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TMI Blog1981 (1) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... ver to Shri S. Manickam. He was given a building at Madurai at book value of Rs. 2,22,431, five buses at Rs. 4,35,259 and one car at Rs. 15,143, all at book value. As against these assets allotted to him, liabilities on hire purchase finance of the said buses to the extent of Rs. 2,18,243.59 and other loan creditors to the extent Rs. 2,90,750 were also taken over by Shri S. Manickam. As a result of his taking over such liabilities, he owed nearly Rs. 1.5 lakhs to the other two partners and such dues were practically cleared in the next two years. It was the assessee's case that there had been no sale of these assets within the meaning of s. 41(2) of the Act so as to bring the difference of Rs. 1,82,841 between the book value and the written down value of buses alone. The ITO, however, was of the view that it is a sale. In making the assessment, he also did not set off the unabsorbed depreciation of earlier years against profits of this year in the view that the assessee being a registered firm, it is not entitled to the set off. It appears that though there was a deed of dissolution and such deed was referred to in the fresh partnership agreement between Shri S. Palaniappan and Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mds)/80 dt. 14th March., 1980 declined to amend the order on the ground that there is no mistake apparent from the records. A reference application under s. 256(1) on the question of the power as rectification was also declined. As for the two matters which were remitted back to the ITO, he allowed Rs. 1,400 being brokerage paid. As for the alleged profits under s. 41(2) to the extent of Rs. 1,82,841 representing the difference between the book value and the written down value of five buses taken over by Shri S. Manickam, he took the view that the Tribunal had required him to see whether any amount was due by Shri Manickam to the firm after adjustments "as a result of taking of accounts as on the date of retirement". The ITO found that Shri Manickam was in debt balance prior to his retirement and continued to be a debtor after all adjustments. He was therefore, of the view that the addition should stand. The assessee came up in appeal a second time and now before the CIT (A), Madurai. It tried to resurrect its old grievance that it should be given a set off of unabsorbed depreciation in the past. The claim was disallowed by the first appellate authority on the ground that the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exigible only if there is a transfer within the meaning of Explanation to cl. (iii) of sub-s. (1) of s. 32 for purposes of ascertaining profit under s. 41(2). This definition is narrower than the definition of 'transfer' under s. 2(47) for the purposes of capital gains. Even in respect of the latter, Courts have taken the view that there is no transfer. Assessee's case, it is pointed out, rests on stronger footing. It was also claimed that the assets including buildings were taken over at book value suggesting that there was only adjustment of accounts and no sale. There had been no attempt to value the numerous items covered by the dissolution deed. As for the set off for past unabsorbed depreciation, it was claimed that it was open to the assessee to raise the issue consequent on the second assessment made in pursuance of the Tribunal's order. Once this issue is allowed to be raised, he pointed out that it has be decided in assessee's favour. The ld. Deptl. Rep., relied upon the orders of the authorities below. He claimed that there was only a retirement and that the assessee was in debt to the firm both prior to and later to his retirement. This fact distinguished the facts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only been a retirement, the legal position is not different. Assets of book value of Rs. 6.5 lakhs were taken over while on buses alone the written down value, which is usually less than the market value, should show that the market value of the assets should be in the neighbour-hood of Rs. 9 lakhs. There were also liabilities taken over. Since Shri Manickam took over Virdhunagar business with liabilities to the extent of about Rs. 5 lakhs only he was in debt to the extent of about Rs. 1.5 lakhs as a result of this arrangement whereby he took over assets of 6.5 lakhs. That by itself, does not make it a sale. The principles laid down by the Supreme Court in the cases of Dewas Cine Corporation (1968) 68 ITR 240 (SC), CIT vs. Bankey Lal Vaidya (1971) 70 ITR 594 (SC), Narayanappa vs. Bhaskara Krishnappa AIR 1966 SC 1300 and Malabar Fisheries Co. vs. CIT (1979) 120 ITR 49 (SC) have all reiterated the general proposition that there is no transfer when there is adjustment of accounts between partners either on formation or on dissolution. Retirement of a partner, as far as he is concerned makes no difference. In fact, the Gujarat High Court in CIT vs. Mohanbhai Pamabhai (1973) 91 ITR 393 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,90,750. But for his taking over the assets to the extent of about Rs. 6.5 lakhs the question of his having to pay Rs. 1.35 lakhs would not have arisen at all. It would, therefore be incorrect to say that the firm was not bound to pay any amount to the retiring partner "as a result of taking of accounts as on the date of retirement". This can be looked from another angle. The Tribunal observed that the decision of the Supreme Court in Dewas Cine Corporation will apply "only if it is found that as a result of taking of accounts as on the date of retirement, the assessee-firm was bound to pay any amount to the retiring partner". Shri S. Palaniappan and Shri S.S. Rathinam gave Rs. 50,000 each to Shri S. Manickam (alleged "retiring partner") by debit to their accounts and credit to him. This shows that even after giving five buses subject to liabilities mutual adjustment of rights required that he should be paid, though they have described the payment as (amount foregone) in the accounts. This shows that the settlement of accounts required payment of assets exceeding liabilities besides cash. Hence, even in the narrows view sought to be conversed by the ld. Deptl. Rep., purportedly o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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