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Commissioner of Income-tax, Poona Vs. Puranmal Manilal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 76 of 1965
Judge
Reported in[1976]103ITR278(Bom)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantCommissioner of Income-tax, Poona
RespondentPuranmal Manilal
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateD. Dwarkadas, Adv.
Excerpt:
.....10 (2) (vii) - taking over of asset by one of partners was part of transaction of dissolution of firm - question answered in negative. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying rock phosphate was delivered at port of bombay - application filed by respondent earlier before delhi high court for appointment of certain individual as arbitrator had become infructuous because of his demise held, high court of bombay, is not correct in rejecting arbitration petition filed by appellant on ground of lack of..........6th april, 1949. on the 19th april, 1949, two documents were executed between the partners, one a deed of dissolution and the other a deed of release. in both these documents it was provided that puranmal, who retired from the firm leaving the entire business to be carried on by manilal, was to be paid a sum of rs. 1,25,000 for transferring his right, title and interest in the assets of the firm mentioned in the said deeds, which included machinery of which the price was fixed at rs. 92,500. it must be stated that the price of rs. 92,500 fixed for the said machinery was in excess of the written down value thereof by a sum of rs. 20,360. in the assessment made originally on the firm for the assessment year 1950-51, the said sum of rs. 20,360 had not been included by the income-tax.....
Judgment:

Vimadalal, J.

1. This is a reference at the instance of the Commissioner of Income-tax in which the following question has been formulated for our decision :

'Whether, on the facts and in the circumstance of the case, the assessee-firm had made any profit liable to be assessed under section 10(2)(vii) of the Indian Income-tax Act, 1922 ?'

2. The facts of the case are very simple. The assessee was a firm consisting of two partners, Puranmal as representing one Hindu undivided family, and Manilal as representing another Hindu undivided family. The firm had acquired certain assets, including machinery, on which depreciation was being allowed in the assessments under section 10(2)(vi) of the Act. The firm was, however, dissolved as from 6th April, 1949. On the 19th April, 1949, two documents were executed between the partners, one a deed of dissolution and the other a deed of release. In both these documents it was provided that Puranmal, who retired from the firm leaving the entire business to be carried on by Manilal, was to be paid a sum of Rs. 1,25,000 for transferring his right, title and interest in the assets of the firm mentioned in the said deeds, which included machinery of which the price was fixed at Rs. 92,500. It must be stated that the price of Rs. 92,500 fixed for the said machinery was in excess of the written down value thereof by a sum of Rs. 20,360. In the assessment made originally on the firm for the assessment year 1950-51, the said sum of Rs. 20,360 had not been included by the Income-tax Officer in the profits of the firm, and for bringing that amount in the assessment, the Income-tax Act, 1922, both in the case of the firm as well as in the case of its two partners. In the course of those proceedings, the Income-tax Officer took the view that there was a sale by the firm of the machinery to its partners on which a deemed profit of Rs. 20,360 should be assessed under section 10(2)(vii) of the Act. On appeal, the Appellate Assistant Commissioner took the view that there was no sale by the firm to the partners, but on a proper interpretation of the two documents, viz., the deed of dissolution and deed of release, it was Puranmal who had, on acquiring his share in the assets of the firm, sold it back and made such profit, and he, therefore, accepted the appeal of the firm, as well as the appeal of the partner, Manilal, but directed that the appeal of the firm, as well as the appeal of the partner, Manilal, But directed that the relative profit should be assessed in the hands of Puranmal. On appeal to the Tribunal, the Tribunal took the view that it was a mere case of a division of assets between the two partners on the dissolution of their firm and, therefore, there could not be said to have been a sale of machinery by the firm to its partners, or a sale of machinery by Puranmal by relinquishing his right therein. In taking that view, the Tribunal relied on two decisions of this court, one in the case of Commissioner of Income-tax v. Sri Homi Mehta's Executors and the other in the case of Rogers & Co. v. Commissioner of Income-tax. The Tribunal, therefore, held that no profit could be assessed in the hands of Puranmal, as the provisions of section 10(2)(vii) of the Act did not apply. It is from that order that this reference in which the question set out above has been referred to us at the instance of the Commissioner, arises.

3. Mr. Joshi has very fairly stated to us at the very outset of his arguments that, through the two decisions of this court, the one in Sir Homi Mehta's Executor's case and the other in Rogers & Co.'s case relied upon by the Tribunal are, according to him, no longer good law in view of the decision of the Supreme Court in the case of Commissioner of Income-tax v. B. M. Kharwar if we take the view that the taking over of the assets by Manilal was part of the transaction of dissolution, the matter is now concluded by two other later decision of the Supreme Court, one in the case of Commissioner of Income-tax v. Dewas Cine Corporation and the other in the case of Commissioner of Income-tax v. Bankey Lal Vaidya. According to Mr. Joshi, the question as to whether or not the taking over of the assets by Manilal was part of the transaction of dissolution must be determined only on a construction of the deeds of dissolution and release. I do not agree with Mr. Joshi that the question as to whether the taking over the assets by Manilal was part of the transaction of dissolution has to be determined only on a construction of those documents. In my opinion, that question is a question is a question of fact in regard to what transpired in the course of the transaction resulting in the dissolution of the firm, and, as such, it must be regarded as concluded by the Tribunal's finding. Once the legal aspect of the question is, therefore, also concluded, as it is by the decisions of the Supreme Court in Dewas Cine Corporation's case and Bankey Lal Vaidya's case the question referred to us on this reference must, in may opinion, be answered against the revenue.

4. In the event of my being wrong in the view that the question as to whether the taking over of the assets by Manilal was a part of the transaction of dissolution of the firm is a question of fact, I would still hold that this reference must be answered against the revenue, because, in any opinion, even on a construction of the relevant provisions of the said deed of dissolution, as well as the deed of release, it is quite clear that the taking over of the machinery as a part of the assets of the firm by Manilal was a part of the adjustment made between the partners in the course of the dissolution of the firm. First and foremost, it is important to bear in mind that both the deed of dissolution as well as the deed of release are contemporaneous documents executed on the same date. Moreover, even a cursory perusal of the deed of dissolution shows by its very recitals that it was as a part of the transaction of the dissolution of the firm that it had been agreed that Puranmal was to convey and transfer his right, title and interest inter alia, in the machinery in question to Manilal, and Manilal was to pay for the same. Before the Tribunal it was sought to be contended on behalf of the revenue that the machinery had been sold before the dissolution of the firm, but Mr. Joshi has not been able to point out to us any clause in the deed of dissolution, or in the deed of release, or an iota of other material which could lead to that conclusion. I have, therefore, no hesitation in coming to the conclusion that the taking over of the assets by Manilal was a part of the transaction of the dissolution of the firm. On any view of the matter, therefore, having regard to the decisions of the Supreme Court in Dewas Cine Corporation's case and in Bankey Lal Vaidya's case the question referred to us must, in my opinion, be answered in the negative.

S.K. Desai, J.

I agree.

By the Court

5. Question answered in the negative. The Commissioner to pay the costs of the assessee.


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