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TMI Blog1968 (6) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... en down value of the lorries as on that date, as per the assessment records, was Rs. 2,558. By a deed of partnership dated August 5, 1959, the proprietary business of the assessee was converted into a, firm of partnership consisting of himself and another by name V. Abdul Kayoom. The partnership as agreed between the two was to commence as and from April 1, 1959, and it was to be one at will, determinable by either party by notice of a specified period. The net profits and losses of the partnership were to be divided or borne by the partners in the proportion of 9 annas and 7 annas in the rupee as between the assessee and the other partner respectively. Each partner was to contribute a sum of Rs. 4,000 towards initial capital of the firm. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit given to the assessee's capital account clearly pointed to a transfer by the assessee of the lorries to the firm for consideration, the transaction amounting thus to a sale of goods within the meaning of the Sale of Goods Act, 1930, and that the bringing in of the lorries into the firm's, business was not merely a re-adjustment made by the partners so as to carry on the business in one form rather than in another, as was viewed by the Tribunal. If the entries in the account books stood by themselves, there may be some force in the contention for the revenue. But even there, we doubt whether on the basis of the entries alone we can hold that there was a sale by the assessee to, and purchase by the firm, of the lorries. For section 10(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o continue the business, he sought the assistance of the other partner in achieving that object. No doubt, a partnership is treated as an entity for certain purposes, as for instance by the Income-tax Act for purposes of assessment of firms of partnership or the Code of Civil Procedure for purposes of procedural matters or the law merchant. But barring the exceptional cases of limited recognition of a firm of partnership as an entity, the normal position in law of a firm is that it is not a legal entity, unlike an incorporated company. A firm is but a convenient and compendious name given to a contractual relationship in which two or more persons combine their efforts and conjointly apply the same to a commercial or business activity with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer. In Commissioner of Income-tax v. Morning Star Bus Service an association consisting of five persons engaged in transport business formed themselves into a private limited company. The assets of the association, including a few buses, were transferred to the company. The revenue sought to charge the difference between the written down value of the buses in the books of the association and their value as shown in the books of the company, under the second proviso to section 10(2)(vii). M. S. Menon C. J. and Govindan Nair J. held that, though the association and the private limited company were different legal entities and, in a strict legal sense of the term, there was a sale of the buses by the association to the private limited com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en A, as an individual, hands over his property to A and B constituting a firm of partnership, there is no transfer of property involved. In any event, there is no such transfer of property so as to constitute a sale of goods as defined in the Indian Sale of Goods Act, for, as we are inclined to think, A by that transaction has not completely divested himself of his rights therein. In our opinion, therefore, the credit of Rs. 15,000 in the capital account of the assessee with the firm and the debit of a similar sum in the purchase account of the firm do not necessarily point to there having been a sale of goods. In fact, the purchase entry with the corresponding credit entry should be interpreted or understood in the light of clause 6 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 15,000. But we need not base our conclusion on this reasoning. Apart from the foregoing, there are other weighty reasons for concurring with the view of the Tribunal. Section 14 of the Indian Partnership Act shows the different process or methods by which a firm of partnership may come to possess property. The section says " the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm or acquired, by purchase or otherwise, by or for the firm. " This is, of course, subject to the contract between the partners. When a partnership is formed for the first time and one of the members of the partnership brings into the firm assets, they become the property of the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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