COMMISSIONER OF INCOME TAX Vs. BHARANI PICTURES

JUDGEMENT

(1.) THESE are two references, one arising under the I.T. Act and the other arising under the G.T. Act. T.C. No. 221 of 1975 is the reference under the I.T. Act and the questions that arise for consideration in the said reference are :

(2.) T.C. No. 220 of 1975 arises under the G.T. Act and the question of law referred therein is :

(3.) THE learned counsel for the Commissioner submitted that the firm had transferred the properties in favour of P. Bhanumathi and that the transfer would attract liability to tax under Sections 41(2) and 45. THE learned counsel for the assessee, on the other hand, submitted that the firm is not a legal entity, that the two partners were only in the position of co-owners and that just as it was open to the partners to throw their assets into the firm, it was also open to them to take back the assets from the firm. According to the learned counsel, it is well settled that there was no transfer at the time when the partners converted any property into an asset of the firm and that the same principle should apply and that there could be no transfer, at a time when the property was taken back by the partners. Section 41(2), so far as it is material, runs as follows :