JUDGMENT Blanesburgh, J.

1. At Tiruchendur in the Tinnevelly District, there is a temple dedicated to <NAME> described by the appellants as a public temple of classic fame and great antiquity, open to and attended by all non-Panchama non-polluting Hindus from all parts of India, of all sects, including the appellants' "community of the Vaniyar Vaisyas." In the suit, out of which this appeal arises, the appellants "for themselves and as representatives of all members of Tiruchendur Vaniya Vaisyas" set up a right to worship in the Inner Mayil Mahamantapam of the temple. The defendants were the trustees of the temple, certain sthanikars and servants under the control of the trustees and three members of the Vellala community of Tiruchendur. They were sued "for themselves, and as representatives of all persons similarly interested in the subject matter of the suit." The suit was filed under Order I, Rule 8, of the Civil Procedure Code-a rule to which full reference must later be made, and the claim of the plaintiff's was resisted by all the defendants on grounds set forth in detail in the written statement of the trustees. These comprised answers on the merits, with a separate defence of res judicata. The claim was barred, so it was alleged, by a decree pronounced in 1878 in a suit representative in character and seeking the same relief.

2. This defence, along with all the other answers made by the written statement, was repelled by the learned Subordinate Judge of Tuticorin, who on March 17, 1923, after a very elaborate judgment dealing with all the issues raised, decreed the suit. The respondents appealed to <ORG> at Madras. In that <ORG> the learned Judges found it convenient to deal with the plea of res judicata as one preliminary to all the others, and after full argument they came to the conclusion that it had been established. As, however, the course of decisions throughout India had not been uniform on the point at issue, they thought it well to refer the question of res judicata to the full <ORG> for decision. There, the same view was taken of the plea, and with an intimation to that effect the case was remitted to the learned Judges by whom the appeal had so far been heard, to pronounce upon the question whether the former suit had in fact, in its trial, been treated as a representative suit for the benefit of all Vaniyars so as to be fit to be decisive of the present case.

3. This question having later been answered in the affirmative by the learned Judges, it became unnecessary for them to go into any of the other issues raised on the appeal, which accordingly, by decree of November 16, 1927, was allowed and the suit dismissed. Hence the plaintiffs' present appeal to His Majesty in Council, upon which, it is agreed, that the only questions in hoc statu open for determination are the two which have by <ORG> been decided in favour of the respondents. Whether the litigation is to proceed further or not will become clear after it has been ascertained whether the views of <ORG> on these two questions are or are not well founded.

4. It will appear as the case develops, that the decision must finally be rested on a proper appreciation of the provisions of the Code of Civil Procedure with reference to representative suits, due regard being had to the conditions, if any such there be, which must be observed, if a decree in such a suit is to be binding on persons not actually parties or privies thereto. It will accordingly be convenient at the outset to trace the legislative history of representative suits.

5. Prior to the Code of 1877 such suits, although not unknown in India, were not the subject of legislation. With reference to them, the practice followed by the <ORG> there did not apparently differ, in substance, from that which had, for at least a century, obtained in <ORG> in England. This practice as described by Lord <NAME> in <NAME> (Duke of) v. <NAME> [1901] A.C. 1 is copiously referred to in the judgment of <ORG>, and need not be further elaborated now. It will suffice, as an illustration of the corresponding practice in India, to draw attention to a judgment of <ORG> pronounced in the year 1866 in the case of <NAME> v. <NAME> (1866) 3 M.H.C.R. 226. There, in the first of two suits, the plaintiffs had been fifty-four inhabitants of a village who claimed against sixty-seven inhabitants of an adjoining village a revision or alteration of the boundaries between the two. The second suit, the subject of the report, was one by other villagers claiming the same relief against the adjoining village, and therein it was held that the two villages had each been effectually represented in the first suit and that the inhabitants of both were, in substance, parties to the earlier litigation, which was of a public nature dealing with a claim in which all had a common interest. In these circumstances the decree in the earlier suit was a bar to the claim being again litigated. The Court emphasised the fact that convenience, where community of interest existed, required that a few out of a large number of persons should, under proper conditions, be allowed to represent the whole body, so that in the result all might be bound by the decree, although some only of the persons concerned were parties named in the record. In the absence of any statutory provisions on the subject, the <ORG> in India, it would seem, prior to 1877, assumed the task and duty to determine in the particular case whether, without any real injustice to the plaintiffs in the later suit, the decree in the first could properly be regarded as an estoppel against the further prosecution by them of the same claim.

