TMI Blog1988 (9) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... ing ratios. Vide this office notices dt. 22nd Feb., 1985 and 23rd March, 1985, the assessee-firm was requested to show cause why the firm be not treated as having sold the above assets to its partners. In this case the attention of the assessee-firm was also invited to the case of A.S. Krishna Shetty vs. Addl. CIT, Mysore reported at (1975) CTR (Kar) 54 : (1975) 100 ITR 587 (Kar). In the replies dt. 1st March, 1985 and 25th March, 1985 on it was stated by the assessee that: (i) It was not a case of sale, but returning part of the capital to the partners in their profit sharing ratio, (ii) there was no transfer and hence (1975) CTR (Kar) 54 : 100 ITR 587 (Kar) would not apply. I am however unable to agree with the assessee-firm that on these facts and circumstances there was no "transfer" of assets by the firm to its partners. For this reference is made to the commentary by Chaturvedi and Pithsaria (1979) Ed., Vol. I, page 636 where it has been observed as under: "Under the general principles of law, when a partner brings in, or takes out any asset into or from his partnership firm no sale is involved. But the 1961 Act, introduced a definition for the word "transfer" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the above facts and circumstances calling for withdrawal of development rebate. In view of discussion above, it is held that there was a "transfer" of furniture, motor trucks, autorickshaws and gas cylinders by the assessee-firm to its partners on 31st Dec., 1981. In respect of furniture, motor-trucks, auto-rickshaws the transfer was at book value whereas in the case of gas cylinders the book value (after claiming 100 per cent depreciation) was nil but they were transferred to partners for Rs. 1,00,500. This transfer of gas cylinders was for a consideration of Rs. 1,00,500, which was paid to the firm by debiting the partners' capital a/cs. and hence would amount to sale. Once this is treated as sale, s. 41(2) would come to play and profit under that section would work out at sale price minus book value i.e. (Rs. 1,00,500-0) = Rs. 1,00,5000. Keeping in view the above discussions profit under s. 41(2) to be added to total income would calculate at Rs. 1,00,500." The CIT(A) confirmed the action of the ITO in making the aforesaid addition and did not record any separate reasons in opening so. 3. In the course of his lengthy arguments, the learned counsel for the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he furniture, motor-trucks and an auto-rickshaw have been transferred at the written down value. This aspect of the matter has been discussed in detail by the ITO as also the reasons for non-attraction of any tax liability to the aforesaid three transfers. The ITO has only taken into consideration the transfer of the gas cylinders for purposes of computing the profit under s. 41(2). According to the facts which have been brought forth, the assessee had an opening balance of 425 gas cylinders, the WDV being 'nil' since 100 per cent depreciation had been claimed in the preceding assessment year and such depreciation having been allowed under the Rules. During the year under consideration, the assessee had purchased 580 gas cylinders for a sum of Rs. 7,61,737. Once again 100 per cent depreciation was claimed and the figure on 31st Dec., 1981, being the last day of the year, reflected a 'nil' balance. On this date, the assessee transferred the other three assets, namely, furniture, motor-trucks and the auto-rickshaw and the ITO very rightly accepted these transfers since no tax liability was attracted. With a view to transfer the gas cylinders to the partners, the assessee adopted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Addanki Narayanappa vs. Bhaskar Krishnappa: "Whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can be assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in cl. (a) and sub-cls. (i), (ii) and (iii) of cl. (b) of s. 48." The position el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has been claimed and allowed in accordance with the IT Rules. The figure of Rs. 1,00,500, which is the value attributed to these gas cylinders on revaluation, is neither the cost nor the WDV. This would mean that the figure of Rs. 1,00,500 is not to be reduced by any other figure since the WDV of the cylinders is 'nil' (figure of Rs. 1,00,500 on revaluation to be ignored). As we have already held that the transfer in question constitutes a sale/transfer and further the revaluation being a mere ploy, the provisions of s. 41(2) would be clearly attracted on the ground that the gas cylinders have ceased to be the property of the firm and have become the property of the partners. In the result, the action of the CIT(A) is confirmed. 8. The next ground in the assessee's appeal (Nos. 4 5) pertains to the disallowance of a sum of Rs. 1,94,472 in respect of the wages paid to the employees. The learned counsel for the assessee, however, stated that he had instructions not to press this ground for our consideration. This accordingly stands rejected. 9. The next ground in the appeal pertains to the assessee's claim for deduction under s. 80-G. The ITO allowed a deduction of Rs. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence already placed on record. 12. The last ground in the assessee's appeal pertains to the disallowance of a sum of Rs. 10,000 under s. 40A(2) out of the total payment of Rs. 43,000 made to Ranchod Lal Sons. 13. The ITO for reasons stated in para 10 of his order made the impugned disallowance. According to him, the partners of Ranchod Lal Sons were closely related to the assessee-firm. The ITO was also dissatisfied with the nature of the services rendered by the recipient firm to the assessee-firm. 14. The CIT(A) confirmed the disallowance on the ground that a similar point which had come up for consideration in the appeal of the sister concern of the assessee-firm had been dealt with in the same manner. She accordingly confirmed the disallowance as made by the ITO. 15. Before us, the learned counsel for the assessee submitted that the disallowance had been upheld on wrong facts and premises and the relevant evidence which was available on record had been ignored by the learned CIT(A). It was further stated that relevant arguments advanced before the CIT(A) and further supported by written submissions had not been duly considered and the matter had been disposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the assessee on the other hand reiterated arguments identical to those as advanced before the ITO and the CIT(A). He also invited our attention to 108 ITR 8 (Statute) wherein the various exceptions to r. 6-DD had been detailed. According to him one of these mention as a situation where the assessee did not have a bank account at the place at which the transaction was effected. He accordingly made an impassioned plea for the confirmation of the decision taken by the CIT(A). 20. We have examined the rival submissions and have also perused the material on record to which our attention was invited. We are of the view that the assessee's case is fully covered by the exceptions to r. 6-DD and the decision of the CIT(A) merits confirmation. The first ground in the Revenue's appeal is accordingly rejected. 21. The only other surviving ground in the Revenue's appeal pertains to the sum of Rs. 7,500 paid as membership fee to Rajpath Club and Sports Club. The ITO rejected the assessee's claim on the ground that it was not the firm which was a member of these clubs but the partners. According to him the expenditure in question was of a personal nature and did not meri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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