The Judgment of the Court was delivered by

Sethuraman, J.:— These are two references, one arising under the I.T Act and the other arising under the G.T Act. T.C No. 221 of 1975 is the reference under the I.T Act and the questions that arise for consideration in the said reference are:

“(1) Whether, on the facts and in the circumstances of the case, the firm was liable to assessment under section 41(2) on the ground that the building, which had earned depreciation, had been sold to its partners?

(2) Whether, on the facts and in the circumstances of the case, the transaction in question involves a transfer of a capital asset by the firm resulting in capital gains and whether the capital gains are chargeable to tax?”

2. T.C No. 220 of 1975 arises under the G.T Act and the question of law referred therein is:

“Whether, on the facts and in the circumstances of the case, the assessee-firm was liable to gift-tax in respect of the transaction by which the properties of the firm were taken over by the partners?”

3. The assessee is a firm consisting of two partners, P.S Ramakrishna Rao and P. Bhanumathi (a well-known film actress), governed by an instrument dated 25th March, 1948, carrying on business in film production. By a document dated 10th March, 1951, the firm purchased for a sum of Rs. 76,000,14.82 acres of lands in Saligramam village, Saidapet Taluk, a suburb of Madras. The property consists of agricultural and non-agricultural lands. A building was put upon the non-agricultural property, and the firm claimed and obtained depreciation on the building in all its earlier income-tax assessments. On 9th of February, 1968, a document, styled “deed of release” came into existence. The property released was valued at Rs. 75,900. To this document P.S Ramakrishna Rao and P. Bhanumathi are parties, Ramakrishna Rao is referred to as the party of the first part and Bhanumathi as the party of the second part. Ramakrishna Rao released and relinquished in favour of the party of the second part all his rights in 918 acres of lands described in the schedule to the document. The purport of the document is to vest the ownership in the property on Bhanumathi. As the property had been shown as an asset in the books, entries came to be passed in the journal and the ledger folios. In the “studio site account” where the value of the property was shown as Rs. 97,673.83, there is a credit entry for a sum of Rs. 48,016 stating that the proportionate value (at cost) of 9. 18 acres of land had been “bifurcated” to the partners as per the release deed dated February 9, 1968. In the “building account”, there is a similar credit of a sum of Rs. 25,000, which represents the value of the guest house in the property bifurcated” to the partners from the partnership as per the release deeds.

4. The ITO, while making the assessment on the firm for the assessment year 1969-70, came to the conclusion that the firm was liable to tax under s. 41(2) of the Act in respect of the difference between the written down value of the building and the cost of the building as shown in the books. He further held that the firm was liable to capital gains in respect of the property transferred to the parties. On the view that the property prices had increased between the date of its purchase and its release, the value of Rs. 75’, 900 shown in the document dated 9th February, 1968, or the adjustment entries were not taken as correct. He estimated the market value of the building and the appurtenant land at Rs. 1,68,000 and after deducting their cost estimated at Rs. 30,000, he worked out the capital gains to be Rs. 1,38,000. As the figures relating to depreciation allowed for the building were not available, he took the amount assessable under s. 41(2) at Rs. 15,000. He brought to tax the sums of Rs. 15,000 and Rs. 1,38,000. In assessing the capital gains, he applied the provisions of s. 52(2) after obtaining the necessary sanction of the authority concerned. The AAC, on appeal by the assessee, confirmed the assessment of the profit under s. 41(2) as he was of the opinion that the firm had sold the assets to the partners. As regards capital gains, he agreed with the ITO that there was a “transfer” of the asset from the firm to the partners and that the provisions of s. 52(2) were attracted. He was of the opinion that the assessee was entitled to an exemption under s. 47(iii) of the Act. In his view, the transaction amounted to a gift on which gift-tax had been properly levied and, therefore, the transfer could not be taken for the purposes of levy of capital gains under s. 45. The result was the deletion of Rs. 1,38,000.