6. In the seventies of the last century the subject was dealt with by legislation both in England and in India-in England, to refer to its legislation first, by Order XVI, Rule 9, to the Judicature Act, 1873. The effect of that rule in relation to representative actions was, in substance, to introduce into all the divisions of <ORG> the practice which prior to the Act had obtained in <ORG>. But, as was pointed out by <NAME> in <CITATION>  2 K.B. 1021, 1038, in extending the procedure to all divisions of the <ORG>, the rule also formulated it, and the question whether the enactment accurately or otherwise expressed the previous practice of <ORG> became accordingly little more than academic.

7. A similar observation may, perhaps, with equal appositeness, be applied to the corresponding Indian legislation on the subject to which attention will presently be directed.

8. The English Order XVI, Rule 9, which has remained unaltered until now, is in the following terms :-

Where there are numerous parsons having the same interest in one cause or matter, one or more of such persons may sue or be sued, or may be authorised by the <ORG> or a Judge to defend in such cause or matter, on behalf, or for the benefit of all persons so interested.

9. A passing reference to the English practice under that rule in regard to two matters may be helpful here. First, it has been deemed esssential that in a representative action the class of persons on behalf of whom relief is sought should be clearly defined. In the interests of precision it is expected that the class shall be so defined in the writ (see e. g. <CITATION> ) but the gist of the requirement is that as the judgment in such an action is binding on all the members of the class represented, it is of the essence that the range of the estoppel be defined somewhere on the face of the proceedings. Again in England if the action is properly brought by plaintiffs as members of a class having a common interest to vindicate the rights of the class, it will be no objection that they may have added a claim in respect of some matter in which they say they have been wronged in their individual capacity (<ORG> v. <NAME>, supra). But, all the same, it remains true that if the plaintiffs' claim is substantially one for damages for an alleged wrong, to themselves individually, the suit is not held to be representative in the true or effective sense of the term.

10. In India representative suits were made the subject of legislation in the Code of Civil Procedure of 1877 by provisions clearly based on the English precedent, but with modifications introduced of definite-even of compelling-significance in relation to the very question here under consideration.

11. These provisions, contained originally in Section 80 of the Code of 1877, are now to be found in Order I, Rule 8, of the Code of 1908, in the terms following :-

(1) Where there are numerous persons having the same interest in one suit, one or more of such persons may, with the permission of the <ORG>, sue or be sued, or may defend, in such suit, on behalf of or for the benefit of all persons so interested, But the <ORG> shall in such case give, at the plaintiff's expense, notice of the institution of the suit to all such persons either by personal service or, where from the number of persons or any other cause such service is not reasonably practicable, by public advertisement, as the <ORG> in each case may direct.

(2) Any person on whose behalf or for whose benefit a suit is instituted or defended under Sub-rule (1) may apply to the <ORG> to be made a party to such suit.

12. The effect of this enactment standing alone appears to their Lordships to be as little open to doubt as is its purpose. As in 1873 had happened in England, it formulates in 1877 for India the former exception to the general principle that all persons interested in a suit shall be parties thereto. It is an enabling rule of convenience prescribing the conditions upon which such persons when not made parties to a suit may still be bound by the proceedings therein. For the section to apply the absent persons must be numerous; they must have the same interest in the suit which, so far as it is representative, must be brought or prosecuted with the permission of the <ORG>. On such permission being given it becomes the imperative duty of the <ORG> to direct notice to be given to the absent parties in such of the ways prescribed as the <ORG> in each case may require : while liberty is reserved to any represented person to apply to be made a party to the suit.

13. The direction of all these matters, in striking contrast to the English rule, is placed in the hands of the <ORG>, and the obtaining of the judicial permission and compliance with the succeeding orders as to notice, are, as it seems to their Lordships, quite clearly the conditions on which the further proceedings in the suit become binding on persons other than those actually parties thereto and their privies. In their Lordships' view the position under Section 30 is correctly and clearly stated by <NAME> in <CITATION> (1897) I.L.R. 24 Cal. 385, where he says (p. 389) :-

The effect of Section 30...is, t<ORG>t unless such permission is obtained by the person suing, or defending the suit, his action <ORG>s no binding effect upon the persons whom <ORG> chooses to represent.

14. "If the course prescribed by Section 30 is not followed in the first case, the judgment does not bind those whose names are not on the record," is another correct statement of the position. <CITATION> (1897) I.L.R. 23 Mad. 28, 32.

