RAMACHANDRA REDDIAR P Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ADMITTEDLY in this case the transfer was otherwise than for adequate consideration. There was a definite finding to that effect by the Tribunal and the same has not been challenged. The transfer was also to the wives of the assessees viz. N and R who are the wives of AR and RR respectively the assessees in this case. Thus the transferees are the wives of the assessees and the transfer is for inadequate consideration. Admittedly, the firm GMS had only two partners, viz. RR and AR and that firm was also carrying on the business in tailoring and dry cleaning under the name and style BDC.

(2.) THE firm discontinued the said business and sold the machinery and equipments used in that business as a going concern to the wives of the two partners. The business premises continued to be the same and services of the staff were also continued. Even though in the agreement of sale it has been shown that the machineries and equipments were sold in effect the business in its entirety was sold as a going concern. If S. 64(1)(iii) is read substituting the names of the partners and their wives, it will read as "in computing the total income of RR and AR (the individual assessees) there shall be included all such income as arises directly or indirectly to R and N (who are spouses of RR and AR) from assets transferred directly or indirectly to R and N by RR and AR otherwise than for adequate consideration".

(3.) THE separate legal status given to the firm extend only for the purpose of assessment and they do not go any further. In other words, when partners constitute a firm, in general law the firm does not get a corporate personality and it has no corporate existence in law. The firm name is only a convenient way of referring the names of all the partners constituting the partnership at the relevant time. So long as the partnership continues, no partner can claim exclusive right over any of the partnership property. The proposition of law is well established. Any partner can claim only a share in the profits of the business. But in this case, the firm consisting of the partners transferred the property and the business to the wives of the partners.