5. The assessee as well as the ITO filed appeals before the Tribunal. The assessee contested the confirmation of the assessment regarding the sum of Rs. 15,000 under s. 41(2), while the department contended that the sum of Rs. 1,38,000 assessed as capital gains should not have been deleted. The Tribunal held that the transaction in question did not amount to a “sale” attracting the operation of ss. 41(2), 45 and 52 of the Act. The result was that the assessee's appeal was allowed and the department's appeal was dismissed. It is as against the order of the Tribunal in the proceedings relating to the assessment for income-tax, the questions extracted already have been referred. We shall deal with the reference under the G.T Act separately.

6. The learned counsel for the Commissioner submitted that the firm had transferred the properties in favour of P. Bhanumathi and that the transfer would attract liability to tax under ss. 41(2) and 45. The learned counsel for the assessee, on the other hand, submitted that the firm is not 3 legal entity, that the two partners were only in the position of co-owners and that just as it was open to the partners to throw their assets into the firm, it was also open to them to take back the assets from the firm. According to the learned counsel, it is well settled that there was no transfer at the time when the partners converted any property into an asset of the firm and that the same principle should apply and that there could be no transfer, at a time when the property was taken back by the partners. Section 41(2), so far as it is material, runs as follows:

“Where any 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,… and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be,… exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due…” (underlined1 by us)

7. There is a proviso, which is not material for our purpose.

8. We shall first deal with the question relating to the liability to tax under s. 41(2) and we do not, therefore, at this stage, have to consider the other provisions. As is clear from the provision as extracted above, it applies to any building, which is owned by the assessee. There can be no dispute about the fact that the building known as the “guest house”, with which we are now concerned, is owned by the assessee-firm. The land had been purchased by the firm out of its resources. The building had been constructed and the property improved with the aid of resources belonging to the firm and accounted for in the books of the firm. The second requirement is that such building must have a written down value. In the present case it is not in dispute that depreciation allowance has been granted and the building has thus a written down value. The amount as allocated with reference to the building, viz., at Rs. 30,000 is not also disputed by the assessee. It is thus clear that with reference to the building, a sum of Rs. 15,000 would be the amount assessable under s. 41(2). But it is submitted that there has been no sale in the present case and that, therefore, the provision is not attracted. We have thus to find out whether there was a sale of the building.

9. The learned counsel for the assessee took up two positions. The first was that in all the assets of the firm the partners were co-owners or tenants in common and that, therefore, there is no question of any sale of the property to the partner at the time when the partner withdrew the assets from the firm. He relies for this purpose on the entries in the books as showing that the asset was first taken out of the firm by the partners through the book entries, and that thereafter there was a readjustment of the relationship between the two co-owners by the execution of the document of release to which the firm is not a party. This contention is clearly contrary to the materials on record. In the “studio site account”, the following is the credit entry under date 9th February, 1968:

“By proportionate value (at cost) of 9 acres and 18 cents of land (Bharani Gardens) birfurcated to partners from partnership as per release deed dated February 9, 1968 Rs. 48,016*00.”

10. As regard ‘guest house’, the entry in the building account on the same date is as follows:

“By value (at cost) of guest house in Bharani Gardens bifurcated to partners from partnership as per release deed Rs. 25,000.”

11. Thus, both the entries referred to the release deed, and it is thus clear that the release deed is anterior in point of time to the entries in the books. The two partners could not, on the terms of the entries, be taken to have withdrawn the assets from the firm by making any book entries as such. Whatever they did was under the document of 9th February, 1968.

12. Further, there is the decision of the Allahabad High Court in Ram Narain and Brothers v. CIT, [1969] 73 ITR 423 in which it has been clearly laid down that an item of immovable property belonging to a firm could be converted into the personal property of the partner only by means of an instrument in writing, and that the entries in the account books of the firm did not have the effect of converting the property of the firm into the personal property of the partners. We agree with this statement of the legal position. Therefore, even assuming that the entries were anterior in point of time to the document, they would not be effective to vest the partners with any ownership therein.

