PokéBase - Pokémon Q&A
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The Time Capsule, which allows communication between Generation I and II games, functions as a trading mechanism instead of a transferring one. Most significantly, this means Pokémon with trading as their only evolutionary requirement — Kadabra, Machoke, Graveler, and Haunter — will evolve when traded.

The Time Capsule will not evolve the Pokémon that need to be traded while holding an item (Poliwhirl, Slowpoke, Scyther, Onix, and Porygon).

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No. It will not; it is not trading.

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So technically it's impossible to trade between the two games?
I guess so.