15. It is convenient now to examine the decree which has been found to bo a bar to the present suit. It is one by which the Subordinate Judge of Tuticorin, on June 19, 1878, dismissed original suit No. 14 of 1877. It was affirmed by <ORG> at Madras on April 28, 1879, in Appeal No. 73 of 1878.

16. The records of the suit appear to have been destroyed under the rules for the destruction of documents, and the nature and details of the litigation can now only be gleaned from public copies of the plaint, of the judgment and decree of the Subordinate Judge, and of the judgment of <ORG> on appeal, all produced by one of the respondents.

17. From these documents it appears that the suit followed upon an unsuccesssul magisterial prosecution of the plaintiffs for alleged criminal trespass into the Tiruchendur temple on February 8, 1876. In the suit the complaint, which before the Magistrate had been a trespass on the part of the accused, became the illegal ejection of the plaintiffs from the temple. The suit was commenced on November 8, 1877. The Code of 1877 had come into force on October 1, previously. The proceedings were accordingly regulated by Section 30, although it may well have been, as is now pointed out by <ORG>, that the pleaders at Tuticorin had not yet become familiar with the provisions of the section.

18. The plaintiffs were four Vaniyas (three of them members of a family of the village of Venkataramapuram), and a fellow casteman of Thattamadam. It was they who had been prosecuted for trespass. No one from Tiruchendur was added as plaintiff. Nor was this omission accidental, because, as appears from the judgment of the Subordinate Judge, it had been matter of complaint by the plaintiffs that none of the Tiruchendur people would give evidence in their favour, and that even their own castemen of that place would not come forward through fear of the defendants. In other words, the plaintiffs did not even suggest that they were then representing <NAME> in any sense. But it is on behalf of these Vaniyas alone that the present suit is brought. At the very outset, therefore, it becomes more than doubtful whether these local Vaniyas, the only appellants here, were in any way interested or concerned in the earlier litigation. The difficulty, it will be seen, increases and becomes more general on further examination.

19. A mere perusal of the plaint in the suit is enough to produce the impression that it was to obtain redress for the unjust and forcible exclusion of the plaintiffs from the temple on the aforesaid February 8, 1876, that the suit was really launched. For that exclusion, exemplary damages assessed at Rs. 5,200 are claimed by the plaintiffs individually. The order and description of the defendants lend colour to this view. Defendants Nos. 1 to 7, servants apparently of the temple, are alleged to have been the actual aggressors : defendant No. 8, the manager, and defendants Nos. 9 to 11 Dharmakartar of the temple are alleged to have permitted and connived at the aggression, while the claim against all the eleven is purely individual and in no sense representative. It is true that, following upon the charge of personal aggression there is an allegation that the defendants since its date had been obstructing the entire community of the Vaniyas including the plaintiffs from crossing the outside compound of the temple and entering in. It is true also that there are elsewhere in the plaint references to Vaniyas generally and that by the original prayer, as now correctly translated by the learned Subordinate Judge, the right asserted was "the right of the Vaniya caste including the plaintiffs and others," and was expressed in terms which are in substance the same as those in the present suit. Nevertheless the impression persists, if the pleading be read as a whole, that it was the rights or wrongs of the individual plaintiffs which were in contest, and that the position of members of the Yuniya caste generally came under notice only for the reason that it was as Vaniyas that the plaintiffs had suffered any wrong at all at the defendants' hands. The language of representation is nowhere used, and the conclusion that the relief claimed was really individual is strongly confirmed by the remaining records of the suit still extant. There is, first, the decree of June 19, 1878. It begins with "Particulars of the Claim" in the words following :-

This suit has been brought for the recovery of Rs. 5,200 as 'exemplary damages' for a declaration that plaintiffs are entitled to enter into the Subrahmanyaswami temple at Tiruchendur for worship at the spots marked A and B in the plan of the temple, Exhibit A, and for the issue of a permanent injunction restraining defendants from causing any obstruction to their doing so.

20. The decree is an official document issued by the authority of the <ORG>. In it there is not from its beginning to its end the slightest hint that any persons other than the plaintiffs and defendants named as parties are interested in or affected by it. So also, in his judgment, leading to the decree, the learned Subordinate Judge describes the plaintiffs' claim in the following similar terms :-

Plaintiffs are 'Vaniyas or oilmongers,' They went on the 8th February to the...temple...to perform a certain vow, and while engaged in performing it, defendants 1 to 7 (the servants of the temple) turned them out of the temple on the ground that they had transgressed the limits prescribed for the admission of their caste people, and then prosecuted them for criminal trespass before the sub-Magistrate. That officer convicted them of the offence laid to their charge, but the Head Assistant Magistrate on appeal quashed the conviction. And now plaintiffs seek the recovery of the sum of Rs. 5,200 'as exemplary damages' from defendants 1 to 7 and defendants 8 to 11, the manager and trustees of the temple, and pray for a declaration that they and their family are entitled to make their worship at the spots marked A and B in the plan of the temple, Exhibit A, and for a permanent injunction restraining defendants from causing any obstruction to their doing so.