13. Moreover, the document of release itself is inconsistent with the stand taken by the assessee. The document of release dated 9th February, 1968, does not refer to any earlier arrangement under which the property became vested in, the co-owners under any book entry. In the recitals portion of the document of 9th February, 1968, the following statements occur i

“Whereas the parties of the 1st and 2 parts (Ramakrishna Rao and Bhanumathi) are carrying on business in partnership under the name and style of ‘Bharani Pictures’ at Saligramam village, Saidapet Taluk, Chingleput District:

14. Whereas the parties abovenamed are the absolute owners of the lands of an extent of 9 acres and 18 cents and of a building thereon more fully described in the Schedule hereunder…… having purchased the same in their firm name of. M/s. Bharani Pictures, represented by its managing partner, P.S Ramakrishna Rao, the party of the 1st part herein, under a registered sale deed dated 10-3-1951 (Registered as Document No. 166 of 1961) along with other lands as partners of the said Bharani Pictures and as owners of the said property are in absolute possession and enjoyment thereof ever since the date of purchase;

15. Whereas the party of the 1st part desires to constitute the party of the 2nd part as the absolute owner of the properties more fully described in the Schedule hereunder in accordance with an arrangement entered into between them;

16. Whereas the party of the 1st part has in pursuance of the said arrangement placed the party of the 2nd part in absolute possession and enjoyment of the said properties;

17. And whereas the parties desire that in order to assure and perfect the absolute title of the party of the 2nd part over the said properties described in the Schedule, a deed of release should be drawn up and executed by the party of the 1st part in favour of the party of the 2nd part.” (underlined2 by us).

18. These recitals are clear to show that even from the date of purchase, the parties considered themselves to be the owners of the property. They thought that being partners, they were co-owners of each of the firm's assets. They also expressed their desire to constitute one of them (Bhanumathi) as the absolute owner by executing a release. They do not refer to any antecedent arrangement by which they had become the co-owners. Thus, the document is consistent only with the position that the parties considered themselves to be co-owners (in our view erroneously), in spite of the property having been purchased in the name of the partnership out of the partnership funds. There is thus only one transaction and that is by the firm though it took the shape of release.

19. In the case of the partnership assets, it is now well settled that the partners cannot treat themselves to be the owners. The legal position on this aspect has been laid down by the Supreme Court in Addanki Naraya-nappa v. Bhaskara Krishnappa, AIR 1966 SC 1300 at page 1303 in the following passage:

“From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of, profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities”

20. It is thus clear from the above passage that no partner can predicate with reference to any asset of the firm that it is his asset or that he has any particular share therein. The right of the partner is to get a share proportionate to his interest in the firm after the properties, etc., have been realised and converted into money, and after the debts and liabilities of the firm have been discharged. It is in this view that it has been held that the interest of a partner in a partnership is akin to a trust for the sale of movable property, and that even where the firm was possessed of immovable property, any document evidencing the relinquishment of the interest of a particular partner, for instance, on retirement, does not require registration.

21. The question whether a document of relinquishment executed by one of the partners in favour of another in a firm which had immovable assets could be looked into as evidence in the absence of its registration was gone into by the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300. After referring to the earlier decisions, their Lordships came to the conclusion that the document did not require registration, since the interest of a partner in the firm is only movable property even though the firm has immovable property as part of its assets. In other words, the document of release could not be taken as dealing with any particular immovable property as such.

