9911796707
TMI Blog1986 (10) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... the said transaction has not resulted in any sale or exchange. The difference between the written down value of the said machinery and the book value was not exigible to tax under the provisions of section 41(2). This contention stood rejected by the ITO on the ground that this was not a case of dissolution or retirement or reconstitution of the firm. While the firm continued to carry on the same business the said partner also continued to remain as a partner in the said firm. Thus, there was a transfer of machinery by the firm in favour of the partner for consideration which was debited in the books. The transaction was covered by the definition of expression 'sale' laid down in section 32(1). He, therefore, brought to tax a sum of Rs. 1,03,708 as profit under section 41(2). 2. Being aggrieved the assessee carried the matter in appeal before the Commissioner (Appeals) who relying on the decision in the case of CIT v. Bharani Pictures [1981] 129 ITR 244 (Mad.) upheld the decision of the ITO. 3. Being aggrieved, the assessee has come up in appeal before us. Shri Divetia submitted that certain machineries belonging to the firm were taken over by the partner and the transaction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to the A.W. Figgies Co.'s case. Therefore, the said decision in Bharani Pictures' case need not be followed in the instant case. Shri Divetia then relied on the commentary of learned Authors Chaturvedi Pithisaria, Vol. II, page 1554 and submitted that the expression 'transfer' used in section 2(47) of the Act has no relevance in the context of section 41(2). The learned departmental representative on the other hand pointed out that the authorities below have come to the correct conclusion that the impugned amount was exigible to tax under section 41(2). The expression 'sold' is an inclusive definition. Therefore, the natural meaning of sale has to be applied. This is neither a case of dissolution nor of retirement of a partner, nor is the case where the individual has converted his business into partnership nor a case of reconstitution of a firm. The transaction has taken place when the firm is continuing its business and the partner also is continuing as a partner of the firm. The said partner Kantilal undertook to purchase the machinery of the firm for a price which was paid for by adjustment in the account of the said partner. Thus, necessary ingredients of sale, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when one talks of the firm's property or the firm's assets, all that is meant is property or assets in which all the partners have a joint and common interest. Therefore, it is not correct to said that upon dissolution the rights of the firm in its assets are extinguished or transferred to the partners. As earlier stated, according to the Supreme Court, the distribution, division or allotment of assets to the partners upon dissolution is a mutual adjustment of their rights and not a transfer. The same principle is applied in case of a retiring partner. In other words, the rights of a retiring partner are determined or worked out on the same footing as if the firm stood dissolved. In other words so far as retirement of partner is concerned qua said partner there is a dissolution of the firm. Thus, when a partner retires there is a mutual adjustment of rights between him and the remaining partners and there is no question of sale or transfer by the firm in the favour of the retiring partner even if some asset is allocated to the retiring partner in satisfaction of the value of his share which he ought to have received. This is so because the partnership property is not held by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership, As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges. . . ." In Bharani Pictures' case after considering the above decision as well as other decisions of the Hon'ble Supreme Court it was held that firm was the owner of the asset and as a result of release and by reason of consideration which has been adjusted in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Kantilal Ishwarlal on division by mutual consent of the partners out of the Machineries on the books, by debiting his account 1,13,083 Copy of Accounts Kantilal Ishwarlal : Partner Credit Debit Adjustment in the value of installed machi- neries given to you, as your share at book value on division, by mutual consent of partners 1,13,083 Though the word used in original Gujarati reads as distribution or division it must be pointed out that this is not a case of distribution of assets in course of dissolution or in case of retirement as stated by us earlier. But a case where one of the continuing partners has taken over the asset of a continuing firm. In this connection, we may point out that the expression 'sale' is not defined in the Act and, therefore, as observed in the case of Malabar Fisheries Co.'s case the said expression has to be given an ordinary meaning. In that case it is stated thus : " That 'sale' according to its ordinary meaning meant a transfer of property for a price. " Therefore in the light of the peculiar facts which obtained in the instant case we have to consider as to whether or not that twin ingredients are satisfied or not. In l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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