TaxTMI 
TaxTMI 
1991 (12) TMI 103
X X X X Extracts X X X X
X X X X Extracts X X X X
....d amongst the partners. A trial balance as on 6-11-1979 was also filed containing the list of outstanding owed by the firm and owed to the firm besides certain sundry items. The assessee had shown a sum of Rs. 71,390 (gross) under the head capital gains and after deduction available under section 80T, a net capital gains of Rs. 49,792 was admitted. This was sought to be set off against the brought forward business loss which, according to the assessee's accounts amounted to Rs. 56,264. The capital gains reported by the assessee was ascertained as under : Sale value of the lodge building with premises. Rs. 8,00,000 Less: 1. Book value of the building account. Rs. 6,91,413 2. Electrical fittings (WDV + addition of Rs. 500). Rs. 7,909 3. Bed and bed sheet account (WDV of Rs. 13,271+ additions during the year). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 2. Before the Appellate Assistant Commissioner of Income-tax, it was contended by the assessee as follows : " (i) The individual partners sold their shares separately and not jointly in partnership; (ii) The sale was of their share in the firm which is movable property and not assignable to any asset of the firm specifically as held in A. Narayanappa v. B. Krishnappa AIR 1966 (SC) 1300; (iii) Alternatively, when the undertaking itself is sold, no profit arises under section 41(2); and (iv) That capital gains is also not chargeable as the original cost of the undertaking cannot be determined. " Reliance was also placed on the decision of the Karnataka High Court in the case of Syndicate Bank Ltd. v. Addl. CIT [1985] 48 CTR (Kar.) 68. The AAC did not agree with the assessee that there was dissolution of the partnership when Shri Kaladharan sold his interest in the firm to M/s Mohammedali Haji and Ahamedkutty Haji. He found that there was only a small interval between Shri Kaladharan assigning his interest in favour of the above party and Shri Surendran surrendering his rights in the firm in favour of the very same party. The receipt of sale consideration was accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion reported in Artex Manufacturing Co. v. CIT [1981] 131 ITR 559 (Guj.) 6. Shri Abraham, the learned senior departmental representative, submitted that this was a case of sale of assets by the firm. The interest of the partner in any specific asset during the subsistence of the partnership cannot be predicated. Therefore, the sale of such interest in the assets of the firm by Shri Kaladharan in October 1979 cannot bind the firm. The firm was not made a party to it. Nor any consent was shown to have been given by the other partner. The other partner was not made a party or even a witness in the sale deed dated 10-10-1979. After a few days in the month of November 1979, Shri Surendran, the other partner, had surrendered his rights in favour of the very same vendees. Perhaps, this was to economise on stamp duty and registration charges. Therefore, when the surrender deed was executed by Shri Surendran on 5-11-1979, the firm is deemed to have been dissolved. As a matter of fact, the assessee has made up its account as on 6-11-1979. Therefore, even though the partners have individually acted, they have acted with cohesion and for a unified purpose, the purpose being to transfer the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....schedule. The schedule describes a tiled house in Robinson Road, property situated in Block No. 5/49, 37 cents in S.No. 2469/11, half cent out of 41 cents in S.No. 2469/2, property situated in Block No. 5/55, 2 cents in S. No. 2724, one cent in S.No. 2725, one cent in S. No. 2726 together with four storeyed concrete building known as Tourist Lodge, Nalanda Hotel, 2 shop rooms, clinical laboratories, tailor shop, with electric, sanitary and all other fittings attached. Thus, though the document is purported to sell his interest in the properties described in the schedule individually the properties described as Tourist Lodge, Nalanda Hotel, Shop rooms, Clinical laboratories, tailor shop and electrical and sanitary fittings and other fittings remain in the books of the firm. Such properties have been looked upon by the partners of the firm as belonging to the firm. The deed is silent about the ownership of the property by the partnership firm. Under the provisions of the Partnership Act, a partner can certainly assign his interest in the partnership property, though such interest cannot be predicated during the subsistence of the partnership. The sale deed executed by Shri Kaladharan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ones to foist Brown on his partner as his substitute, and still less to allow Jones's secured creditors to force themselves on Jones's partner in place of Jones, for the purpose of liquidating the debts due from him. " The other effect of transfer or assignment of the interest in the partnership by a partner is that the transferring partner or the assigner is relieved of all his antecedent liability upon such assignment if he gives notice to the other partners of his withdrawal from the firm, and the assignment, though made to an insolvent person is not, for that reason, the less effectual in putting an end to his liability----Jefferys v. Smith [1827] 27 RR 49. No doubt, the Indian Courts have held that upon assignment or transfer of interest by a partner, the partnership does not come to an end. But such a proposition can be advanced only when there are more than two partners and one of the partners assigns or otherwise transfers his interest in the firm. 9. The above discussions lead us to either of the two conclusions : (1) As Shri Kaladharan has specified the assets that are purported to be sold by him in favour of the strangers, the sale deed cannot be interpreted as hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....41(2) cannot be computed and in this connection he relied on the decision of the Kerala High Court in CIT v. F. X. Periera & Sons (Travancore) (P.) Ltd.'s case. We have carefully considered the decision of the Hon'ble High Court of Kerala. It was a case where the entire business was sold, lock, stock and barrel, for a composite consideration and it was in that context the Kerala High Court held that the consideration cannot be apportioned among different assets. We have already held that this is not a case of sale of whole business. We are reinforced in this view by the treatment accorded to the sale proceeds in the books of account of the assessee as stated above. None of the liabilities was transferred to and in favour of the vendees. The mere fact that Shri Kaladharan had directed the vendees to deposit a certain amount with Nedungadi Bank cannot lead to the inference that the sale effected by him was subject to the liability to the bank. On the other hand, a plain reading of the document only showed that the direction amounted to an appropriation of the sale proceeds in quit of the liability to the bank. Therefore, this is a case of sale of assets by the firm on its dissolution....