ADDITIONAL COMMISSIONER OF INCOME TAX Vs. RAMCHAND DARYANOMAL

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appellate Tribunal on a direction by the High Court under Section 256(2) of the I.T. Act, 1961. The questions of law referred are as follows :

(2.) THE reference relates to the assessment year 1966-67 of a registered firm, M/s. Ramchand Daryanomal, which was constituted on 8th May, 1954. THE firm consisted of seven partners. Two partners, namely, Daryanomal and Ammalmal, retired on 27th April, 1966, and a deed of dissolution was executed on the same date. THE remaining five partners took a new partner, Thakurdas, and constituted a new firm styled as Ramchand Daryanomal by a deed of partnership which was also executed on 27th April, 1966. In accordance with Clause (5) of the deed of dissolution of the assessee-firm the new firm took over all the assets and liabilities of the assessee-firm. THE assessee-firm owned truck MPA 1101. THE written down value of this truck was Rs. 4,747. THE transfer value of the truck was shown as Rs. 15,000. THE assessee-firm also owned a factory the written down value of which was Rs. 4,635. THE transfer value of the factory was shown as Rs. 25,000. THE ITO held that the assessee-firm made profits of Rs. 10,253 and Rs. 20,365 on sales of the truck and factory, respectively, to the new firm. He, therefore, added these items as income of the assessee under Section 41(2) of the Act. In the appeal by the assessee to the AAC, this addition was deleted as in his opinion there was no sale within the meaning of Section 41(2). THE same view was taken by the Appellate Tribunal.

(3.) FOR the reasons given above, we answer the questions as follows :