TMI Blog1971 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal, Delhi Bench 'C', referred the following question of law for our opinion under section 256(1) of the Income-tax Act, 1961 " Whether, on the facts and in the circumstances of the case and on a proper interpretation of section 47 of the Income-tax Act, 1961, the Tribunal was right in holding that the sum of Rs. 30,000 could be correctly taxed as capital gain in the hands of the assessee ?" The 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 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 shall apply to the following transfers : (i) any distribution of capital assets on the total or partial partition of a Hindu undivided family ; (ii) any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons ; (iii) any transfer of a capital asset under a gift or will or an irrevocable trust : (iv) any transfer of a capital asset by a company to its 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moment it is divided into pieces, it would cease to be a motor-car. Examples of this type can be multiplied. Therefore, one has to refer to the usual mode of partition when a firm is dissolved. The distribution of the assets of the partnership in this case is not an uncommon mode that has been adopted. The matter is not res integra. Precisely, the question with which we are concerned fell for decision in the Allahabad High 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to the decision in James Anderson v. Commissioner of Income-tax. That was a case where, upon the death of one Henry Gannon, the assessee was appointed as an administrator of his estate. In the course of administration, the assessee sold some shares and securities belonging to the deceased for the purpose of distributing the assets amongst the legatees. The Income-tax Officer treated the excess of the sale price over the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm. In Morris Robert Syers v. Daniel Backhouse Syers, Lord Cairns L. C. observed : ' My Lords, it is very true, as was said at the Bar, that on dissolving a partnership of this kind the ordinary course would be for the court to direct a sale of the assets, and, if necessary, a sale of the concern as a going concern, and to give liberty for proposals to be made by either party to purchase it before the judge in chambers..." 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement was merely a distributed share in the assets of the firm." The view that the learned judges of the Allahabad High Court took, finds further support from the decision of the Supreme Court in Commissioner of Income-tax v. Dewas Cine Corporation. Their Lordships held : " That on the dissolution of the partnership, each theatre had to be deemed to be returned to the original owner in satisfaction partially or wholly of his 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
