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Interpretation of section 10(2)(vii) of the Indian Income-tax Act, 1922 regarding profit assessment in a dissolved firm's case. Analysis: The case involved a dissolved firm with two partners, where one partner retired and transferred assets to the other partner for a fixed price exceeding the written down value. The Income-tax Officer initiated proceedings under section 34 to include the excess amount in the firm's profits. The Appellate Assistant Commissioner viewed the transaction as a sale by the retiring partner, directing the profit assessment on him. However, the Tribunal considered it a mere division of assets and relied on previous court decisions to rule out profit assessment. The Commissioner referred the case to the High Court for decision. VIMADALAL J. analyzed the case, emphasizing that whether the asset transfer was part of the dissolution transaction was a factual question. Referring to Supreme Court decisions, it was concluded that the asset transfer was indeed part of the dissolution, and thus, no profit could be assessed under section 10(2)(vii). Even on a legal interpretation of the dissolution documents, the transfer was seen as part of the dissolution adjustment, leading to a negative answer to the reference question. S. K. DESAI J. concurred with the decision, and the Court answered the reference question in the negative, holding the Commissioner liable to pay the costs of the assessee. The judgment clarified the application of section 10(2)(vii) in cases of dissolved firms and highlighted the importance of factual analysis in determining profit assessment in such scenarios.
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