Partnership asset allotment on dissolution is not a sale where a motorcar is transferred to a partner in settlement of rights.

Transfer of a motorcar by a partnership firm to a partner on dissolution was held not to be a sale under Section 2(28) of the Bombay Sales Tax Act, 1959. The Court reasoned that a partnership firm is not a distinct legal entity from its partners for the purpose of its assets, and that distribution of assets on dissolution is only an adjustment of mutual rights through allotment of jointly held property. Because the transfer was made in lieu of the partner's share in the partnership assets, and not by way of a transaction between distinct parties for valuable consideration, sales tax could not be levied. The reference was answered in favour of the assessee.

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Issues: Whether transfer of a motorcar by a partnership firm to one of its partners on dissolution constitutes a sale under Section 2(28) of the Bombay Sales Tax Act, 1959 and is liable to tax.

Analysis: The partnership firm is not a distinct legal entity separate from the partners for the purpose of its assets. On dissolution, the firm's assets are distributed or allotted among the partners as part of the adjustment of their mutual rights. Such distribution does not involve extinguishment of the firm's rights in the assets in the sense contemplated by the definition of sale. A sale requires an agreement to transfer title for money consideration between distinct contracting parties, whereas allotment of partnership property on dissolution is a division of jointly owned assets. The car in question was transferred to a partner in lieu of his share in the partnership assets in the course of dissolution, not sold as a taxable transaction.

Conclusion: The transfer of the motorcar to the partner on dissolution did not amount to a sale under Section 2(28) of the Bombay Sales Tax Act, 1959 and was not liable to sales tax; the reference was answered in favour of the assessee.

Ratio Decidendi: Distribution or allotment of partnership assets to a partner on dissolution is a mutual adjustment of rights and does not constitute a sale unless there is a transfer between distinct parties for valuable consideration.

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