TMI Blog1975 (7) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... lities of the assessee in the transport business were taken ever by the firm at the book values and the value of the goodwill of the proprietary business was determined at Rs. 3,75,000. The capital of the partnership business was fixed at Rs. 6,00,000 which was to be contributed equally by the two partners. In the assessee's current account the book value of the assets and the value of goodwill were credited which along with another credit of Rs. 12,930 amounted to Rs. 6,12,930. The assessee had withdrawn from this account a sum of Rs. 3,00,000 by way of transfer to the capital account. He had also drawn a sum of Rs. 1,44,865 during the accounting year from this account. The account at the end of the year showed a credit of Rs. 17,060. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as wrong and that the entire amount is chargeable to tax under sections 41(2) and 45 of the Act. The assessee preferred a cross-objection contending that no profits or gains chargeable to tax under section 41(2) or section 45 arose, and that the Appellate Assistant Commissioner was wrong in assessing to tax one-half of the profits chargeable under section 41(2) or section 45. The Tribunal after referring to certain decisions came to the conclusion that there was a real sale when the assessee converted his sole proprietary concern into a partnership consisting of himself and another and, therefore, the provisions of section 41(2) and section 45 were attracted. The Tribunal did not agree with the Appellate Assistant Commissioner that only a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, he also relied on the decision of this court in Commissioner of Income-tax v. Janab N. Hyath Batcha Sahib. Under the partnership law a partnership is not a legal entity. Even the Income-tax Act only enables an assessment to be made in the name of the firm and it does not in terms make it a legal entity with all its consequences. Therefore, there could not be a sale within the meaning of the Sale of Goods Act when one person, converts his sole proprietary concern into a partnership of which he is a partner. What in such circumstances he does is to throw his private property and make it a partnership asset on such terms as may be mutually agreed to between the parties. This was the view expressed by this court in Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But the learned counsel for the revenue sought to distinguish this decision on the ground that the principle would have to be applied only to a case where the parties had not chosen to treat the transaction as sale, but if they had entered into a form of transaction of sale it would amount to a sale attracting the provisions of sections 41(2) and 45 of the Act. He also submitted that it is not uncommon for an individual partner to enter into a sale transaction with a partnership firm in which he is a partner and he being treated as a creditor for the price. It is true that in commercial parlance a partner is treated as any other third party and very often they enter into transactions of sale and purchase with the firm in which they are part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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