COMMISSIONER OF SALES TAX Vs. KHURANA AND CO

JUDGEMENT

(1.) BY this reference under Section 44 of the M. P. General Sales Tax Act, 1958, hereinafter referred to as the Act, the Board of Revenue has referred the following question of law to this Court for its opinion :

(2.) THE material facts giving rise to this reference are as follows :

(3.) THE short question for consideration is whether the property of the firm allotted to a retiring partner in satisfaction of his claim to his share amounts to a sale or transfer of that property to the retiring partner by the petitioner. It has been held by the Supreme Court in Commissioner of Income-tax v. Dewas Cine Corporation A. I. R. 1968 S. C. 676 that the distribution of the surplus of a dissolved partnership for the purpose of adjustment of the rights of the partners does not amount to transfer of assets. In Commissioner of Income-tax, U. P. v. Bankey Lal Vaidya A. I. R. 1971 S. C. 2270 , the Supreme Court observed that when the rights of the parties were adjusted by handing over to one of the partners the entire assets and to the other partner the money-value of his share, such a transaction was not a sale, exchange or transfer of assets of the firm. In view of these decisions, it must be held that property of a firm received by a retiring partner in. satisfaction of his claim to his share cannot be considered to be a transfer or a sale. As there is no transfer in the instant case, the firm cannot be held liable to a penalty under Section 8 (2) of the Act.