# [1968] 2 S.C.R. 173

- **Citation:** [1968] 2 S.C.R. 173
- **Court:** Supreme Court of India
- **Decided:** 1967-11-08
- **Case number:** Civil Appeal No. 2163 of 1966
- **Bench:** J. C. Shah, V. Ramaswami, V. Bhargava
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1968-2-s-c-r-173-4304
- **Pages:** 4

## Headnote

lnclian lncorne-tax Act, 19221 s. 10(2) (vii) 2nd proviso-Tl•'o persons
entering into partnership, each contributing a cinema theatre-on. dissolution of ."artnership theatres returned to respectii-·e owners at original price
-Depreciation equally dil'ided between
partners-Return of
theatres
u1hether sale for purpose oj s. 10(2) (vii), 2nd proviso.
S and H formed a partnership to carry on business in partnership_ as
exhibitors of cinematograph films with effect from March 1, 1947. Each
partner who was an owner of a cinematograph theatre
brought bis
theatre into the books of the partnership as an asset of the partnership.
For the assessment years 1950'51 to 1952-53 the Income-tax Officer
allowed depreciation aggregating to Rs. 44,380/- in respect of the two
theatres.
The partnership was dissolved on Sept·omber 30, 1951, and on
dissolutio•n it was agreed betweeri the partners that the theatres should
be returned to their original o\vners.
Jn the books of account main·
tained by the partnership, the assets
were shown as
taken over on·
October 1, 1951, at the original price less the depreciation allowedthe
lk~preciation being equally divided between the two partners.
In
proceedings for assessment for the year 1952-53 the- respondent
was
treated as a registered firm.
The Appellate Tribunal held that bv restoring the two theatres to the two original owners "there was a transfer
by the firm and the
1~ntries adjusting the depreciation and writing off
the assets at the original value amounted to total
recoupment of the
entire depreciation by the partnership, and on that a¢count" proviso 2
to s. 10(2) (vii) of the Income-tax Act. 1922. applied.
The High Court.
in reference, held in favour of the assessee.
The Revenue appealed,
contending. that on
th~ transfer of the theatres from the partnership
to the original owners there was a sale.
HELD : The expr·~ssions "!iiide" and ''sold" are not defined in the
J,ncome-tax Act : Those expressions ar·:! used in s. 10(2) (vii) in their
ordinary meaning.
''Sale" according to its ordinary meaning is a transfer
of property for a price. and adjustment of the rights of the partners ln
a dissolved firm is not a transfer. nor is it for a price. [l 76A-B]
A partner may, it is true, in an action for dissolution insist that th·~
assets of the partnership be realised by sale of its assets, but \Vhere in
satis(ac:tion of the claim of the partner to his share in the value of the
residUe det-ermined on the footing of an actual or notional sale property
is allotted, the pro)J'orty so allotted to him cannot be deemed in Jaw to he
sold to him. fl 76El
Addanki Naravanappa and Anr. \r. Bhaskara Krislinappa
and Ors.
[1966] 3 S.C.R. 400, referred to.
C!V!L APPELLATE JURISDICTION : Civil Appeal No. 2163 of
1966.
Appeal from the judgment and order date<l April 15, 1964
of the Madhya Pradesh High Court in Misc. Civil Case No. 22
of 1963.
174
SUPREME COURT REPORTS
(1968] 2 S.C.R.
Niren De, Solicitor-Genera/, S. K. Aiyar, R. N. Sachthey and
S. P. Nayar, for the appellant.
Naunit Lal and B. P. Singh,· for the respondent.

