TMI Blog1974 (7) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... he 16th of August of each year. On January 1, 1967, the assessee formed a partnership with his son as his partner. There was a deed of partnership executed on December 31, 1966, under which Abdul Rahim was entitled to a 60% share in the profits and his son to the balance 40%. The firm took over the assets and liabilities of the assessee's confectionery business with effect from January 1, 1967, and carried on the same business under the same trade name. As can be seen from the question itself, Abdul Rahim had been allowed development rebate to the extent of the sums mentioned in the question for the years 1962-63 to 1965-66 and 1967-68. Section 34(3)(b) of the Income-tax Act, 1961, for short " the Act", provides that : " If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922, in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, to which sub-section we shall now turn: " 2. In this Act, unless the context otherwise requires,..... (47) '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 only question arising for consideration in this case is whether there has been a transfer as defined in section 2(47) of the Act. It is not disputed before us that all the other conditions in section 34(3)(b) and in section 155(5) have been satisfied. Counsel for the assessee would have it that there has been no transfer. His argument was the well-known argument that the firm is not a legal entity ; that this is so, notwithstanding the definition in section 2(31) of the Act, of a "person" in which expression, according to the definition, "a firm" is included; that the firm cannot hold property nor can it have any interest in property, for, it has no legal existence ; and that, therefore, on the formation of a partnership and the creation of a firm by a person by bringing in his assets and liabilities for the business of the firm, he does not transfer any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the words 'otherwise transferred' in section 34(3)(b) of the Income-tax Act, 1961." Krishnamoorthy Iyer J., did not agree with the view that there has been any extinguishment of the rights of the firm so as to constitute a transfer by the firm. The transfer, it may be noted, must be by the assessee and the firm was the assessee in that case. The learned judge expressed himself thus : " The decision of their Lordships of the Supreme Court is that the distribution of assets of a firm among its partners as a result of its dissolution by the application of section 48 of the Partnership Act is not a transfer. As a result of the dissolution there is only an extinguishment of the co-ownership rights of the partners in the partnership property and this position is not in any way altered by the change in the wording of section 34(3)(b) of the Income-tax Act, 1961, or the definition of the word 'person' therein." The difference between the two learned judges was only on the question whether there was an extinguishment of any interest of the firm, which was the assessee, on its dissolution and the distribution of assets among the partners. This question as such does not arise bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm; further, tax assessments are made, in the first instance, against the partnership, but speaking generally, the firm as such has no legal recognition (the emphasis is ours). The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer." This, we conceive, is the law in India too and no decision has been quoted before us which has taken a different view. There can, therefore, be no question of relinquishment or even of extinguishment of any right or of interest in the property held by a firm, again in the sense of property used for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease 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 ........" (Underlining is ours). It is thus clear that every partner has an interest in the property of the partnership. What is more, the person who brought in the property for the purpose of the business of the firm would not be able to claim or exercise any exclusive right over the property. Such a situation can arise only, if there was an extinguishment of some right of the partner in the property which was exclusively his and which was brought in for the purpose of the business of the firm. Without such extinguishment, it is inconceivable that the other partners would get an interest in that property. That in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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