21. More colourless upon this point, but still pointing to the same conclusion, is the judgment of April 28, 1879, of <ORG> on appeal. There the learned Judges say :-

We think the reasons assigned by the Judge who passed the decree dismissing the plaintiffs' suit are satisfactory to show that plaintiffs have not made out the right they claim.

22. Nor is the omission of all reference to representation a mere question of form. Their Lordships bear in mind that Section 30 is an enabling enactment. It in no way debars a member of a community from maintaining a suit in his own right, although the act complained of may also be injurious to the whole community. This, in the view of the <ORG>, is the very privilege which the plaintiffs in the earlier suit were exercising.

23. Further, with reference to that suit their Lordships have regard to the finding of both Courts in India-a finding made with emphatic assurance by <ORG> one so important in each aspect of this appeal that they quote it textually :-

We are satisfied, say the learned Judges, that no permission was applied for orally or in writing, and that no permission was granted expressly or impliedly under Section 30 corresponding to Order I, Rule 8, Civil Procedure Code, to the plaintiffs to sue on behalf of or for the benefit of all the Vaniyas interested, along with the plaintiffs, to worship in the Tiruchendur temple as alleged by the plaintiffs.

24. In the result with all these converging considerations in mind their Lordships are in agreement with the learned Subordinate Judge that the original suit, at all events by the date of the decree, had become one from which every trace of representation was eliminated : that the decree of dismissal was as it bears to be a decree inter partes only : and that if the plaintiffs had, by the learned Subordinate Judge, been held entitled to judgment, they would have obtained from him, at the most, the individual order in the terms which, as he stated, they were then claiming. Further, their Lordships, at this stage of the case, are much impressed by the fact that Section 30 was never invoked. Its provisions may have been only dimly appreciated by the pleaders in November, 1877, but it cannot be assumed that they were not familiar to the learned Judge by June, 1878, and to <ORG> by April, 1879, and it is preferable to conclude that they were in no way referred to because on the true view of the case as presented to both Courts the suit was not one to which they had any application.

25. The learned Judges of <ORG> hold the view that the earlier suit was, and was conducted as, a representative suit governed by Section 30, but they do not, as their Lordships very respectfully think, face fully the difficulties in the way of that conclusion. Their view that the reference to "family" in the quoted passage from the judgment of the learned Subordinate Judge is a slip for "community" is not, in the face of the contemporaneous decree, one to be safely accepted : the omission of all reference to representation cannot properly be regarded as a mere question of form, and, in the result, their Lordships, if it were necessary, would be prepared to hold that this plea of res judicata had not been made good for the simple reason that the original suit is not shown by the respondents to have been a representative suit at all.

26. But even if it be assumed that the original suit was a representative suit governed by Section 30, but one which was prosecuted without leave of the <ORG> and with no notice given of its institution, either as required by the section or at all, then the very serious question arises whether the decree in such a suit is brought within Section 13, Explanation 5, of the Code of 1877, which deals with the plea of res judicata. The section, with the addition of the words printed in square brackets and inserted for the first time in 1908, has now become Section 11, Explanation 6, of the present Code. It is as follows :-

No <ORG> shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title in a <ORG> competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such <ORG>.

Explanation VI.

Where persons litigate bona fide, in respect of [a public right or of] a private right claimed in common for themselves and others, all parsons interested in such right shall, for the purposes of this section, be deemed to claim under the persons so litigating.

27. Based upon that enactment, the question with reference to this defence of res judicata, referred by <ORG> to the full bench, was, as interpreted by the full bench, as follows (p. 146) :-

Is explanation 6 to Section 11 controlled by Order I, Rule 8 of the Civil Procedure Code, so as to render a subsequent suit filed with leave under Order I, Rule 8, by two or more members of the community who claim a right in common to them and the other members of the community, and seek to enforce it on behalf of themselves and the community res judicata by reason of a decision given after bona fide contest in a previous suit filed without leave under Section 30, Civil Procedure Code, 1877, by some other members of the community claiming the same right and seeking to enforce it on behalf of the community ?

