TaxTMI 
TaxTMI 
2001 (9) TMI 69
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....rice instead of full and deducting therefrom the cost of one half joint share to the assessee-firm?" The facts leading to the reference are: The assessee was a firm consisting of two partners, viz., P. Madanagopala Rao and J. G. Williams, each of whom had a half share. On May 21, 1975, the above two partners together with two others, namely, T. Anjayya and D. Venkateswara Rao, constituted another firm, known as "Pioneer Industries". The assessee-firm revalued some of its assets and they were made over to Pioneer Industries. In the assessment proceedings, the question of capital gains arising out of the aforesaid transaction was raised. Though it was contended for the assessee-firm that there was no capital gains from out of the transaction, the Assessing Officer did not agree with the said contention. According to the Assessing Officer, Pioneer Industries was a separate entity from the assessee. As the assets were made over to the said Pioneer Industries from the assessee-firm, the said transaction amounts to transfer. Accordingly, the Assessing Officer computed the profits both under section 41(2) and capital gains in respect of the assets involving in the transaction as und....
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....; 60,000 15,774 11,167 4,607 equipment 4,158 3. Furniture and fix- 4,009 10,450 4,613 3,748 865 tures, typewriters &nb....
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....ection 41(2) of the Act. In that view of the matter the first question is to be answered against the Revenue and in favour of the assessee. Coming to the second question, the contention of learned standing counsel is that there was a transfer from the assessee-firm to a new firm, i.e., Pioneer Industries. When once there was a transfer of assets from one entity to another entity, the transfer is full and complete in so far as the liability to capital gains is concerned. The contention of learned standing counsel is that the Tribunal had committed an error in accepting the contention of the Revenue only to the extent of half share in respect of the assets transferred by the assessee-company to Pioneer Industries. Therefore, according to learned counsel, there is a transfer to the extent of the entire assets and not confining to half share and, therefore, the capital gains have to be computed on the full value of the assets. Though notice was served on the assessee, none appeared for the assessee. Before considering the contention of learned counsel, it would be proper to refer to the relevant provisions of the Act as well as the Indian Partnership Act, 1932: Clause (47) ....
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.... of section 48.' Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it, and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint or common interest." From the above observations, it is clear that the properties vest in all the partners of the firm and no partner of a firm has got any specific interest in respect of the assets of the firm. But, at the same time, the firm as such has no right or interest, though it is an assessable entity under the provisions of the Act for firm tax. Here admittedly certain of the assets owned by the assessee-firm are made over to the Pioneer Industries, which was formed by the partners of the assessee-firm with two more partners. If the new firm had been constituted with the same two partners, there cannot be any transfer, as the same partners would have been holding the same interest in the assets. But, here, two more partners were in....