9911796707
TMI Blog1988 (3) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory, land and building, machinery, furniture and fixtures, motor vehicles and delivery vans as appearing in the balance sheet. The firm had also intangible assets such as goodwill, trade mark, trade name, registered designs, brand name, formulae, tenancy rights etc., which did not appear in the balance sheet. In the meanwhile, all properties and assets of the partnership firm were auctioned between the partners upon the terms and conditions which Inter alia, included that (a) the highest bidder will be declared purchaser and (b) the purchaser shall be entitled to all assets of the partnership firm. The highest bid went to Shri Nariman for Rs. 15.80 lakhs. Accordingly, a consent decree was entered into for the dissolution of the firm and distribution of the assets by paying the remaining 4 partners, in accordance with the ratio of their shareholding. 2. At the time of the assessment, the ITO was of the view that there was a sale of firm's assets by auction although the bidding was restricted only to the partners. Since s. 47 (ii) lays down that any distribution of capital assets on dissolution of the firm will not attract capital gain, the ITO held that the present transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted. 4. The Revenue is aggrieved and has come up in appeal before us. Shri Keshav Prosad, learned senior DR vehemently objected to the order of the learned CIT(A). According to him, the assessees are partners of the firm M/s Mody Co. In this case, the partners decided to sell the business and assets of the firm before the dissolution and in this way there was a sale of the firm's assets by the partners before dissolution. This is fully evidenced by the consent decree which was made on 19th Dec., 1979 and the order of the High Court which approved the terms of the consent decree. Having regard to these peculiar facts, it is submitted that the decision in the case of James Anderson vs. CIT (1960) 39 ITR 123 (SC) is fully applicable. Reliance was also placed on the Bombay High Court decision in the case of CIT vs. Tribhuvandas Patel (1978) 115 ITR 95 (Bom). The facts of the case were that the assessee was a partner of the firm who served a notice of dissolution and later on filed a suit for dissolution. The dispute which arose between the partners was amicably settled out of Court and under deed dt. 19th Jan., 1962, and the assessee was retired w.e.f. 31st Aug., 1961. On thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the case of CIT vs. Walji Damji (1955) 28 ITR 914 (Bom) and in the case of James Anderson vs. CIT (1960) 39 ITR 123 (SC) are clearly distinguishable in that the facts are not identical. According to him, in the case of Walji Damji, their Lordships were considering sale of partnership assets by a receiver on dissolution. It was held that the profit from the sale was taxable as the same was not part of the distribution of assets on dissolution. Similarly, in the case of James Anderson their Lordships of the Supreme Court were mainly concerned with the nature of distribution of capital assets. In that case, it was found that the sales were affected after the assets were distributed and in that view of sequence of events, it was held that there was a transfer within the meaning of s. 12B(1) of the Act. In the instant case, the facts are quite distinguishable. According to him, the sequence of events is duly incorporated in the consent terms which were approved by the Hon'ble High Court in their consent decree. According to the consent terms, the parties agreed and declared that the partnership of M/s Mody Co. stood dissolved w.e.f. 15th Dec., 1979. It was further agreed and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy Co. as also all the liabilities were taken over by Shri Cyrup Nariman for a price of Rs. 15.80 lakhs. The other four partners were given the amount in the ratio of their shareholding. 8. It is the finding of the learned CIT(A) that the procedure adopted by the assessee in that the procedure adopted by the assessee in this case was a system of distribution approved by the Hon'ble Supreme Court in the case of Bankeylal Vaidya in which it was held that in the course of dissolution, the assets of the firm may be valued and the assets divided between the partners according to their respective shares by allotting the individual assets or paying the money value equivalent thereof. This is a recognised method of making up the accounts of a dissolved firm. In such a case, the receipt of money by partner is nothing but receipt of his share in the distributed assets of the firm. We see no reason to interfere with the finding and conclusion of the learned CIT(A), as his view was fully supported by the decision of the Supreme Court referred to above. 9. Even assuming that the assessees in this case received the amount on account of sale of firm's assets by auction before dissolution, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision cited by the learned senior DR, it is seen that the earlier decisions in the cases of CIT vs. Walji Damji and James Anderson vs. CIT are rendered by their Lordships on the peculiar facts of those cases before them. Since the facts of the present case are exactly identical to those before the Supreme Court in the case of Bankey Lal Vaidya relied upon by the learned CIT(A), we do not consider it necessary to go into further details. The decision of the Hon'ble Bombay High Court in the case of CIT vs. Tribhuvandas Patel cannot be treated as a good law in view of the decision of the Supreme Court in the case of Addl. CIT vs. Mohanbhai Pamabhai. Similarly, the decision of the Tribunal in the case of ITO vs. Sitaram Tekariwal, HUF was rendered on a very peculiar context that the dissolution deed and sale deed were executed on the same day incorporating the fact that the assessee HUF's debit balance with the firm was wiped out and the assessee sold assets representing its share of interest in the firm to relatives of other partners for certain consideration. It was the finding of the Tribunal that the assessee could not sell these assets unless they were received before the date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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