22. In a later case in Ratan Lal Sharma v. Purshottam Harit, (1974) 1 SCC 671 : AIR 1974 SC 1066, the partners of a firm, which had immovable properties as its assets, fell out and referred their dispute to arbitration. The arbitrators gave their award allotting the partnership assets and liabilities to one of the two partners, making him absolutely entitled to the same in consideration of a sum of money to be paid by him to the other partner. The question was whether the award was compulsorily registrable under s. 17 of the Registration Act, and whether, as it was unregistered, it could be looked into as a piece of evidence. The Supreme Court held that, in that particular case, there was an express term purporting to create rights in immovable property of the firm in favour of one partner, and that, therefore, the document required registration and that its non-registration was fatal to its admissibility as evidence. The earlier decisions on the point including the case of Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, were noticed. It was pointed out, distinguishing the case of Narayanappa, that the award made an allotment of the partnership assets including the factory to one of the partners and that it made the allottee absolutely entitled to the same in consideration of a particular amount specified in the document. The learned counsel for the Commissioner wanted to construe this decision as holding that in cases where the firm had immovable property, any document relating to the share of a partner in such property, would require registration. We do not consider that this is the proper way to understand the decision. In this decision the Supreme Court distinguishes its earlier decision by reference to the terms of the document as such. It does not purport to take a view different from that adopted in the earlier cases to which reference has been made, nor is it any improvement or extension of what was decided earlier, as contended by Mr. Jayaraman.

23. In the above decision of the Supreme Court there is a reference to a case decided earlier in Commissioner Of Income Tax, West Bengal, Calcutta v. Juggilal Kamalapat , [1967] 63 ITR 292 (SC). In that case a firm had both movable and immovable properties. It consisted of 4 partners, 3 of whom, known as Singhania brothers, executed a deed by which they relinquished their rights, and claimed to settle the properties and assets of the firm in favour of a trust which they had created and of which they were the first trustees. A fresh partnership deed was drawn up between the three trustees and a stranger. The question related to the registration of the partnership under s. 26A of the Indian I.T Act of 1922. In holding that the firm could be registered, the Supreme Court pointed out that the deed of relinquishment in respect of the individual interests of the 3 Singhania brothers in the assets of the firm in favour of the trust did not require registration, even though the assets of the firm included immovable property.

24. Thus, these decisions clearly lay down the proposition that a partner cannot deal with any individual asset of the firm, as he cannot claim any specific share with reference to any individual property either movable or immovable. During the subsistence of the partnership the partner has a right only to get his share of profits from time to time as may be agreed upon, and after the dissolution of the partnership, or with his retirement from it, to get the value of his share in the net partnership assets as on the date of dissolution or retirement after deduction of all liabilities and prior charges. It may happen that even during the subsistence of the partnership the partner may assign his share to another; but the assignee would also, as shown by s. 29(1) of the Partnership Act, have only the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners. He does not become a partner and can have, and has, no better rights.

25. The learned counsel for the assessee next contended that the firm was not at all a legal entity and that, as such, the partners would be co-owners, of all properties. This submission is also inconsistent with the decision of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, at page 1304, wherein it was laid down i

“The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership.”

26. The abstract proposition that the partnership is not a legal entity is not correct. It is true that, under the law of partnership, a firm has no legal existence apart from its partners, and it is merely a compendious name to describe its partners. But under the income-tax law the position is different. The firm and the partners are distinct assessable entities. The law has thus for some specific purposes relaxed its general rigid notions, and extended a limited personality to a firm. See CIT v. A.W Figgies and Co., [1953] 24 ITR 405 (SC) and Dulichand Laxminarayan v. CIT, [1956] 29 ITR 535 (SC). We are concerned only with the question of the liability to tax under the I.T Act, though incidentally we have to find out as to what is the relationship between the partners and the partnership property. There is nothing in the partnership law to suggest that the firm cannot be treated as an entity for the purpose of dealing with the property. During the subsistence of the partnership, the partnership acting through any particular partner authorised for the purpose or through all the partners will be in a position to deal with the asset. The question as to who can deal with the partnership-property is a matter of agreement. Under s. 19 of the Partnership Act, the implied authority of a partner does not empower him to acquire immovable property for the firm or transfer immovable property belonging to the firm. In the absence of any agreement between the partners, if any occasion arises for dealing with the immovable property of the firm, then it would be necessary for all the partners to join the instrument. However, it is a far cry from this proposition to state that whatever is held by the firm can be dealt with by the partners as if they are the co-owners.

