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TMI Blog2001 (9) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that assets were not sold within the meaning of section 41(2) and hence no profit under section 41(2) can be brought to tax? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that capital gain has to be computed by taking one half of the sale price instead of full and deducting therefrom the cost of one half joint share to the assessee-firm?" The facts leading to the reference are: The assessee was a firm consisting of two partners, viz., P. Madanagopala Rao and J. G. Williams, each of whom had a half share. On May 21, 1975, the above two partners together with two others, name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------------------------------------- On appeal, the Appellate Assistant Commissioner agreed with the view of the assessee that there was no transfer of assets in the transaction by relying upon a decision of the Supreme Court in the case of CIT v. Hind Construction Ltd. [1972] 83 ITR 211 and deleted both the profits under section 41(2) and capital gain as computed by the Assessing Officer. The Revenue carried the matter in appeal to the Appellate Tribunal. The Appellate Tribunal agreed with the view of the Appellate Assistant Commissioner in so far as profits under section 41(2) in the light of the decision of the Supreme Court. But, however, with reference to the capital gains, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue only to the extent of half share in respect of the assets transferred by the assessee-company to Pioneer Industries. Therefore, according to learned counsel, there is a transfer to the extent of the entire assets and not confining to half share and, therefore, the capital gains have to be computed on the full value of the assets. Though notice was served on the assessee, none appeared for the assessee. Before considering the contention of learned counsel, it would be proper to refer to the relevant provisions of the Act as well as the Indian Partnership Act, 1932: Clause (47) of section 2 of the Income-tax Act, 1961, reads: "Section 2. In this Act, unless the context otherwise requires.... (47) 'transfer', in relation to a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsistence as well as upon the dissolution of a firm: 'No doubt since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to any one. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48.' Having reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f right and interest in so far as half of their interest in the assets that were made over to the new firm. There is no dispute that the said transfer had resulted in extinguishment of the part of the rights of the partners, which amounts to transfer within the terms of section 2(47) of the Act. As held above, the transfer was only to the extent of half share of each of the partner, i.e., to the extent of half share in the assets that were made over to the new firm. The Tribunal, therefore, accepted the contention of the Revenue in so far as the transfer and the liability to capital gains to the extent of half of the share in the assets transferred. But the contention of the Revenue is that as the assets were completely made over by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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