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TMI Blog1979 (11) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... . Khanna and M. N. Khanna are 1971-72 and 1972-73, while in the cases of others the year involved is 1972-73. The dispute in the assessments to wealth-tax for these assessees related to the addition of their respective shares in the development rebate reserve as appearing in the books of the firm. In the balance-sheets of the firm relevant for the years under consideration under the head " development rebate reserve account " on the liabilities side the following figures were shown : Assessment year Amount Rs. 1971-72 3,85,833 1972-73 3,88,622 The WTO in the case of each of these assessees made an addition of the amount corresponding to their shares respectively by relying on s. 7(2)(a) of the Wealth-tax Act (hereinafter referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med r. 2 which is almost in conformity with s. 48 of the Partnership Act. On the basis of these provisions, the development rebate reserve which is neither a debt nor a liability but belongs to the partners of the firm is to be included along with the capital contributed by the partners. Thus, the proportionate share of each partner in the development rebate reserve is to be included to determine the value of the interest of the partners in the firm. The Tribunal did not, however, agree with the assessees' submission that this case was covered by s. 7(1) and not by s. 7(2) of the Act. The Tribunal also did not agree with the assessees that the tax which the firm may be called upon to pay under s. 155(5)(ii)(c) of the I.T. Act was to be take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i)(c) of the I.T. Act should be deducted therefrom. It would not, however, be necessary to reproduce the submission made before us at the bar in any detail because we find that this controversy stands concluded by a judgment of the Supreme Court in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49. The question that came up for consideration in that case was whether the distribution of the assets of a firm consequent on its dissolution amounts to a transfer of assets within the meaning of the expression " otherwise transferred " occurring in section 34(3)(b) of the I.T. Act, having regard to the definition of " transfer " in s. 2(47) of that Act. Section 33 of the I.T. Act provides for development rebate and s. 34(3), in so far as it is mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of four years provided for making each order which period is to be counted from the end of the previous year in which the sale or transfer took place. The definition of " transfer " as contained in s. 2(47) of the I.T. Act may also be seen, It reads : " 2. (47) ' transfer ', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. As observed in Malabar Fisheries Co. [1979] 120 ITR 49 (SC), on a plain reading of s. 34(3)(b), it will appear clear that before that provision can be invoked or applied three conditions are required to be satisfied : (a) that the ship, machinery or plant must have been sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon interest. If that be the position, it is difficult to accept the contention that upon dissolution the firm's rights in the partnership assets are extinguished. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of s. 2(47) of the Act. In our view, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes place after making up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows the making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not possible to accept the view of the High Court that the distribution of assets effected by a deed takes place eo instanti with the dissolution or tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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