## Text

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COMMISSIONER OF INCOME-TAX, MADHYA PRADESH
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v.
DEWAS CINE CORPORATION
November 8, 1967
{J. C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.}
lnclian lncorne-tax Act, 19221 s. 10(2) (vii) 2nd proviso-Tl•'o persons
entering into partnership, each contributing a cinema theatre-on. dissolution of ."artnership theatres returned to respectii-·e owners at original price
-Depreciation equally dil'ided between
partners-Return of
theatres
u1hether sale for purpose oj s. 10(2) (vii), 2nd proviso.
S and H formed a partnership to carry on business in partnership_ as
exhibitors of cinematograph films with effect from March 1, 1947. Each
partner who was an owner of a cinematograph theatre
brought bis
theatre into the books of the partnership as an asset of the partnership.
For the assessment years 1950'51 to 1952-53 the Income-tax Officer
allowed depreciation aggregating to Rs. 44,380/- in respect of the two
theatres.
The partnership was dissolved on Sept·omber 30, 1951, and on
dissolutio•n it was agreed betweeri the partners that the theatres should
be returned to their original o\vners.
Jn the books of account main·
tained by the partnership, the assets
were shown as
taken over on·
October 1, 1951, at the original price less the depreciation allowedthe
lk~preciation being equally divided between the two partners.
In
proceedings for assessment for the year 1952-53 the- respondent
was
treated as a registered firm.
The Appellate Tribunal held that bv restoring the two theatres to the two original owners "there was a transfer
by the firm and the
1~ntries adjusting the depreciation and writing off
the assets at the original value amounted to total
recoupment of the
entire depreciation by the partnership, and on that a¢count" proviso 2
to s. 10(2) (vii) of the Income-tax Act. 1922. applied.
The High Court.
in reference, held in favour of the assessee.
The Revenue appealed,
contending. that on
th~ transfer of the theatres from the partnership
to the original owners there was a sale.
HELD : The expr·~ssions "!iiide" and ''sold" are not defined in the
J,ncome-tax Act : Those expressions ar·:! used in s. 10(2) (vii) in their
ordinary meaning.
''Sale" according to its ordinary meaning is a transfer
of property for a price. and adjustment of the rights of the partners ln
a dissolved firm is not a transfer. nor is it for a price. [l 76A-B]
A partner may, it is true, in an action for dissolution insist that th·~
assets of the partnership be realised by sale of its assets, but \Vhere in
satis(ac:tion of the claim of the partner to his share in the value of the
residUe det-ermined on the footing of an actual or notional sale property
is allotted, the pro)J'orty so allotted to him cannot be deemed in Jaw to he
sold to him. fl 76El
Addanki Naravanappa and Anr. \r. Bhaskara Krislinappa
and Ors.
[1966] 3 S.C.R. 400, referred to.
C!V!L APPELLATE JURISDICTION : Civil Appeal No. 2163 of
1966.
Appeal from the judgment and order date<l April 15, 1964
of the Madhya Pradesh High Court in Misc. Civil Case No. 22
of 1963.
174
SUPREME COURT REPORTS
(1968] 2 S.C.R.
Niren De, Solicitor-Genera/, S. K. Aiyar, R. N. Sachthey and
S. P. Nayar, for the appellant.
Naunit Lal and B. P. Singh,· for the respondent.
The Judgment of the Court was delivered by
Shah, J.
S. G. Sanghi and Hari Prasad entered into an agreement to carry on business in partnership as exhibitors of cinematograph films in the name and style of "Dewas Cine Corporation"
with effect from March I, 1947. Each partner who was an owner
of a cinematograph theatre brought his theatre into the books
of the partnership as an asset 1f the partnership. For the assessment years 1950-51 to I 952-53 the Income-tax Officer allowed
depreciation aggregating to Rs. 44,380/- in respect of the two
theatres.
The partnership was dissolved on September 30, 195 l,
and on dissolution it was agreed between the partners, that the
theatres should be returned to their original owners.
In the
books of account maintained by the partnership, the assets were
shov.n as taken over on October 1, 1951 at the original price
less the depreciation
allowed-the depreciation
being equally
divided between the two partners.
Jn proceedings for assessment for the year 1952-53 the respondent was treated as a registered firm. The Appellate 1'ribunal
held that by restoring the two theatres to the two original owners
"there was a transfer by the firm and the entries adjusting the
depreciation and writing off the assets at the original value amounted to total recoupment of the entire depreciation by the partnership and on that account" proviso 2 to s. 10(2)(vii) of the Incometax Act, 1922, applied.
The High Court of Madhya Pradesh
answered the following question referred to it by the Tribunal
in the negative :
"Whether on the facts and in the circumstances of
the case, the amount of Rs. 44.380/- was rightly included in the total income of the assessee in the year
1952-53 underthesecondprov:sotos. 10(2)(vii) of the
Income-tax Act ., ..
The Commissioner of Income-tax has appealed to this Court with
