- (1.) The High Court answered the following question in the affirmative and against the assessee : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the distribution of the plant and machinery belonging to the assessee firm by it to its partners constituted a transfer of the assets and, hence, it was a case of deemed gift by way of sale of the assets at a consideration less than the market price thereof the assessee is in appeal by special leave.
(2.) The assessee is a partnership firm. It was engaged in the activity of excavating tunnels. It had five partners. During the assessment year under consideration, namely, assessment year 1979-80, it transferred certain items of machinery to each of its five partners and debited their accounts with the consideration charged therefore. The aggregate of such consideration came to rs. 1,26,035/ -. This, apparently, was the written down value of the machinery in the assessee's books. About three months later, the five partners floated another partnership and brought in the said machinery as their capital contribution thereto, of the value of rs. 9,48,100/ -. Then, the new partnership firm sold the machinery to another concern for the price of Rs. 10,76,220/ -. On these facts, the Gift Tax Officer came to the conclusion that the assessee had made a gift of the machinery to its five partners and the consideration therefore was much less than the market value as evidenced by the sale of the machinery to the third party for the sum of Rs. 10,76,220/ -. On the basis that the assessee had made a gift of Rs. 9,50,185/- the assessee was charged gift tax. The commissioner (Appeals) upheld the assessment but took the value of the machinery at rs. 9,48,100/-, which was taken to be the capital value thereof, when it was brought in by the partners of the new partnership, and gave relief accordingly. Both the Revenue and the assessee went to the Tribunal and the tribunal upheld the order of the appellate authority.
(3.) Arising out of the order of the Tribunal, the question aforementioned was considered by the High Court. It had no doubt that the allotment of distribution of an asset, or some of the assets, of a firm by the firm to a partner or partners during its subsistence so as to enable such partner to hold the assets in his or their individual capacity was a transfer of property and not an adjustment of capital. accordingly, it upheld the Tribunal' s conclusion.;