S.T. Desai, J.
1. The Short question that the arises for our determination on this reference relates to a transaction of sale of certain lands by the assessee to himself and another person. The land was sold by the assessee to a partnership firm consisting of himself and another and what we have to determine is whether the difference in the price at which the land was purchased by the assessee and the price which the partnership firm agreed to pay for the land represents the profit of the assessee.
2. The assessee contracted to purchase certain lands for Rs. 41,500. Before the sale deed was executed, he entered into a partnership agreement with one Datar and the business of that partnership was to develop the land and sell it. The assessee's contribution towards the capital of the firm was Rs. 36,000 and Datar's contribution was Rs. 24,000. Their shares in the profits and losses of the business were in the same proportion. The partnership firm took over the land from the assessee at the agreed price of Rs. 90.000 and the land was conveyed to the name of the partnership firm by the vendor of the assessee. In making assessment on the assessee, the Income-tax Officer treated the difference between Rs. 90,000 and Rs. 41,500, i.e., Rs. 48,500, as the profit of the assessee from the venture of purchase and sale of the land.
3. The Appellate Assistant Commissioner also decided against the assessee and the assessee carried the matter in appeal to the Tribunal. The Members of the Tribunal expressed different opinions. The Judicial Member took the view that no profit had accrued to the assessee when the land was transferred to the partnership firm because he was himself a major shareholder in the firm. He also took the view that the agreed price at which the land was to be taken over by the partnership was not Rs. 90,000 as mentioned in the agreement, but Rs. 60,000. It is difficult to see how that conclusion could be reached, but the reason given was that the total capital of the partnership was only Rs. 60,000 and, therefore, the partnership with a capital of Rs. 60,000 could not purchase land of the value of Rs. 90,000. It is not necessary to make any comment on the same. The Judicial Member also expressed the view that even if it were to be held that any profit had accrued to the assessee, that profit could nor be Rs. 48,500 but would be Rs. 18,500. The Accountant Member disagreed with the Judicial Member. He reached the conclusion that the profit realised by the assessee was Rs. 48,500. He also reached the conclusion that the land had been taken over by the partnership for Rs. 90,000 and not Rs. 60,000.
4. The case was referred to a third Member and the points which the third Member was asked to decide were these :
'(1) Whether on the facts and circumstances of the case, any taxable income accrued to the assessee
(2) If so, whether the amount is Rs. 48,500 or Rs. 18,500 ?'
5. The third Member of the Tribunal reached the conclusion that the land had been sold at Rs. 90,000. He also expressed the view that the assessee had by the sale made a profit 'on paper amounting to Rs. 48,500'. Then he added :
'I think it is true that the partnership is a separate entity for income-tax purposes but a partner cannot be dissociated from the partnership as such. The assessee has himself 60% share in the partnership. In other words, if the partnership was dissolved ten minutes after its commencement the assessee would have only made a profit in respect of the share of land which came to M. Y. Datar. As regards 60% of the land he had made a profit for himself. At the time of the transfer to the partnership the assessee had only secured for himself a profit of Rs. 19,400 (Rs. 48,500 X 4/10). The balance of the profits is still in the form of his share of the land.'
6. It will be seen that neither the Judicial Member nor the Accountant Member has ascertained the assessable profit at Rs. 19,400. It will also be seen that the third Member has taken a view of his own which is not in agreement with that of either of the two other Members of the Tribunal. In our judgment, the reasoning by which this amount of Rs. 19,400 has been arrived at is unsound. It is competent to person in law to sell his property to a partnership firm consisting of himself and another. Such a transaction would be valid and binding and would have all the incidents of a legal and bending transaction of sale, and the difference between the purchase price of the land and the selling price would be the profit that would accrue to the person who purchased and sold the land. That amount in the present case would be the difference between Rs. 90,000 and Rs. 41,500, i.e., Rs. 48,500.
7. On this part very little has been said before us by Mr. Samarth, learned counsel for the assessee. It has, however, been the endeavour of Mr. Samarth to support the order passed and the directions given by the third Member and on which the second question, which we are asked to determine, has been raised. After reaching the conclusion that at the time of the transfer to the partnership the assessee had only secured for himself the profit of Rs. 19,400, the third Member made certain observations and gave certain directions which are as under :
'In a case like this, it would nor be fair for an assessee to be called upon to pay tax in respect of the whole of the item of Rs. 48,500 in one year. It has been laid down by the High Court that an assessee has a right to be assessed on cash basis. These lands have been sold in the later years and I presume that the money must have gone to the assessee. I would therefore suggest that the Income-tax authorities should bring to assessment in the hands of the appellant the sum of Rs. 19,400 as on the date of the partnership. The balance of Rs. 29,100 should be taxed as and when the sales are made by the partnership. In other words, the whole sum is taxable but on cash basis. At the time of every sale, the assessee's share of profit should be ascertained and brought to assessment in the year the sales take place. I would, therefore, hold that the whole sum of Rs. 48,500 is taxable but it should be assessed in the hands of the appellant in the manner stated above.'
8. On this part of the order the question has been raised whether the order is valid in law. In view of the conclusion reached by us on the first question, it is not necessary to determine the second question.
9. Now, the argument of Mr. Samarth before us was mainly directed to the second question and the argument was that it was competent to the third Member to give those directions. It is difficult for us to accept Mr. Samarth's contention, but since we are not answering the second question it is not necessary for us to deal with the same.
10. Our answer to the first question will be facts and circumstances of the case the profit which accrued to the assessee on the purchase of the land by the partnership is Rs. 48,500.
11. As we have already mentioned, it is not necessary to answer the second question.
12. Assessee to pay the costs.
13. Reference answered accordingly.