TMI Blog1979 (2) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... 1958-59, the accounting year being Maru year 2013-14. The assessee before us is the firm of Messrs. Kaluram Puranmal. The said firm had seven partners and the constitution and the shares were as follows : Name of Partners Share Purshottamlal 0-2-3 Motilal 0-2-6 Hariram 0-2-3 Babulal 0-2-0 Bannalal 0-2-6 Basudeo 0-2-6 Banwarilal 0-2-0 In the beginning of the accounting year the assessee sold 111 shares of Edward Textiles Ltd. through sharebrokers, M/s. Jamnadas Morarji, for a sum of Rs. 26,365. On this transaction a profit of Rs. 1,588 was realised. This profit was held to be taxable and added to the income of the firm and about the same there is no controversy whatsoever. The assessee-firm also transferred the remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in the appeal of a sister concern of the assessee, and giving due regard to the observations in these decisions the AAC held in favour of the assessee. In his view, the addition of the fictional profit of Rs. 42,040 was wholly unjustified. This was because, according to the AAC, a person cannot make profit out of himself and since the firm was indistinguishable from its partners except for the purposes of taxation, it could not be regarded as having earned this notional profit. The addition of Rs. 42,040 was accordingly directed to be deleted. The ITO carried the matter in further appeal to the Income-tax Appellate Tribunal. After extracting the facts the Tribunal upheld the view of the AAC, holding that this was an arrangement by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal commercial transaction between two separate commercial entities. In his submission, although for purposes of taxation and assessment the firm was required to be regarded as a separate assessable entity, this would not imply that in the present case the firm had entered into any commercial transaction with each of its seven partners. He further submitted that, in the alternative, there was no warrant to bring to tax as income of the firm the fictional or notional profit in the manner in which it was done by the ITO. He submitted that there was no evidence on record to warrant the conclusion to the effect that a device had been adopted by the assessee to reduce its profits. It was his further con- tention that even if the scheme or dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the trader. It appears to us that it is not proper for us to go into the interesting question raised by Mr. Desai as they do not arise from the order of the Tribunal. It appears that both the AAC and the Tribunal on the facts and circumstances upheld the broad contention advanced on behalf of the assessee that since the firm was indistinguishable from the partners and, therefore, in law merely a compendious name for the totality of the partners, the ITO was in error in, proceeding on the footing that there was a transaction-- a commercial transaction-- of sale of shares between the firm and its seven partners. Before us counsel for the revenue as well as for the assessee have adopted the same extreme positions but it is not possi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary findings are not on the record. It is not possible for us to uphold the decision of the Tribunal in the rather simplistic manner in which it has been arrived at by holding that such transaction would not attract tax. However, by saying that even such transaction can attract tax, it would not follow that the transaction in the instant case will attract tax on the basis of alleged notional profit as was done by the ITO. We are of opinion that the transaction between the firm and its partners cannot be looked at as the Tribunal has done and by itself is no ground for setting aside or striking down the additions made by the ITO. However, merely because shares having a market price higher than the purchase price have been distributed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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