1967 (11) TMI 1

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....hip as an asset of the partnership. For the assessment years 1950-51 to 1952-53 the Income-tax Officer allowed depreciation aggregating to Rs. 44,380 in respect of the two theatres. The partnership was dissolved on September 30, 1951, and on dissolution it was agreed between the partners, that the theatres should be returned to their original owners. In the books of account maintained by the partnership, the assets were shown as taken over on October 1, 1951, at the original price less the depreciation allowed--the depreciation being equally divided between the two partners. In proceedings for assessment for the year 1952-53 the respondent was treated as a registered firm. The Appellate Tribunal held that by restoring the two theatres to....

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....siness or after the cessation thereof, exceeds, the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place." In respect of each of the theatres depreciation was allowed by the taxing authorities in proceedings for assessment. The Income-tax Appellate Tribunal was of the view that since the theatres were returned to the partners in settling the accounts of the partners on dissolution, the theatres were in law sold to the partners. The High Court disagreed with that view. Under the Partnership Act, 1932, property which is brought into the partnership by the partners when it is formed o....

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....ere not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue. The expressions "sale" and "sold" are not defined in the Income-tax Act : those expressions are used in section 10(2)(vii) in their ordinary meaning. "Sale", according to its ordinary meaning, is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved firm is not a transfer, nor it is for a price. The Solicitor-General appearing for the revenue submitted that each partner is entitled to have the assets of the partnership sold for discharging the debts and obligations of the partnership, and for the purpose of dividing the residue among the partners if property is allotted to....