Hari Swarup, J.
1. The question of law referred to us at the instance of the Commissioner of Income-tax by the Income-tax Appellate Tribunal is:
'Whether the Tribunal was justified in law in disposing of the appeal by the Income-tax Officer solely on the ground that in the connected case of I. C. Gupta, it has been held under the Gift-tax Act that there was a gift by I. C. Gupta to the extent of Rs. 20,587 ?'
2. The question has arisen in the following circumstances:
3. The assessee, H. C. Gupta, was a partner in Kailash Motors, having 35% share therein. In the accounts of the partnership firm a credit balance of Rs. 26,250 stood in favour of the assessee on July 31, 1959. On that date, H. C. Gupta transferred his share for valuable consideration to his nephew, I. C Gupta, the consideration for the transfer being the four hundred shares of Rs. 1,000 valued'at Rs. 40,000 standing in favour of I. C. Gupta in Motor Sales (Private) Ltd. Since thereafter I. C. Gupta became the holder of H. C. Gupta's shares in Kailash Motors and H. C. Gupta became the holder of I. C. Gupta's shares in Motor Sales (Private) Ltd.
4. On the basis of the above facts the Income-tax Officer held that the transaction bad resulted in a capital gain to H. C. Gupta to the extent of Rs. 13,750. He, accordingly, taxed him under Section 12B of the Indian Income-tax Act, 1922. The assessee went up in appeal. The Appellate Assistant Commissioner allowed the appeal holding that the transaction had caused not a capital gain to the assessee, H. C. Gupta, but a capital loss. This finding was arrived at on the basis that larger profits were earned during the assessment year by Kailash Motors than the company. The income-tax department feeling aggrieved by the appellate order went up in appeal before the Income-tax Appellate Tribunal. The Tribunal dismissed the appeal. The question of law referred to us arises out of that order.
5. While the appeal was pending before the Tribunal, proceedings had been taken by the Gift-tax Officer against I. C. Gupta. In respect of the transaction mentioned above, the Gift-tax Officer held that the transactionof exchange of shares between I. C. Gupta and H. C. Gupta amounted to a gift of Rs. 20,587 by I. C. Gupta to H.C. Gupta. This order became final. The Income-tax Appellate Tribunal, taking into consideration this order, passed under the Gift-tax Act, held that no question of capital gain arose because the transaction was held by the Gift-tax Officer to be one of gift. The Income-tax Tribunal appears to have applied the principle of res judicata in non-suiting the department and held that the decision of the Gift-tax Officer under the Gift-tax Act was final and binding on the income-tax authorities in respect of the interpretation or effect of the transaction of exchange which had been brought to tax by the Income-tax Officer under Section 12B of the Income-tax Act in assessment proceedings against the assessee, H. C. Gupta. In our opinion, the Tribunal has committed a clear error of law in taking such a view. Any order passed under the Gift-tax Act in the case of one assessee will not be binding on the Income-tax Officer while taking assessment proceedings against another' assessee even though the transaction giving rise to proceedings under the Gift-tax Act and the Income-tax Act, respectively, against the two assessees may be the same. The income-tax department was not a party in the Gift-tax Act proceedings. Any order passed therein will not be binding, per se, on the Income-tax Officer while he was making assessment against another assessee under the Income-tax Act. In our opinion, the Income-tax Appellate Tribunal could not have disposed of the appeal filed by the Income-tax Officer solely on the ground that, in the case of I. C. Gupta, the Gift-tax Officer had held that the transaction was one in which I. C. Gupta had made a gift to the extent of Rs. 20,587 to the assessee, H. C. Gupta.
6. We, accordingly, answer the question in the negative, in favour of the Commissioner of Income-tax. As no one has appeared on behalf of the respondent, we make no order as to costs.