28. The question, of course, as has been already shown, is based upon assumptions in regard to the "previous suit," which their Lordships do not accept, but its object and meaning will, perhaps, be best appreciated by the answer returned which, shortly stated, was, that Explanation 6 is not controlled by Order I, Rule 8, and if a Court allows a suit to which the rule applies to proceed in a representative capacity for the benefit of numerous parties all these parties will be bound by the decree, if the contest leading to it were bona fide, even although the procedure prescribed by the rule was in no respect followed. The far-reaching importance of this pronouncement of the full bench, couched as it is in general terms, will at once be recognised. It introduces into Section 11, Explanation 6-itself an enactment of adjective law only-a result which attaches to the explanation the effect of new substantive law in that it clothes with all the binding force as against them of a res judicata a decree in a representative suit which, apart from the explanation, has no binding effect upon the persons therein expressed to be represented. A pronouncement which has this result is not one to be accepted readily, and their Lordships believe it to be mistaken.

29. Before considering it critically, however, it will be convenient to recall the circumstances in which, in the Code of 1908, the words "a public right of" were added to the explanation. The addition, it will be found, throws light upon the question at issue.

30. In the Code of 1908 there was introduced, for the first time, a provision-Section 91-by virtue of which the Advocate-General or two or more persons, with his consent in writing, might, in the case of a public nuisance, institute a suit, though no special damage had been caused, for a declaration and injunction, and for such other relief as might be appropriate to the circumstances of the case. If the plea of res judicata was to apply to the decree in such a suit, some addition to Explanation 6 seemed to be called for. The addition of the words "a public right or of" in the place where they are found was apparently regarded as sufficient for that purpose, because it is everywhere accepted that the enactment therein of Section 91 was the only reason for their insertion in the same Code of 1908.

31. Their Lordships will presently advert to the light thrown upon the explanation as a whole by the introduction of these words.

32. The view of it taken by the full bench, however, purported to be baaed rather upon authority and upon certain general considerations than upon its actual wording. And here their Lordships doubt whether any representative authority can be found broad enough to cover the present case, while with the general considerations invoked they are not in sympathy. As to authority they are impressed by the fact that even before the Code of 1908 there were several decisions-<NAME> v. <NAME> (1885) I.L.R. 8 Mad. 496 may be selected as typical-in which the view was taken that if what may be called an Order I, Rule 8, suit was to have the benefit of the explanation the conditions of the rule must have been complied with fully. While in other cases in which it might superficially be supposed that the opposite view had been taken it will be found that the question at issue was not so much whether, where none of the conditions of the rule had been complied with the benefit of the explanation could be extended to the decree in a suit expressly within the terms of the rule-which is the present case-as whether to bring the decree within the explanation, the conditions of the rule had not to be observed even in a suit which while within the words of the explanation was not within the words of the rule at all. And the result of the decisions has shown that the explanation is not confined to cases covered by the rule but extends to include any litigation in which, apart from the rule altogether, parties are entitled to represent interested persons other than themselves. Nor are their Lordships impressed by the general principles upon which apparently the full bench relied. First of all the learned Judges in ignoring the conditions imposed by the rule seem to have discounted altogether the requirements as to notice thereby made so prominent. The observance of these requirements, their Lordships hold to be essential. They constitute the nearest available substitute when dealing with numerous persons, scattered it may be throughout India, for the personal service upon a defendant required in the case of an ordinary suit. It is no more permissible to dispense with the one requirement than with the other if the person in view is to be bound by the decree. It may indeed be the case that in some representative suits, however far-reaching the notice, absent persons will have only a chance of knowing that litigation affecting their interests is on foot. But of that chance they are not to be deprived. It will be as good a chance as the <ORG> can give, and they are entitled to rely on the due discharge by the <ORG> of its duty in this matter-one of the most responsible with which it could be entrusted.

33. And the fact that in very many instances the notice directed will not achieve its full purpose : and that many persona concerned may remain in ignorance of the proceedings, may well have prompted the further condition of the explanation that the decree in such a suit to be binding on absent persons must follow a bona fide litigation, This condition the full Court seem to regard as the panacea for all irregularity. In their Lordships' judgment it is not so to be read. Bona fide litigation will not excuse the neglect of statutory conditions. If the litigation be not bona fide the most complete observance of these conditions will not give to the decree the force of a res judicata.

34. In their Lordships' view the difficulty in associating the explanation with the rule is occasioned only by the generality of the words of the rule, and that difficulty, as they think, is removed by the addition to the explanation made in 1908.

