TMI Blog2002 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... livered by V.P. MOHAN KUMAR J.-The assessee is a partnership firm carrying on business in the manufacture of mill boards. For the assessment year 1989-90, the firm filed the return declaring a loss of Rs.5,33,120. The Assessing Officer while finalising the assessment added Rs.7,68,559 by invoking the provision of section 45(4). It was alleged that during the previous year ending on March 31, 1989, there was a change in the constitution of the firm with the retirement of five partners after receiving the credit balances in their accounts. There was also a revaluation of the assets and it is the enhanced value of the assets that was credited equally in their accounts. The Assessing Officer took the view that on the retirement of five partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law and fact in holding that the dictum laid down in McDowell has no application to the facts of the case? 3. Whether, on the facts and in the circumstances of the case, is not the transaction under consideration a device contemplated in the case of McDowell and should not the Tribunal have considered the issue in the light of McDowell?" The assessee in question is a partnership firm. It had originally five partners and it was constituted under a deed executed on September 14, 1983. Subsequently, there was a change in the constitution of the partnership as evidenced by a new partnership deed executed on January 13, 1989. Two more partners were admitted at that time. At the time of admission of the new partners there was a revaluation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleted. In this behalf, the Department took the stand that there was a transfer of capital asset within the meaning of section 45(4) of the Income-tax Act as amended. The relevant section for the purpose of adjudicating the question reads as follows: "45. (4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no specific right with respect to the properties of the firm. What transpires is the right to share the income of the properties stood transferred in favour of the surviving partners, and there is no transfer of ownership of the property in such cases. This position has been amply highlighted in a catena of decisions. To begin with, we may advert to the one reported in James Anderson v. CIT [1960] 39 ITR 123, in which the Supreme Court noticed the arguments and stated as under: "The purpose is this: as long as there is distribution of the capital assets in specie and no sale, there is no transfer for the purposes of the section; but as soon as there is a sale of the capital assets and profits or gains arise therefrom, the liability t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne's property to another for no consideration and 'payment' implies gift of money by someone to another. We do not think that a partition in a Hindu undivided family can be considered either as 'disposition' or 'conveyance" or 'assignment' or 'settlement' or 'delivery' or 'payment' or 'alienation' within the meaning of those words in section 2(xxiv)." These decisions are sufficient to explain the position. However, since learned counsel brought to our notice other decisions as well, we may advert to the same for the sake of their having been cited. The next decision cited is B.T. Patil and Sons v. CGT [2001] 247 ITR 588 (SC). Therein their Lordship of the Supreme Court have succinctly stated as to what happened in such a situation as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, it seems to us, when a partner brings his personal asset into the partnership firm as his contribution to its capital. An individual asset is the sole subject of consideration. An exclusive interest in it before it enters the partnership is reduced on such entry into a shared interest." Thus this decision is also identical and the same is the principle in Jagatram Ahuja v. CGT [2000] 246 ITR 609 (SC), where also an identical principle has been stated. The next decision cited, namely, B.T. Patil and Sons v. CGT [1997] 224 ITR 431, rendered by the Karnataka High Court, which judgment was affirmed by the Supreme Court in B.T. Patil and Sons v. CGT [2001] 247 ITR 588. There is no need to multiply authorities. In the light of what is stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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