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TMI Blog1976 (11) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... and style of Sri Kaliswari Colour Match Works dealing in three items of business, namely, (a) safety matches, (b) fire-works, and (c) printing and lithography. Even the Income-tax Officer who passed the order under section 155(5) held that the three persons were representing their respective Hindu undivided families consisting of themselves and their sons in the said firm and the Tribunal also in its order proceeded only on that basis. In the assessment year 1962-63, a polygraph off-set machine was installed in the litho press. The firm was allowed development rebate on its cost. There was a partition in the families of Shanmugha Nadar and Arunachala Nadar and it was decided to admit the divided sons into the partnership. Due to excise regulations, the parties did not want to effect any change in the constitution of " Sri Kaliswari Colour Match Works " notwithstanding the partition in the families of two of them. Therefore, they decided that the business hitherto carried on should be split up into two units, namely, (a) manufacture of matches and colour matches and (b) manufacture of fire-works, printing and lithography. The manufacture of matches and colour matches was continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er unit, and (ii) that in view of the definition of " person " under section 2(31), it is clear that the original assessee has transferred the machinery in the litho press to " another person " and the withdrawal of the development rebate in these circumstances is justified. After considering the rival contentions put forward by the parties, the Tribunal held, (i) that the word " transfer ", occurring as it is in juxtaposition with the word " sale " in section 155(5), it has to be construed in a strict sense of property passing from one to another, and since the reconstituted firm is not a distinct separate legal entity from that of the original partnership, there is no passing of the property from one to another legal entity, and (ii) that a partnership of the three partners has been transformed into a partnership of eight partners as a result of reconstitution and admission of the sons of the original partners and no transfer is involved in this process and the order of withdrawal could not be supported. In view of this conclusion of the Tribunal, it allowed the appeal preferred by the assessee. It is the correctness of this conclusion of the Tribunal that is challenged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A firm is but a convenient and compendious name given to a contractual relationship in which two or more persons combine their efforts and conjointly apply the same to a commercial or business activity with a view to make profit. Section 4 of the Indian Partnership Act makes this explicit and says that a ' partnership ' is the relation between who have agreed to share the profits of a business carried on by all or of them acting for all. This relationship does not appear to cloud or destroy the identity of the partners whose rights and liabilities vis-a-vis each other are governed by the terms of the partnership and the provisions of the Indian Partnership Act. The members of at firm, from a certain point of view, therefore, remain as co-owners in a limited sense and subject to the terms of the contract of partnership and the principles of law governing such relationship. When, therefore, A makes over his property to a firm consisting of A and B, it will be a nice question--whether the transaction involves a transfer of the property. By such a transfer A clearly does not divest himself completely of his rights or interest in the property, though it is true B, by reason of the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, following those decisions, we held that the provisions of section 41(2) were not attracted to the said case. With reference to section 45 of the Act, a new argument was advanced before us based upon the definition of the term " transfer " occurring in section 2, sub-section (47), of the Act. Section 2(47) defines " transfer " as follows : " ' 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." The invocation of the transaction of sale was excluded by the earlier two decisions of this court to which we have drawn attention. Admittedly, there was no exchange involved. Consequently, reliance was placed only on the other two limbs of the definition, namely, relinquishment of the asset " or " extinguishment of any rights therein. Dealing with such an argument, we observed : " There is no dispute that the word ' sale ' in the definition of the word ' transfer ' would not take in the present case because of the decisions already referred to. There is also no dispute that this is not a transaction of 'exchange' contemplated in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the lorries. On behalf of the revenue, the two decisions already referred to were sought to be distinguished on the ground that they were all cases of individual persons converting their assets into partnership property, and not cases of properties of the Hindu undivided families becoming the properties of a partnership. The case advanced on behalf of the revenue was that since the Hindu undivided family as such could not be a partner of a firm, the principle laid down by the two cases referred to already could not be applied to such a case. Dealing with such a contention, this court observed--see [1976] 104 ITR 564, 568 (Mad.) : " In this case, it is not necessary to consider in general whether the property of a Hindu undivided family could become the property of a partnership firm without a transfer. In this case, the Hindu undivided family constituted of the father and two sons and all the three were partners in the new partnership along with a third party. Therefore, what was originally held by them as a Hindu undivided family is now held by them as partners in a partnership firm. In this respect there is no difference between an individual and a Hindu undivided family. