COMMISSIONER OF INCOME TAX Vs. KRISHNA RAO K

JUDGEMENT

(1.) THIS is a reference under section 66(2) of the Indian Income-tax Act, 1922, to be hereinafter referred to as the "Act". It was made on the direction given by this court in C. P. No. 258 of 1962 on the file of this court. The reference in question was called for at the instance of the Commissioner of Income-tax Mysore, at Bangalore. The question referred for the opinion of this court is :

(2.) THE material facts are these :

(3.) EVEN if the conclusions reached by the Income-tax Officer are accepted as correct, the assignment of the interest Krishna Rao in the assets of the firm cannot be considered as a sale of "building, machinery or plant" within the meaning of section 10(2) (vii) of the "Act". That section has in view of the sale of "building, machinery or plant" by the assessee and not the assignment of the interest of a partner in the partnership assets, much less the relinquishments by one partner of his interest in the partnership in favour of the other partner or partners. The sale by a partner of his partner of his interest in the partnership is not the same thing as a sale by the firm of any of its assets. Under section 10(2) (vii), what is relevant is the sale by an assessee of his buildings, machineries of plants. The assessee before us is the firm and not Krishna Rao. Hence, profits, if any, made by Krishna Rao cannot be considered as the profits of the firm. It is only the profit deemed to have been made by the firm by the sale of buildings, plants or machineries owned by it and used in the course of its business that comes within the mischief of the 2nd proviso to section 10(2) (vii) of the "Act". Such is not the position here.