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TMI Blog1983 (5) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the account year ended on 31st July, 1967. The assessee is a partnership firm. The assessee firm originally consisted of four partners, viz., Maya Prakash Balkishandas,Shantiswaroop and Kanchimal. Some time in 1966, the account year two of the partners of the firm, viz., Maya Prakash and Kanchimal, retired and formed a separate firm. The assessee-firm inducted two other persons as partners. On the retirement of Maya Prakash and Kanchimal, the assessee-firm gave them two trucks and a jeep in liquidation of Rs. 48,000, which was the amount which the two outgoing partners were to get from the assessee-firm. The written down value of the trucks and the jeep was Rs.29,621. The difference between Rs.48,000 and Rs.29,621, which came to Rs. 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were jointly owned by them. Reference in this connection may be made to CIT v. Dewas Cine Corpn. [1968] 68 ITR 240 (SC), CIT v. Bankey Lal Vaidya [1971] 79 ITR 594 (SC) and Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC). In Malabar Fisheries Co.'s case which related to s. 34(3)(b), the Supreme Court took into account the extended meaning of the word " transfer contained in s. 2(27), which was not in the 1922 Act. The basis for the decision of the Supreme Court in these cases, as explained in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC), is that a partnership firm has no legal existence apart from the partners constituting it and when one talks of the firm's property or the firm's assets, all that is meant is property or assets i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm which is not a legal entity. This view is directly supported by three decisions of the Gujarat High Court with which we respectfully agree : Velo Industries v. Collector, Bhavnagar [1971] 80 ITR 291 (Guj) [FB], CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj) and CIT v. Dilip Engineering Works [1981] 129 ITR 688 (Guj). The learned standing counsel for the Department submitted before us that in case of dissolution the firm ceases to be in existence and, therefore, there cannot be any transfer by the firm to the partners when the assets are distributed, but when a partner retires the firm continues to exist and, therefore, there can be a transfer or sale by the firm in favour of the retiring partner when the retiring partner is allott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of one of the partners is made by the firm prior to its dissolution, s. 41(2) of the Act would be attracted. In view of this stand, the only question before the court was whether the transfer took place before or after the dissolution of the firm. This question war concluded by the finding of fact reached by the Tribunal and, so the decision of the court went against the assessee. The case is, therefore, distinguishable. There is, however, an observation that the Supreme Court in Malabar fisheries Co.'s case [1979] 120 ITR 49 (SC) had taken the same view which does not appear to be correct. As earlier stated by us, the decision in that case by the Supreme Court was based mainly on the ground that the assets of a firm are not held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. In our view, therefore, there is no transfer of assets involved even in the sense of any extinguishment of the firm's rights in the partnership assets when distribution takes place upon dissolution ...... There is yet another reason for rejecting the contention of the counsel for the Revenue and that is that the second condition required to be satisfied for attracting s. 34(3)(b) cannot be said to have been satisfied in the case. It is necessary that the sale or transfer of assets must be by the assessee to a person. Now, every dissolution must, in point of time, be anterior to the actual distribution, division or allotment of the assets that takes place after making up accounts and discharging the debts and liabilities due by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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