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TMI Blog1979 (2) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness as from Aso-Vad the 30th S.Y. 2014 and that the stock-in-trade of the said partnership be divided amongst the parties hereto in specie at cost in proportion to their respective shares in the profits of the said business and that the retiring partners shall assign to the continuing partner their respective shares in the moneys credits and effects of the said partnership and in the import quotas under the quota certificates and all other benefits to which the said partnership is entitled ... AND WHEREAS the parties hereto have accordingly divided the stock-in-trade of the said partnership amongst themselves in specie and agreed to pay for the same at cost NOW THIS INDENTURE WITNESSETH that in pursuance of the said agree- ment and in consideration of the premises the retiring partners and the continuing partner DO HEREBY DISSOLVE the said partnership existing between them so far as the retiring partners are concerned as from Aso-Vad the 30th S.Y. 2014 (i e., the 11th day of November, 1958)" On the date of dissolution the stock-in-trade of the partnership-firm consisted of cloves, cinnamon, saffron, etc. In the assessment year 1960-61, the assessee had realised a surplus amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as treated as the stock-in-trade of the partners and not capital asset. The Tribunal, therefore, came to the conclusion that the commodities received by the assessee on the dissolution of the partnership constituted its stock-in-trade and the profits realised on the sale thereof were business profits. Consequently, the appeal filed by the assessee came to be dismissed. Arising out of this order of the Tribunal, the following question has been referred to this court : " Whether, on the facts And in the circumstances of the case, the excess realised by the assessee on sale of goods received in respect of his share in the partnership-firm on its dissolution was income, profits or gains from business or constituted capital gains ? " Mr. Pandit, appearing on behalf of the assessee, contended that, not withstanding the fact that the commodities in which the partnership originally carried on business were stock-in-trade of the partnership-firm, on dissolution they were liable to be treated as capital and, therefore, whatever profit was made from the sale of those commodities had to be treated as capital gains and not income of the assessee. This submission was based mainly on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale is of a commodity, which has not been acquired by way of investment but is always regarded as stock-in-trade, then the sale of such commodity would obviously be made as an act of making profit and the profit made from such sale would have to be treated as income. In Raja Bahadur Kamakhya Narain Singh v. CIT[1970] 77 ITR 253, the Supreme Court has indicated the difference between a transaction which is intended for realisation of an investment and an act done for making profits. The Supreme Court has observed : " It is fairly clear that where a person in selling his investment realises an enhanced price, the excess over his purchase price is not profit assessable to tax. But it would be so, if what is done is not a mere realisation of the investment but an act done for making profits. The distinction between the two types of transactions is not always easy to make. The distinction whether the transaction is of one kind or the other depends on the question whether the excess was an enhancement of the value by realising a security or a gain in an operation of profit-making. If the transaction is in the ordinary line of the assessee's business there would hardly be any difficulty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution of partnership, the nature of the commodity was changed from that of stock-in-trade into capital. The decision of the Mysore High Court on which reliance has been placed is, in our view, clearly distinguishable on facts. It is no doubt true that it has been held in that case that where a partnership is dissolved and the assets of the partnership which are not yet sold are distributed amongst the partners, profits made by a partner who merely sells the assets with a view to realise the same are not profits from business, for, merely realising an asset is not trading. These observations are, however, to be read in the light of the facts before the Mysore High Court. In that case, the assessee and three others had entered into a partnership in 1949 with the object of purchasing a big site and selling it in smaller plots. A site was purchased and divided into 74 plots of which 57 were sold during the years 1949 to 1956. The partnership was dissolved in 1956. Out of the 17 plots unsold, each one of the partners took four plots and one plot was allotted to charity. The assessee had sold the plots which had come to his share and made the profits and the question was whether the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even in the case before the learned judge, while assessing the company in that case to income- tax on the proceeds of land sales, it was held that the company was carrying on a trade and not merely realising capital assets. In that case, it was contended by the assessee-company before the Commissioners for the Special Purposes of the Income Tax Acts that it was not liable to pay income-tax on the proceeds of the sale of lands which it had received in the United Kingdom on the ground that they were not annual profits or gains but proceeds of the realisation of capital. The words " trade of realising " were really used by the Commissioners. While rejecting the contention the Commissioners observed as follows : " The appeal, however, was in effect argued before us as under Case I and we have therefore to decide, whether the company is carrying on a trade and whether these proceeds of land sales are profits. From this point of view we find no difficulty in deciding (subject to the remarks in our concluding paragraph) that the proceeds of sale now being made are profits, for they are clearly surpluses after all capital expenditure has been met. But are they profits of a trade? This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found in the instant case that the assessee when he was selling off perishable articles was disposing them of by trading transactions. The grocery articles were not converted into capital assets so far as the assessee was concerned and there was no question of realising any investment by him. The learned counsel appearing on behalf of the assessee has also relied on a decision in Alagappa Chettiar v. CIT [1966] 59 ITR 440 (Mad). In that case, the two assessees were partners along with four other partners in a partnership firm and the partnership was doing business in money-lending and also in the purchase and sale of real properties in Malaya. At the time of dissolution one-sixth share both in money-lending business as well as in the real properties was allotted to each assessee. The assessee sold certain items of real properties and worked out a net surplus. The surplus sale proceeds were claimed as being in the nature of capital receipts. On facts, it was held that when the real properties were allotted to the assessee at the time of the dissolution of the firm, they held the properties as ordinary private owners and as there was no evidence to show that the assessees treated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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