TMI Blog1979 (2) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961, for the assessment year 1968-69, consequent to its finding that Rs. 32,823 being the depreciation that had been allowed for the bus MDR 3569 in the earlier years could not be brought to tax for this assessment year under section 41(2) of the said Act?" The assessee is a firm of four partners, viz., Chellappa Chettiar, R. Abdulla Rowther, Mohamed Abdul Cader and Ahmed Ibrahim. The firm came into existence under a partnership deed dated 10th October, 1962. Partner No. 1, viz., Chellappa Chettiar, was entitled to a half share and the other three partners together had a half share. Their respective shares were defined in the partnership deed. The partners carried on the business of running transport buses during the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of s. 41(2) did not apply. The ITO initiated penalty proceedings for the belated submission of the return and he levied Rs. 12,309 as penalty under s. 271(1)(a), as he was satisfied that the assessee had no reasonable cause for filing the return on 30th March, 1969, while it should have been submitted on 30th September, 1968. The assessee filed appeals against the assessment and penalty orders before the AAC who held that the provisions of s. 41(2) could not be applied as there was no sale of the bus, MDR 3569, when it was delivered to Chellappa Chettiar in pursuance of the compromise. While agreeing with the ITO as regards the leviability of penalty, the AAC reduced it, consequent on the deletion of the sum of Rs. 32,823. The depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due :..............." I There is a proviso to this section and it is not necessary to refer to it. There is an Explanation to s. 41(4) running as follows : " The expression ' moneys payable ' and the expression ' sold ' in sub-sections (2) and (3) shall have the same meanings as in sub-section (1) of section 32." In section 32, the word " sold " is given the following meaning : " ' sold' includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force........." It is unnecessary to refer to the rest of the provisions. In ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the rights of the partners in a dissolved firm by allotment of its assets is not a transfer nor was it for a price. Learned counsel for the revenue submitted that this decision would not apply, because this is not a case of dissolution. The compromise decree does not specifically state as to what is to happen to the firm as such. The suit was between Chellappa Chettiar and the other three partners. The firm as such was not and could not be a party to the suit because of the nature of the relief claimed, viz., dissolution. The relevant clauses in the compromise decree are : " 1. That the defendants do pay to the plaintiff the sum of Rs. 85,000 with interest thereon at 6 per cent. per annum from this date till date of payment and do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, under the decree, though not in the manner contemplated by s. 32 of the Indian Partnership Act. Even if there is no dissolution, in the case of retirement also the Gujarat High Court has taken the view, following the decision of the Supreme Court in CIT v. Dewas Cine Corporation [1968] 68 ITR 240, that there was no sale, in Velo Industries v. Collector, Bhavnagar [1971] 80 ITR 291 [FB]. That was a case which arose under the Bombay Stamp Act, 1958, on a reference by the Chief Controlling Revenue Authority. It was held that when a partner retired from the partnership and the amount of his share in the net partnership assets, after deducting liabilities and prior charges on the footing of a notional sale of the partnership assets was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]. We have already extracted cls. 1 and 2 of the compromise decree. Clause 1 contemplates a sum of Rs. 85,000 being paid to Chellappa Chettiar and cl. 2 provides that in case the bus was delivered in the manner contemplated by it, then the decree in favour of Chellappa Chettiar would stand satisfied to that extent. The terms of the compromise do not show that there was a sale of any particular item of the assets of the partnership and we do not, therefore, find that the provisions of s. 41(2) of the I.T. Act have any scope for application. The satisfaction of a decree debt cannot be taken as payment of a sale price for taking over the bus. It is only an adjustment of the rights of Chellappa. As pointed out already, the reference in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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