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TMI Blog1971 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... e dispute that has arisen in this reference relates to the assessment year 1965-66, corresponding to the previous year ending 31st March, 1965. The assessee is Ramanlal Khanna. He was the partner of M/s. Kohinoor Textile Printing Works, Bombay. The three other partners in this partnership were Brij Lal Khanna, Sharad Chand Khanna and Lajpat Rai Mehra. This partnership was dissolved under a deed of dissolution dated October 1, 1964. The assessee and the two other partners retired from the said firm. They received their respective shares on dissolution from the fourth partner who took over the entire partnership concern. On revaluation of the assets a credit of Rs. 30,000 was given to the assessee on October 1, 1964, being the share in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s subsidiary company, if- (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company ; . . . ." One has necessarily to look to what happens on dissolution and for that purpose we may see the deed of dissolution, particularly two of its clauses, which are in the following terms : " (1) That the partnership between the parties hereto in the business of printing, processing piece goods of all kinds, yarns, colours, chemicals and machinery, etc., carried on by them in the firm name and style of Kohinoor Textile Printing Works and on the terms and conditions recorded in the hereinabove recited partnership dated the 18th day of January, 1957, is he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and the learned judges in Bankey Lal Vaidya v. Commissioner of Income-tax, on precisely the same facts came to the conclusion that there was no question of capital gain because section 47(2) excluded such a gain from the ambit of section 45. In fact, in such circumstances there is no sale by the partners of the assets of the firm to the partner who continues the partnership business. It is merely a convenient mode of dividing the assets of the partnership. The decision of the Supreme Court in James Anderson v. Commissioner of Income-tax was considered by the learned judges. It will be profitable to reproduce their observations because we entirely agree with the same: " Now, what happened in the instant case was that the assets of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost price of the shares and securities as capital gains under section 12B. The Supreme Court held that the assessee was being taxed upon the sale proceeds and not upon any distribution of capital assets, and that it must be shown that capital assets were distributed in specie in order to escape the application of section 12B(1). The facts of that case are clearly distinguishable from the one before us. In the instant case what the assessee received was the value in money of its share in the assets of the firm. There can be cases where it is not possible nor convenient to distribute an asset in specie. The goodwill of the firm cannot be divided between the partners. Apart from goodwill, there may be a case where the firm owns intangible pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." and the terms of the decree which he proposed make it abundantly clear that he considered that a proper mode of distributing the firm's assets would be to value the share of the plaintiff-partner, if the business was sold as a going concern, that value being paid by the defendant partner, and that, if the latter defaulted in payment, the properties would be sold as a going concern and 'a division of the assets of the partnership in the usual way ' would be effected. The law has also been stated in Lindley on Partnership, 12th edition, page 453 : ' Having provided for the events upon which a partnership is to cease, the next point is to specify the method by which its affairs are to be wholly or partially wound up. Where the articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimto a share in the residue of the assets after discharging the debts and other obligations. But thereby the theatres were not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue, and, therefore, the amount of Rs. 44,380 could not be included in the total income of the partnership under the second proviso to section 10(2)(vii)." Therefore, we are clearly of the view that the decision of the Allahabad High Court correctly lays down the law and with utmost respect to the learned judges we follow the same. Mr. Awasthy, learned counsel for the department, contends on the basis of the Supreme Court decision in James Anderson v. Commissioner of Income-tax, decision of the Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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