27. The question whether there is a sale or transfer in a case like this is already concluded by the decision of this court in CIT v. Rikadas Dhuraji, [1976] 103 ITR 111. In that case the firm consisted of 4 partners. It purchased a house property. During the currency of the partnership on November 1, 1962, three of the four partners executed a release deed by which they released all their rights and interest in the said property in favour of the other. The question was whether any liability to capital gains arose by reason of the transaction. It was held that the firm conveyed the property to the individual partner and that there was a valid and effective conveyance of the entirety of the interest in the property in favour of the individual partner. The question of the liability to capital gains must be and was examined in the light of all the facts. In the course of the judgment, reference has been made to two decisions of the Supreme Court. In Thayyil Mammo v. Kottiath Ramunni, AIR 1966 SC 337, the Supreme Court held that a registered instrument, though styled as a release deed, releasing the right, title and interest of the executant in a property in favour of the releasee for valuable consideration, may operate as a conveyance, if it clearly discloses an intention to effect a transfer. It was also held that the nomenclature of a deed and the amount of the stamp paid on it, though relevant, were not conclusive on the question of construction. A deed of release can, by using words of sufficient amplitude, transfer the title to one having no title before the transfer. Again in Kuppuswami Chettiar v. Anmugam Chettiar, AIR 1967 SC 1395, it was held that even if there was no consideration paid, a registered instrument may operate as a transfer by way of gift when the document clearly showed an intention to effect a transfer.

28. It is not in dispute that Ramakrishna Rao is the managing partner of the firm and the partner in whose favour the property was transferred is the only other partner in the same firm. The other partner could not have disputed the right of Ramakrishna Rao to effect the transfer in her favour. It has already been seen that by reason of her being a partner, she was not the co-owner of the property. It was the firm which was the owner. Her right to the property arose only by reason of the release deed. Though the document is called a release deed, in the absence of the document she could not have had any title to it, as she was not in the position of a co-owner. Thus, the release was in truth and in fact a transfer in her favour. The release, in the circumstances of this case, was only a conveyance, and by reason of the consideration, which has been adjusted in the accounts of the firm, she has paid a price. Thus, all the ingredients of a sale are present in the transaction and, therefore, the ITO rightly found that there was a sale in her favour and that the provisions of s. 41(2) would be attracted. The contention to the contrary cannot be accepted.

29. It is now well settled by a decision of the Full Bench of this court in Chief Controlling Revenue Authority v. Chidambaram, ILR [1970] (1) Mad 395; AIR 1970 Mad 5, that a partner can sell his property to a partnership firm which includes himself as a member and the question whether there was such a sale would depend upon the intention and the nature of the document. Conversely, a firm can sell a property to a partner, and whether there was such a sale Would have to be gathered from the document and the surrounding circumstances. In this view, there is a sale in favour of Bhanumathi by the firm, and question No. 1 has to be and is answered in the affirmative and in favour of the revenue.

30. As regards the second question, the Appellate Tribunal has come to the conclusion that there was no transfer within the meaning of s. 45 by the transaction in question. Transfer includes a sale (see s. 2(47)). The earlier discussion would clearly show that this view of the Tribunal of there being no transfer or sale is wrong. The result will be that the provisions of s. 45 would be attracted.

31. However, the AAC has held in his order that there could be no liability to capital [gains in this case, because of s. 47(iii). We have to examine ss. 45 and 47 in this context.

32. Section 45 runs as follows:

“Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54 and 54B, be chargeable to income-tax under the head ‘Capital gains and shall be deemed to be the income of the previous year in which the transfer took place.”