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or plant installed after the 31st day of December, 1957, in any assessment year under section 33, or under the corresponding provisions of the Indian Income-tax Act, 1922 (XI of 1922), and subsequently-- (i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in sub-section (3) or sub-section (4) of section 33 ; or...... the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment ; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority. The firm consisted of seven partners. Two minors had also been admitted to the benefits of the partnership. On March 31, 1965, the partners of the firm entered into an arrangement whereby the coir factory was transferred exclusively in favour of four of them, by name, K Ananthanagaraj, K A. Chandrakanth, K. A. Satheeshkumar and K. A. Manohar. Similarly, the rotary oil mills belonging to the firm was transferred by all the partners in favour of three of them namely, A. S. Narayana Setty, K. Ramachandra Shetty K. Ananthakrishna Setty. By virtue of the above agreement, each group of partners, became exclusive owner of the items of ' property which it took over under the arrangement referred to above. Thereafter, the partners who took over the items of properties under the arrangement referred to above, entered into separate deeds of partnership among themselves and some new persons in respect of those items of business. But the assessee firm continued to carry on the business of Rathan Talkies, etc. On coming to know that the agreement dated March 31, 1965, and the deeds of partnership referred to above head come into existence, the Income-tax Officer took action under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind of right, title or interest in or over the machinery and plant. In the circumstances, we are of the view that the income-tax authorities were right in holding that there was a transfer of machinery and plant by the assessee-firm in favour of some of its partners. " We are of the opinion that the above decision is not of any assistance to decide the present case. In that case, it will be seen from the facts narrated above that the original business was split into three businesses, one of them was taken over by four of the original seven partners and the other was taken over by the other three of the original seven partners and the third, namely, Ratna Talkies, etc., was continued by the original seven partners. In addition to the above, the judgment proceeds on the basis that these " taking over " were effected by means of express transfer or conveyance. As a matter of fact, it could be seen that the disintegration of the original business into three was effected on March 31, 1965, and the new partnerships were brought into existence only by deeds dated May 1, 1965. It was under those circumstances, the court held that there was actually a transfer of the plant and machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery installed by the old partnership firm at Purnea, the new firm, a distinct and different assessable entity, could not claim development rebate either under the 1922 Act or under the 1961 Act. Whether the rebate granted to the old firm in the year 1959-60 was rightly withdrawn or wrongly withdrawn is not relevant for the purpose of considering the question of allowing rebate to the new firm. I am not concerned in the present reference to find out whether the order of the Tribunal in an appeal arising out of section 155(5) proceeding was right or wrong. For the purpose of withdrawing the rebate it may well be, I shall assume to be so at the moment that there was no gale or transfer within the meaning of section 34(3)(b) of the 1961 Act. But I fail to understand how that fact by itself will entitle this new and distinct assessee to claim rebate in respect of the plant and machinery not installed by it but by another firm, the identity of which continued and was in existence even on the day the new firm was making the claim for development rebate. " Thus, it will be seen that far from supporting the contention of the revenue that decision will indicate that the learned judges w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares as shown in that partnership deed are A. Shanmugha Nadar 1/7th, his four sons, A. S. Rasappan, A. S. Chinna Nadar, A. S. Graham and A. S. Poornachandran,--1/14th each, thus the father and the four sons retaining the original share of 3/7ths. Since no son of Nataraja Nadar was included in the partnership, he retained his original share of 3/7ths even after reconstitution. The 1/7ths share of Arunachala Nadar was distributed as between himself and his son, Paulrajan, as 1/ 14 and 1/14 in the reconstituted firm. Consequently, a comparison of these shares themselves will show that the reconstituted firm merely brought in the divided members of the original coparcenaries as eo nomine partners in the firm, and, consequently, the ownership as well as the business continued to be carried on by the same persons. The learned counsel for the revenue contended that there would have been minor sons and their shares had not been accounted for. There are no materials one way or the other with regard to the existence of the minor sons. However, if any guess can be hazarded, a provision has been made in this behalf also. We have already referred to A. Shanmuga Nadar retaining 1/7th share an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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