COMMISSIONER OF INCOME TAX Vs. KALURAM PURANMAL

JUDGEMENT

(1.) THIS is a reference at the instance of the Commissioner and the following question of law has been referred to us under s. 66(1) of the Indian I. T. Act, 1922.

(2.) WE are concerned in this reference with the assessment year 1958 -59, the accounting year being Maru year 2013 -14. The assessee before us is the firm of Messrs. Kaluram Puranmal. The said firm had sever partners and the constitution and the shares were as follows : Name of partners SharePurshottamlal 0 -2 -3Motilal 0 -2 -6Hariram 0 -2 -3Babulal 0 -2 -0Bannalal 0 -2 -6Basudeo 0 -2 -6Banwarilal 0 -2 -0

(3.) THE assessee -firm also transferred the remaining 2,365 shares of the very company more or less equally amongst its seven partners at Rs. 223.22 per share which was its average purchase price. The ITO rejected the assessee's contention that this transaction between the firm and its partners was merely a distribution of this particular asset amongst themselves. He noted that the disstribution amongst the partners at the average cost price had taken place within one month of the sale of 111 shares which were sold though regular brokers at the market rates. He found no difference between the two sets of transactions except that in the latter transaction the partners had been debited with the book value of the shares instead of the market rate. In his view such a transfer or release, even if it is made to the partners, is required to be accounted for at the market price. He regarded this understatement a profit on the firm and, therefore, the sum of Rs. 42.040 as worked out by him was added to the assessee's income.