33. Section 47, in so far as it is material, runs as follows:

“Nothing contained in section 45 shall apply to the following transfers:—

(iii) any transfer of a capital asset under a gift or will or an irrevocable trust;”

34. This section would apply only if there was a transfer of capital asset under a gift. The consideration proceeding from Bhanumathi has been the subject of adjustment entries in the account books of the firm. A gift is a transfer of property without consideration and, as, in this case, there was consideration, this is not a case which falls under the concept of gift. The AAC has taken the view that because there has been assessment to gift-tax, this case would fall within the meaning of s. 47(iii). He is not right in this view. The section does not provide that so long as the transaction has been subjected to gift-tax, it would not be liable to capital gains. The provision contemplates an exemption from capital gains tax only if there is a “gift” as such. If by reason of any special provision of the G.T Act, enacting a statutory fiction, any gift-tax liability arose, that would not invest the transaction for all other purposes with the character of a gift. A statutory fiction introduced in one enactment cannot be incorporated in all other Acts. Legal fictions are only for a definite purpose. They are limited to the purpose for which they are created and should not be extended beyond their legitimate field. CIT v. Amarchand N. Shroff, [1963] 48 ITR (SC) 59. The expression “gift” will have, therefore, to be understood only in its ordinary sense, and not in its extended sense under the G.T Act.

35. The Supreme Court in Commissioner Of Income Tax, Madhya Pradesh v. Dewas Cine Corporation, [1968] 68 ITR 240 (SC) was concerned with a case of distribution of immovable assets of the firm, viz. (theatres), among the partners on the dissolution of the firm. The question was whether there was a “sale” so as to attract the tax liability as provided in s. 10(2)(vii) of the 1922 Act. It was held that there was only a distribution of the surplus in accordance with the rights of partners, and that there was no sale. Similarly, when a partner retired from the partnership and the amount due to him on a valuation of his share of the net partnership assets was given to him, what he received was only his share in the partnership assets, and not any consideration for transfer of his interest. It was held that there was no “transfer” in such a case, and that there was no liability to capital gains. See Cit, Up v. Sh. Bankey Lal Vaidya (Dead) By Lawyers† , [1971] ITR 594 (SC). The principles laid down in these decisions do not apply to a case where a partner sold his assets to a firm as in Commissioner Of Income-Tax, Bombay South v. W.L Dahanukar, [1959] 36 ITR 459 (Bom). In A.S Krishna Setty and Sons v. Addl. CIT, [1975] 100 ITR 587 (Kar) a firm transferred an oil mill to four of its partners and a coir factory to three of them. Development rebate had been granted in respect of the machinery used in these factories. This allowance was sought to be withdrawn because of the sale to the partners. The Karnataka High Court, after referring to a passage in the decision of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, at p. 590 of 100 ITR held:

“From the observations of the Supreme Court extracted, it is clear that the individual partners of a firm have no exclusive interest in the assets belonging to the firm. They can become exclusive owners of any of the assets belonging to the firm only by all the partners acting on behalf of the firm conveying or transferring their interest to such individual partners. In that event, it is clear that there is an extinguishment of the rights of the firm in the assets in question on the one hand and acquisition of interest in them by such individual partners. In law, such a transaction does amount to a transfer.”

36. In the present case, the two partners have joined together to vest the ownership in one and, thus, there is a transfer. The result will be that there is a transfer of capital asset by the firm in favour of Bhanumathi and that such transfer is liable to capital gains tax.

37. Another aspect that came up for discussion during the course of the hearing was that the ITO had estimated the liability to tax by invoking s. 52(2). In two decisions of this court, viz., CIT v. Rikadas Dhuraji, [1976] 103 ITR 111 and Addl. CIT v. P.S Kuppuswamy, [1978] 112 ITR 1012, it has been held that, in order to apply s. 52(2), there must be some understatement of consideration, or, in other words, there must be some receipt of consideration in addition to what is shown in the document. There is no evidence in this case to suggest that there has been any such understatement of consideration. In this view, the document, as it is, would have to be taken into consideration, and the capital gains worked out accordingly.

38. The question is accordingly answered in the affirmative and in favour of the department subject to the Tribunal going into the question of the actual amount of capital gains liable to tax in the light of the discussion here.

