COMMISSIONER OF INCOME TAX Vs. CHIRONJILAL MAHAWAR

JUDGEMENT

(1.) THE decision in this reference shall also govern the disposal of Miscellaneous Civil Case No. 372 of 1981 (CIT v. Umraolal Mahawar).

(2.) THESE two references arise out of the orders passed by this court on December 19, 1980, in Miscellaneous Civil Case No. 181 of 1977 and Miscellaneous Civil Case No. 183 of 1977, at the instance of the Revenue, directing the Tribunal to submit the statements of cases under Section 256(2) of the Income-tax Act and to refer the following questions of law for its decision, namely :

(3.) SECTION 41(2) of the Income-tax Act is applicable in cases where building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and where the moneys payable in respect of the aforesaid items exceed the written down value, so much of the excess which does not exceed the difference between the actual cost and the written down value is chargeable to income-tax as income of the business of the previous year in which the moneys payable for the aforesaid assets become due. From the facts and circumstances of the case as also from the statement of the case submitted to this court, it is clear that the assessees/respondents did not sell the "Jagdish Rice Mill, Dhamtari" to "M/s. Jagdish Rice Mill, Dhamtari", in which the assessees/respondents were also the partners but had only handed it over to the new partnership firm. In view of this clear finding, in our opinion, both the Appellate Assistant Commissioner and the Tribunal were right in holding that the provision of SECTION 41(2) of the Income-tax Act has no application, as there was no sale. All that can be said is that the assessees/respondents contributed assets to the firm, "M/s. Jagdish Rice Mill, Dhamtari", Such a contribution by the assessees/respondents cannot be held to be a sale and it was merely a mutual adjustment of the rights in the assets of the partnership in the new firm. The aforesaid view taken by us is also supported by the decision of the court in Addl. CIT v. Ramchand Daryanomal [1982] 138 ITR 666 (MP) and Addl. CIT v. Agarwal Timber and Bans Co. [1983] 144 ITR 46 (MP).