AND WHEREAS the party of the first past has already paid an amount of Rs.1,27,90,215/- as advance towards purchase of land to its subsidiary companies from whom the land hereby brought into the common stock of partnership has been agreed to be purchased but whatever further amount becomes payable to the subsidiaries, the same will be payable by the firm; AND WHEREAS all the other parties hereto have agreed to contribute such amounts towards the capital of the partnership firm as are mentioned hereinafter and which may be varied from time to time; AND WHEREAS it was agreed that further amounts required for the business of the partnership will be contributed by the parties hereto as may be mutually agreed upon from time to time; AND WHEREAS the Board of Directors of the parties of the first to fifth parts approved the proposal for their respective Companies entering into partnership at their respective meetings.

2. That the business is being and shall continue to be carried on under the name and style of DLF Commercial Developers.

3. That the party of the first part has brought all its right in the said plots of land admeasuring about 16.98 acre situated in DLF Qutub Enclave Complex and which are morefully described in the Schedule written hereunder into the common stock of partnership and all its right in the said plots became the property of the partnership firm with effect from 16th day of March, 1992.

4. That on account of the party of the first part having brought its right in the said plots into the common stock of the partnership, an amount of Rs.1150 lacs has been credited to the Capital Account of the party of the first part in the account books of the partnership firm.

5. That the party of the first part has already advanced an amount of Rs.1,27,90,215/- to the aforesaid subsidiary companies but whatever further amounts become payable to them, the same shall be paid and borne by the partnership firm.