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TMI Blog1990 (4) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ery amounts were credited in the concerned assets' account. From the above information the Income-tax Officer gathered that the assessee had sold its building and machinery on 31-3-1979 and Hence the depredation granted on those assets amounting to Rs. 3,991, which was claimed in the income-tax return for the assessment year 1979-80 was wrongly allowed in the assessment completed on 30-8-1980. Therefore he issued a notice under section 147(b) seeking to reopen the assessment. In response to the notice Shri V. Ramasubramanian, Chartered Accountant, appeared on behalf of the assessee and contended that three of the assessee's four partners started salt business in the name and style of M/s. DRJ Brothers. He contended that the transfer of building and machinery by the assessee firm to M/s. DRJ Brothers does not result in sale at all within the meaning of Sale of Goods Act and consequently does not even attract the provisions of section 41(2) of the Income-tax Act. It was also contended that action under section 147 is not maintainable in law and he relied upon the decisions of the Madras High Court in D. Kanniah Pillai v. CIT [1976] 104 ITR 520 and in CIT v. Abdul Khader Motor Lorry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities. The assessee comprises of four partners, whereas M/s. DRJ Brothers comprised of three out of the four partners of the assessee. The learned departmental representative contended that the building as well as the machinery, which were sold to M/s. DRJ Brothers were the properties of the assessee firm but they should not be considered as the joint properties of the partners of the assessee firm. He contended that the partners did not become co-owners of the properties held by the assessee firm and they have no right to deal with the properties during the continuance of the assessee firm. It was agreed that the assessee firm had not closed its business or its affairs wound up. Even though the assessee firm stopped its business of manufacturing salt, it was continuing its business as dealers in cycle spare-parts. Therefore it is contended by the learned departmental representative that in a continuing business no partner can predicate that a particular asset of the firm belongs to him either wholly or in any proportionate share. The only right of a partner in a continuing firm is to get a proportionate share in the excess of the assets over liabilities of the firm on the ultim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently another firm of four partners came into existence on 1-10-1962 under the name and style of M/s. Abdul Khader Motor Service. This new firm consisted of the two old partners and two other new partners, viz., Chellappa Chettiar of Kandanur and Mohamed Ibrahim of Puduvayal. The buses along with the route permits were transferred to the new firm at the value of Rs. 3,5 1,000. Part of the liabilities of the old firm namely to the extent of Rs. 2,80,150 were also transferred to the new firm. Admittedly the old firm as well as the new firm was continuing and they tiled separatere turns for the assessment year 1963-64 .The question was whether the sale of the buses and routes by the assessee resulted in any deemed profit under section 41(2). Having accepted that in instances where there is a sale, exchange, relinquishment of any asset or extinguishment of rights therein or in the compulsory acquisition under law of any capital asset only, there can be said to be a transfer of a capital asset. Their Lordships of the Madras High Court had taken it for granted on admission that there was no sale in the transaction. They have considered the question whether there was only relinquishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of one firm by the other amounts to a sale or relinquishment was the question considered and answered in that case. Again that is not the correct issue before us. The issue before us is simple and it is whether one firm can sell its properties to the other having common partners and whether it amounts to sale. Admittedly in the case before me building as well as machinery were sold for specified sums by the assessee firm to M/s. DRJ Brothers. There is no question of taking over of any liabilities of the assessee firm. M/s. DRJ Brothers also did not take over the assets and liabilities of the assessee firm as far as its activity relating to manufacturing of salt is concerned. 6. I came across with a later decision of the Madras High Court in CIT v. Bharani Pictures [1981] 129 ITR 244, covering the same point with which we are concerned in this appeal and in my opinion the said decision applies in all fours to the facts on hand and the ratio of the decision should govern the disposal of the appeal as far as the sale of the machinery is concerned. In the said case a partnership firm used to hold an asset. Subsequently one partner releases his right in the property in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the income-tax law the position is different. The firm and the partners are distinct assessable entities. The law has thus for some specific purposes relaxed its general rigid notions, and extended a limited personality to a firm ". On the strength of two more Supreme Court decisions, viz., CIT v. A.W. Figgies Co. [1953] 24 ITR 405 and Dulichand Laxminarayan v. CIT [1956] 29 ITR 535 their Lordships held that there is nothing in the partnership to suggest that the firm cannot be treated as an entity for the purpose of dealing with the property. During the subsistence of the partnership, the partnership acting through any particular partner authorised for the purpose or through all the partners will be in a position to deal with the asset. The question as to who can deal with the partnership property is a matter of agreement. Under section 19 of the Partnership Act, the implied authority of a partner does not empower him to acquire immovable property for the firm or transfer immovable property belonging to the firm. In the absence of any agreement between the partners, if any occasion arises for the dealing with the immovable property of the firm, then it would be necessary for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am inclined to take the view that there is a transfer involved in the sale of ' machinery ' to M/s. DRJ Brothers there is no scope to hold that there is a transfer of title to M/s. DRJ Brothers as regards the building. The learned advocate argued that a building is an immovable property. The transfer of an immovable property cannot be effected without a registered document. However, in this case there is only a book entry which is not effective or does not serve as an effective transfer of a building. In this regard the learned counsel for the assessee relied upon the Madras High Court decision in CIT v. Dadha Co. [1983] 142 ITR 792 for the proposition that mere book entry cannot effect the transfer of an immovable property. So if there is no effective sale of the building then the building should be considered as continuously belonging to the assessee firm in which case grant of depreciation on the building to the assessee firm would not be in any way erroneous. In such an event ascertainment of deemed profit under section 41(2) taking into consideration the sale price obtained over the building cannot be justified. The decision in 142 ITR 792 held as under in the headnote at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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