Capital contribution to partnership is not a sale of goods when property is introduced without intention to transfer for price.

A partner's introduction of lorries into a newly constituted partnership as capital did not amount to a sale under the Indian Sale of Goods Act, 1930. The accounting credit in the partner's capital account and debit in the firm's books was not decisive; the partnership deed and surrounding intention showed that the vehicles were contributed for use in the business, not transferred for price. As there was no sale of goods, the difference between written down value and the credited value was not taxable as profit under section 10(2)(vii) of the Income-tax Act, 1922.

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Issues: Whether the difference between the written down value of the lorries and the value credited in the partnership books was taxable as profit on a sale of goods under section 10(2)(vii) of the Income-tax Act, 1922, when the assessee brought the lorries into a newly constituted partnership as part of his capital contribution.

Analysis: Section 10(2)(vii) applied only if there was a sale of goods within the meaning of the Indian Sale of Goods Act, 1930. The mere accounting entry crediting the assessee's capital account and debiting the firm's purchase account was not conclusive. The partnership deed showed that the lorries were handed over as further capital to be used in the partnership business, and the transaction did not evince an intention to effect an outright sale for price. A firm is not a separate legal entity in the ordinary sense, and when a person brings property into a partnership of which he is a member, the property may become partnership property by agreement and intention rather than by transfer by sale. The sum credited was therefore not a price for a sale but an agreed value for capital contribution.

Conclusion: There was no sale of the lorries and no taxable profit arose under section 10(2)(vii); the issue is decided in favour of the assessee.

Ratio Decidendi: Property brought by a partner into a newly formed partnership as capital contribution, without an intention to transfer it for price, does not amount to a sale of goods for purposes of taxing any alleged profit on transfer.

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