Law: Income Tax Act, 1922

Section: 10(2)(vii)

Law: Partnership Act, 1932

Section: 4 , 14

Law: Sale of Goods Act, (III of 1930)

Section:

Income-tax ---Income - Assesses entering into partnership--Assessee's lorries handed over to firm-Agreed value credited to capital account of assesses-Whether sale-Difference over written down value-Whether profit of assesses-Firm, whether legal entity-Indian Income-tax Act, 1922, S. 10(2)(vii)--Indian Partner ship Act, 1932, Ss. 4 & 14-Sale of Goods Act, 1930. Barring exceptional cases of limited recognition of a firm or partnership as an entity, the normal position in law is that a firm is not a legal entity unlike an incorporated company, but a convenient and compendious name given to a contractual relationship in which two or more persons combine their efforts and assets and conjointly apply the same to a commercial or business activity with a view to make profit. Therefore, when a person hands over his property to a firm of partners consisting of himself and others, there is no transfer of property so as to constitute a sale of goods as defined in the Sale of Goods Act. For section 10(2)(vii) of the Indian Income-tax Act, 1922, to apply, there must be a sale of goods and whether there is a sale of goods will depend upon the facts in each case and the mere entry in the account books is not conclusive of the matter. The assesses, who was individually carrying on business in forest contracts, converted the same into a partnership with another. In addition to the capital contributed by each partner, the capital account of the assessee was credited with a further sum of Rs. 15,000 being the agreed value of three lorries owned by the assessee and which he handed over to the firm. As the written down value of there lorries in the books of the assessee was only Rs. 2,558, the Income-tax Officer treated the difference of Rs. 12,442 as profit of the assessee under section 10(2)(vii) of the Indian Income-tax Act, 1922. Though the Appellate Assistant Commissioner declined to interfere, the Tribunal held that there was no sale of the lorries and hence there was no profit made by the assessee. On a reference to the High Court at the instance of the Commissioner: Held, that the view of the Tribunal was right. [Case-law referred].  …