TMI Blog1957 (1) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... st option to purchase the share at a valuation determined by all the partners or their assigns for the time being. 9. But in case a stranger purchases the share of any of the partners, the mode of conducting the business and the interference in the business of this firm shall be at the option of the original partners or their assigns or successors remaining then. The deed of partnership of T.A. Ramalingam Chettiar Sons and Company gave even wider rights. Clause 6 of that deed ran: We six each can sell his right in the partnership to anyone agreed to by the other partners. The person buying will get all the rights and be a partner in his place. In the case of A.G. Guruswami Naidu and Company the preamble itself recited: We agree individually to the agreement hereby entered into, viz., each of us or the heirs or assigns of each...... R.G.S. Naidu and Company were the managing agents of the Coimbatore Spinning and Weaving Company Limited. Clause 16 of the managing agency agreement between the company and the partnership firm provided: It shall be lawful for the said firm to assign this agreement and the rights of the said firm hereunder to any person, firm o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner in a partnership which had a managing agency was not a capital asset as defined by section 2(4A) of the Act, and (2) even if it was a capital asset, the requirements of section 12B of the Act were not satisfied in this case, because there was no sale, exchange or transfer. What section 12B subjects to tax is the profits and gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946 and before the 1st day of April, 1948. It was common ground that none of the provisos to section 12B applied to the claim of the assessee. Section 2(4A) runs: 'Capital asset' means property of any king held by an assessee, whether or not connected with his business, profession or vocation, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business, profession or vocation; (ii) personal effects, that is to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him: (iii) any land from which the income derived is agricultural income. It is true that property had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture for acquiring a profit-yielding asset. We respectfully agree with the view of the learned Judges, that a share in a partnership is a profit-yielding asset. That would certainly make it property within the meaning of section 2(4A). In A.R. Rangachari v. Commissioner of income-tax [1955] 28 I.T.R. 528 we had occasion to point our at pate 541 of the report the difference between a share in the partnership as an asset, and a mere right to receive a share in the profits without an assignment of the share itself. In T. Sadasivam v. Commissioner of Income-tax [1955] 28 I.T.R. 435 at 447 we quoted with approval the observation of Lord Macmillan in Van Den Bergh's case [1935] 19 I.T.R. 390: In my opinion that asset, the congeries of rights which the appellants enjoyed under the agreements and which for a price they surrendered, was a capital asset. Applying that dictum to the arrangement between the assessee and his partners in the three firms we have mentioned above and also to the managing agency agreement between R.G.S. Naidu and Company and the Coimbatore Spinning and Weaving Company Limited, we should hold that the congeries of rights which the assessee enjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company and not merely servants of the company remunerated by rates or salary. As we said the terms of the managing agency agreement should themselves suffice to repel the contention of the learned counsel for the assessee, that what was payable to the managing agents was salary and that the relationship between the company and the partnership firm was that of master and servant. The learned counsel for the assessee referred to E.D. Sassoon and Co. Ltd. v. Commissioner of Income-tax [1954] 26 I.T.R. 27 but we are unable to find anything in that case to help the contention of the assessee, that what was payable under the terms of the managing agency agreement in the case of the assessee's partnership was salary, and that the relationship between the company and the managing agent was that of master and servant. Summing up what we have stated earlier, we hold that the share which the assessee had in each of the three partnership concerns was a capital asset within the meaning or season 2(4A) of the Act. The next question is was there a sale, exchange or transfer of the assessee's capital assets. As we pointed our earlier, no document evidencing the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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