39. We have now to consider the reference arising under the G.T Act. The GTO took the view that the transaction amounted to a gift as in his view the market value of the property came to Rs. 5,94,000 against which the firm has received from the partner only Rs. 73,016. In his opinion the difference of Rs. 5,20,984 was liable to gift-tax within the meaning of s. 2(xxiv) read with s. 4 of the G.T Act. After giving the exemption to the extent of Rs. 10,000 he determined the taxable gift at Rs. 5,10,984 and brought the amount to tax. The AAC confirmed the assessment. The Tribunal did not discuss the points separately, apparently because of its view that there was no transfer when the property was taken by the partner, Bhanumathi, from the firm. The gift-tax appeal was, therefore, allowed. This part of the order of the Tribunal gives rise to the question in T.C No. 220 of 1975 already extracted.

40. The learned counsel for the assessee submitted that a firm is not an entity liable to gift-tax and that, therefore, there could be no proceedings under the G.T Act against the firm, as such. Section 3 of the G.T Act provides for levy of gift-tax in respect of gifts made by a “person” during the relevant previous year. The word “person” has been defined in s. 2(xviii) as including an HUF or a company or an association or a body of individuals or persons, whether incorporated or not. The contention of the learned counsel for the assessee is that this definition would not cover a firm. We are unable to agree with him. A firm is only a body of individuals or persons, and is, as such, an entity comprehended by s. 2(xviii). In the I.T Act, the procedure for registration, and the inclusion of the share income in the partner's hands required separate reference to or treatment of it and, therefore, there is separate mention of it in the definition of “person There is no such separate treatment in this Act and the firm, which is comprehended by the category of body of individuals, did not, therefore, find a separate mention therein. As pointed out by the Supreme Court in Dulichand Laxminarayan v. CIT, [1956] 29 ITR 535 at p. 540, the firm is certainly an association or body of individuals. A firm making gifts cannot escape liability by relying on the definition provision in the G.T Act.

41. The next submission for the assessee was that there was no gift at all in a case like this, where the property was withdrawn from the firm by the partner. We have already discussed this point and we have come to the conclusion that there was a transfer in favour of Bhanumathi from the firm. It is not necessary to go again into this point further. The question of liability to gift-tax has to be considered only in the light of s. 4(1)(a). There was a transfer in this case for some consideration. The point urged for the revenue is that the consideration is inadequate and that, therefore, s. 4(1)(a) is attracted.

42. The section, in so far as, it is material runs as follows:

“For the purposes of this Act,—

(a) where property is transferred otherwise than for adequate consi-deration the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor.”

43. The property was purchased, as seen already, for a sum of Rs. 76,000 on 10th March, 1951. In respect of the release deed which we have already construed as a conveyance a sum of Rs. 73,016 has been adjusted with reference to the property transferred. The GTO has pointed out that the property prices had gone up since 1951 and that the rate adopted by the assessee for transferring 9.18 acres of land would work out to Rs. 10,000 per acre which was low. He had made local enquiries and according to him the value of the land in the locality was of the order of Rs. 50,000 per acre. In this view, he took the value of the agricultural lands of 8.51 acres at Rs. 4,26,000. The sum of Rs. 10,000 per acre adopted by the asssssee was found to be low, land did not represent the market value. It followed, in his view, that the property was transferred otherwise than for adequate consideration so as to attract the operation of s. 4(1)(a). In the view taken by the Tribunal, viz., that there was no gift it did not go into the question as to whether the value as taken by the GTO was proper or not. We agree with the revenue's contention that there is a liability to gift-tax under the transaction in case it is found that the market value was higher than the consideration shown in the document. There was a gift in principle. We do not have the grounds of appeal filed before the Tribunal to find out whether there was a challenge of valuation as made by the GTO. In case the assessee has challenged the valuation, the matter would have to be gone into by the Tribunal. We should not, in these circumstances, be understood as confirming the valuation as adopted by the GTO and confirmed by the AAC. Subject to the above, the question referred is answered in the affirmative and in favour of the revenue. The revenue is entitled to its costs. Counsel's fee Rs. 500 one set.