certificate granted by the High Court.
Section 10(2) of the Income-tax Act permits certain allowances
to be debited in the computation of profits or gains of the business,
profession or vocation carried on by the assessce in the year of
account; one such allowance is prescribed by Cl. (vii), the material
part of which is :
"in respect of any such building, machinery or plant
which has been sold or discarded or demolished or desA
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C.I.T. V, DEWAS CINE CORP. (Shah, J.)
17&
troyed, the amount by which the written down value
thereof exceeds
the amount for which the building,
machinery or plant, as the case may be, is actually sold
or its scrap value :
Provided that
Provided further that where the amount for which
any such building, machinery or plant is sold, whether
during the continuance of the business or after the cessation thereof, exceeds the writ.ten down value, so much
of the excess as does not exceed the difference between
the 6rignial cost and the written down value shall be
deemed to be profits of the previous year in \yhich the
sale took place : "
In respect of each of the theatres depreciation was allowed by the
taxing authorities in proceedings for assessment.
The Incometax Appellate Tribunal was of the view that since the theatres were
returned to the partners in settling the accounts of the partners
on dissolution, the theatres were in law sold to the partners. The
High Court disagreed with that view.
Under the Partnership Act, 1932, property which is brought
into the partnership by the partners when it is formed or which
may be acquired in the course of the business becomes the property of the partnership and a partner is, subject to any special
agreement between the partners, entitled upon dissolution to a
share in the money representing the value of the property. When
the two partners brought in the theatres of their respective ownership into the partnership, the theatres must be deemed to have
become the property of the partnership. Under s. 46 of the Partnership Act, 1932, on the dissolution of the firm every partner
or his representative is entitled, as against all the other partners
or their representatives, to have the property of the firm applied
in payment of the debt~ and liabilities of the firm, and to have
the surplus distributed among the partners or their representatives
according to their rights. Section 48 of the Partnership Act provides for the mode of settlement of accounts between the partners.
It prescribes the sequence in which the various outgoings are to
be applied and the residue remaining is to be divided between the
partners.
The distribution of surplus is for the purpose of adjustment of the rights of the partners in the assets of the partnership; it does not amount to transfer of assets.
On dissolution of the partnership, each theatre must be deemed
to be returned to the original owner, ·jn satisfaction partially or
wholly of his claim to a share in the residue of the assets after
discharging the debts and other obligations.
But thereby the
theatres were not in law sold by the partnership to the individual
176
SUPREME COURT REPORTS
(1968] 2 S.C R.
partners in consideration of their respective share in the residue.
The expressions "sale" and "sold" are not defined in the Incometax Act; those expressions are used in s. I 0(2)(vii) in their ordinary meaning.
"Sale", according to its ordinary meaning is a
transfer of property for a price, and adjustment of the rights of
the partners in a dissolved firm is not a transfer, nor it is for a
price.
The Solicitor-General appearing for the Revenue submitted
that each partner is entitled to have the assets of the partnership
sold for discharging the debts and obligations of the partnership,
and for the purpose of dividing the residue among the partners if
property is allotted to the partners in satisfaction of their claims.
the transaction must be deemed in law to take the form of a
notional sale of the property to the partner in consideration of the
money value of his share.
Counsel relied upon the statement of
the law in Lindley on Partnership, 12th Edn., at p. 568:
" ........ in the absence of a special agreement to
the contrary, the right of ·each partner on a dissolution
is to have the partnership property converted into money
by a sale, even although a sale may not be .necessary
for the payment of debts.",
and also upon the decision of this Court in Addanki Narayanappa
and another v. Bhaskara Krishnappa and others( 1).
A partner
may, it is true, in an action for dissolution insist that the
assets of the partnership be realised by sale of its assets, but wher~
in satisfaction of the claim of the partner to his share in the value
of the residue detem1ined on the footing of an actual or notional
sale property is allotted, the property so allotted to him cannot
be deemed in law to be sold to him.
The High Court was, therefore, in our judgment, right in deciding the question referred in favour of the assessee. The appeal
fails and is dismissed with costs.
G.C.
Appeal dismissed.
(I) [1%6] J S.C.R. 400.
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