9911796707
TMI Blog1986 (10) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... nery and the book value was not eligible to tax under the provision of s. 41(2) of the Act. This contention stood rejected by the ITO on the ground that this was not a case of dissolution or retirement of 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 in favour of the partner of consideration which was debited in the books. The transaction was covered by the definition of Expression 'sale' laid down in s. 32(1) of the Act. He, therefore brought to tax a sum of Rs. 1,03,708 as profit under s. 41(2) of the Act. 2. Being aggrieved the assessee carried the matter in appeal before the CIT(A) who relying on the decision in the case of CIT vs. 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 was completed by making entries in the books by debiting the partner's account with the firms books and the corresponding adjustments were made in the machinery account in the firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act has no relevance in the context of s. 41(2) of the Act. The ld. 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 s. 41(2) of the Act. 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, not 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 under took 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 viz. transfer of property and payment of price were present in the instant case. The decision in Bharani Pictures squarely would apply to the facts of the case and the authorities below have rightly brought the impugned amount to under s. 41(2) of the Act. 4. We have carefully considered the rival submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court, the distribution, division or allotment of assets of 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 returning 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 firms. 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 favour of the retiring partner even if some asset is allocated to the retiring partner is satisfaction of the value of his share which he ought to have received. This is so because the partnership property is no held by the firm which is not a legal entity. This view is directly supported by the decision of the Hon'ble Gujarat High Court in Velo Industries vs. Collector, Bhavanagar (1971) 80 ITR 291 (Guj) (FB), Mohanbhai Pamabhai (1973) 91 ITR 393 (Guj) and CIT vs. Dilip Engg. Works (1981) 21 CTR (Guj) 213: (1981) 129 ITR 688 (Guj). 6. It would this be evident t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in proportion to their share in the joint venture of the business of 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 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 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 A/c of Kantilal Ishwarlal: Partner . Credit Debit Rs. . Adjustment in the value of installed machineries given to you, as your share at book value on divisions by mutual consent of partners 1,13,083 Though the word used in original Gujarat 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 partner 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 case of Malbar Fisheries case the said expression has to be given an ordinary meaning. In Malbar Fisheries' case (1979) 12 CTR (SC) 415 at 419 : (1979) 120 ITR 49 at 55 (SC) 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 obt ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
