TMI Blog2001 (9) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal is correct in law in holding that assets were not sold within the meaning of section 41(2) and hence no profit under section 41(2) can be brought to tax? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that capital gain has to be computed by taking one half of the sale price instead of full and deducting therefrom the cost of one half joint share to the assessee-firm?" The facts leading to the reference are: The assessee was a firm consisting of two partners, viz., P. Madanagopala Rao and J. G. Williams, each of whom had a half share. On May 21, 1975, the above two partners together with two others, namely, T. Anjayya and D. Venkateswara Rao, constituted anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bldgs. Electrical 40,068 60,000 15,774 11,167 4,607 equipment 4,158 3. Furniture and fix- 4,009 10,450 4,613 3,748 865 tures, typewriters 1,828 4. AAK 3528 (Car) 13,747 28,000 14,253 5,799 8,454 ------------------------------------------------------------------------------------------------------------------------------- On appeal, the Appellate Assistant Commissioner agreed with the view of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the matter the first question is to be answered against the Revenue and in favour of the assessee. Coming to the second question, the contention of learned standing counsel is that there was a transfer from the assessee-firm to a new firm, i.e., Pioneer Industries. When once there was a transfer of assets from one entity to another entity, the transfer is full and complete in so far as the liability to capital gains is concerned. The contention of learned standing counsel is that the Tribunal had committed an error in accepting the contention of the Revenue only to the extent of half share in respect of the assets transferred by the assessee-company to Pioneer Industries. Therefore, according to learned counsel, there is a transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viduals, who are members of a partnership. It is neither a legal entity nor is it a person. The issue with reference to the firm, its partners and its assets was considered by the Supreme Court in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 and the relevant observations are as under: "In Addanki Narayanappa v. Bhaskara Krishnappa [1966] 3 SCR 400; AIR 1966 SC 1300, this court after quoting with approval the aforementioned pas sages occurring in Lindley on Partnership, 12th edition, made the following observations in the context of partners' rights during the subsistence as well as upon the dissolution of a firm: 'No doubt since a firm has no legal existence, the partnership property will vest in all the partners and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee-firm with two more partners. If the new firm had been constituted with the same two partners, there cannot be any transfer, as the same partners would have been holding the same interest in the assets. But, here, two more partners were included in the new firm to which the assets were made over. As a result the assets made over to the new firm would be owned by four partners in equal shares instead of two partners hitherto owned. The result is the interest of the partners of the assessee-firm was reduced from half to 1/4th. Therefore, there is an extinguishment of right and interest in so far as half of their interest in the assets that were made over to the new firm. There is no dispute that the said transfer had resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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