Dwarka Prasad, J.
1. By this application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), the Commissioner of Income-tax, Jaipur, seeks that this court may direct the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur to state the case and refer the following question of law arising out of its order dated February 28, 1979, to this court: --
'Whether, on the facts and in the circumstances of the case, the transfer of petrol tanker from individual business to partnership firm in which such individual also became partner amounted to transfer in terms of Section 2(47) and the difference between the written down value and the amount received by the individual from the firm was profit assessable under Section 41(2) of the Income-tax Act ?'
2. The assessee, Shri Vijendra Pal Singh of Ajmer, owned a petrol tanker, which he transferred to a partnership firm in which he also became one of the partners. The value of the tanker was estimated by the assessee at Rs. 40,000 and the said amount was credited in the capital account of the firm in the name of the assessee. The Income-tax Officer was of the view that the transaction amounted to a sale of the petrol tanker by the assessee to the partnership firm and he calculated the profit to the assessee under Section 41(2) of the Act at Rs. 10,002, which was added to the total income of the assessee. The assessee filed an appeal before the Appellate Assistant Commissioner of Income-tax and contended that there was no sale or transfer of any asset by the assessee and as such there was no question of any profit to the assessee within the meaning of Section 41(2) of the Act. The Appellate Assistant Commissioner accepted the contention of the assessee and held that the transaction did not amount to a sale. He accordingly deleted the sura of Rs. 10,002, in respect of the alleged transfer of the petrol tanker in the partnership firm, from the total income of the assessee. The order passed by the Appellate Assistant Commissioner of Income-tax was upheld on further appeal by the Income-tax Appellate Tribunal.
3. The Commissioner of Income-tax filed an application under Section 256(1) of the Act before the Appellate Tribunal, but the Tribunal refused to make a reference to this court on the ground that the point as to whether there was asale or transfer of asset by the assessee to the partnership firm, on account of his bringing the petrol tanker into the assets of the firm, was already decided by decisions of the Supreme Court and no useful purpose would be served by making a reference to the High Court.
4. In this application under Section 256(2) of the Act, learned counsel appearing for the Revenue made the same submission which was advanced before the Income-tax Appellate Tribunal on behalf of the Department, namely, that the transaction of the assessee bringing the petrol tanker into the assets of the partnership firm amounted to a transfer within the meaning of Section 2 of the Income-tax Act and as the said asset was sold by the assessee to the partnership firm, the profit received by the assessee was assessable as the income of the assessee under Section 41(2) of the Act. On the other hand, Mr. Maloo, appearing for the assessee, has supported the order passed by the Income-tax Appellate Tribunal.
5. Section 2(47) of the Act defines 'transfer' as under :--
' 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.'
6. In order to constitute profit chargeable to tax within the meaning of Section 41(2) of the Act, the asset owned by the assessee and which was used by him for the purposes of business or profession should be sold, discarded, demolished or destroyed and the money received in respect thereof should exceed its written down value, then so much of the amount as would represent the difference between the actual cost and the written down value would be chargeable to income-tax as the income of the assessee from business or profession of the previous year in which the money payable for the asset in question became due. Thus, in order to attract the provisions of Section 41(2) of the Act, the building, machinery, plant or furniture should be sold, discarded, demolished or destroyed. In the present case, the assertion on behalf of the Revenue is that the petrol tanker was sold by the assessee to the partnership firm. Thus, if a sale has taken place, when the asset belonging to the assessee was brought by him into the partnership firm of which the assessee himself was one of the partners, then only Section 41(2) of the Act would be attracted and the income calculated in the manner specified in the section would be chargeable to tax. We may observe that when a partner transfers his asset to a partnership firm of which he himself is a partner, there is no element of sale involved in such a transaction, because the partnership firm is not a separate legal entity, but it is merely a compendious name of all the partners including the partner who has placed the asset at the disposal of the partnership firm.
7. Lindely in his treatise on the Law of Partnership (14th edition) has observed that partners are called collectively a firm. Dealing with the legalnotion of a firm, the learned author has observed as under (at pp. 29 & 30) :--
'The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm ; further, tax assessments are made, in the first instance, against the partnership, but speaking generally, the firm as such has no legal recognition, e.g., a firm as such cannot be a tenant, and thus cannot claim the benefit of protection under the Landlord and Tenant Act, 1954, Part II. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm ; what is called the properly of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer.
A member of an ordinary partnership fills a double character ; he is both a principal and an agent.'
8. It has been noticed that non-recognition of the firm as a legal entity is one of the most marked differences between partnerships and incorporated companies. Again in Chapter 18, at page 444, the learned author has observed as under:
'The expressions partnership property, partnership stock, partnership assets, joint stock, and joint estate, are used indiscriminately to denote everything to which the firm, or in other words all the partners composing it, can be considered to be entitled as such.'
9. Further, in regard to the nature of a share of a partner in the firm, the learned author makes the following statement (at p. 462) :
'In the absence of a special agreement to that effect, all the members of an ordinary partnership are interested in the whole of the partnership property on the basis of equality between them, but it is not always clear in relation to any particular item of partnership property whether they are interested therein as tenants in common, or as joint tenants without benefit of survivorship, so far as a beneficial interest is concerned. It follows from this community of interest that no partner has a right to take any portion of the partnership property and to say that it is his exclusively. No partner has any such right, either during the existence of the partnership or (in the absence of agreement) after it has been dissolved.'
10. After referring to the provisions of the Indian Partnership Act, 1932, their Lordships of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa : 3SCR400 , brought out the nature of partnership clearly in thefollowing words (at p. 1303) :
'From a perusal of these provisions, it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in ail the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities .....'
11. In CIT v. Hind Construction Ltd. : 83ITR211(SC) , their Lordships of the Supreme Court, while dealing with the question of transfer of assets by an assessee to the partnership as assessee's share of capital, observed that such a transfer did not amount to a sale. Their Lordships held as under in the aforesaid case (at p. 214) :
'No one can sell his goods to himself. A sale contemplates a seller and a purchaser. If a person revalues his goods and shows a higher value for them in his books, he cannot be considered as having sold these goods and made profits therefrom. Nor can a person by handing over his goods to a partnership of which he is a partner and that as his share of capital be considered as having sold the goods to the partnership. It is difficult to appreciate the arguments advanced on behalf of the department that there was a sale either at the time when the assessee showed an inflated price of the machiney that fell to its share at the division or when that machinery was used as the capital of the new firm of which he was a partner.'
12. In Malabar Fisheries Co. v. CIT : 120ITR49(SC) their Lordships of the Supreme Court quoted with approval the observations of Lindley on Partnership, extracted above, and their Lordships have observed as under (at p. 59) :
'..... it seems to us clear that a partnership firm under the IndianPartnership 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.'
13. Thus, from the aforesaid discussion, it is apparent that the question in respect of which a reference is sought on behalf of the Revenue stands concludedby the aforesaid decisions of the Supreme Court and it has been held that in the case of a transfer of an asset by an assessee to a partnership firm in which the assessee is himself a partner, there is no element of sale involved, as the partnership firm is a composite body consisting of the partner himself along with other partners and a person could not transfer or sell a property to himself. As such, neither is there a transfer nor a sale when a partner places an asset belonging to him at the disposal of the partnership firm of which he himself is a partner and the value of the asset is credited to the account of the assessee to constitute the capital of the firm. In our view, the Appellate Tribunal was perfectly justified in refusing to make a reference, as there is no arguable question which needs to be referred to this court and the point sought to be raised stands concluded by the decisions of the Supreme Court, referred to above.
14. The application for reference is dismissed without any order as to costs.