35. So far as mere words are concerned it probably would have to be agreed that a suit in respect of a public nuisance brought by any member of the public would be a litigation "in respect of a public right." "When, however, it is found that such a litigation where no special damage has been sustained is only authorised under the Code if it be instituted with the consent in writing of the Advocate-General, is it to be said that the benefit of the explanation is to be extended to a decree in such a suit where no such consent has been obtained, the necessity for it having been, perhaps, overlooked ? The answer must, it seems, be in the negative; but although the instance is more striking, the same principle must, their Lordships think, apply to a decree in a representative suit properly so-called, when, in view of the provisions of the Code in that behalf," no persons interested in such right other than the persons litigating, are affected by the decree." While, however, their Lordships are of opinion that the conclusion they have reached on this important question is justified even on the wording of the explanation, they are by no means unconscious of the difficulties pointed out by <ORG> in <NAME> v. <NAME> (1919) I.L.R. 43 Mad. 487, and they would not exclude the possibility of a decree being within the benefit of the explanation where the litigation having been bona fide the omission to comply with the conditions of the rule has been inadvertent, and no injury from the omission has been sustained by the plaintiff in the second suit. But it is, their Lordships think, imperative to have it recognised that the burden upon a defendant seeking a ruling to that effect is heavy indeed, No encouragement should, they think, be offered to litigants, if they would obtain the full benefit of Order I, Rule 8, to be careless in securing full compliance with the conditions of the rule both in the letter and in the spirit.

36. On the whole case accordingly their Lordships have reached the conclusion that the learned Subordinate Judge was right in holding that the defence of res judicata had not been established.

37. This appeal, therefore, should be allowed, and the case be remitted to <ORG> with a direction to dispose on the merits of the defendants' appeal from the decree of March 17, 1923.

38. And their Lordships will humbly advise His Majesty accordingly.

39. The appellants are entitled to their costs of this appeal, and of the appeal to <ORG> as from the day when it was opened. The remaining costs of that appeal already incurred, and all further costs thereof hereafter to be incurred, will be dealt with by <ORG> when disposing finally of the appeal.


PETITIONER: <ORG> <NAME> Vs. RESPONDENT: COMMISSIONER OF INCOME TAX, <NAME> DATE OF JUDGMENT19/09/1979 BENCH: <NAME>, V.D. BENCH: <NAME>, V.D. BHAGWATI, P.N. <NAME>, R.S. CITATION: 1980 AIR 176 1980 SCR (1) 696 1979 SCC (4) 766 CITATOR INFO : R 1986 SC 368 (9,11,12) ACT: Firm dissolved-Assets distributed among partners- Distribution-If amounts to transfer of assets within the meaning of express ion "otherwise transferred" in S. 34(3) (b) 17 Income Tax Act 1961. Words and Phrase-'Transfer'-Meaning of-Distribution of assets among, partners-Whether amounts to transfer- Income Tax Act 1961, S. 2(47) . HEADNOTE: The appellant, a dissolved firm as originally constituted on April 1, 1959, consisted of four partners and carried on different business in different names and styles. The firm was dissolved on March 31, 1963 and under the deed of dissolution executed by and between the partners, the first business concern was taken over by one of the partners, the remaining concerns by two of the other partners and the fourth partner received, a sum of money in lieu of his respective shares in the assets of all the businesses of the firm. During the four assessment years 1960-61 to 1963-64 the firm had installed various items of machinery in respect of which it received development rebate in its respective tax assessments under s. 33 of the Act. On dissolution of the firm on March 31, 1963, the Income-tax officer took the view that s. 34(3)(b) of the Act applied on the ground that there was a sale or transfer of the machinery by the firm within the period mentioned in that section and accordingly acting under s. 155(5) of the Act he withdrew the development rebate allowed to the firm for the said assessment years, the amending orders being passed against the dissolved firm. The appeals preferred by the dissolved firm through one of its erstwhile partners, were dismissed by the Appellate Assistant Commissioner who held that s. 155(5) was rightly resorted to since s. 34(3)(b) of the Act applied to the case. <ORG> allowed the appeals by the dissolved firm holding that there was no question of any sale or transfer within the meaning of s. 34(3)(b) in a transaction involving the adjustment of the rights of the partners of a dissolved firm, but at the instance of the <ORG> (Respondent) referred two questions of law to the, '<ORG> viz. (a) whether there was only an adjustment of the mutual rights of the partners and the provisions of s. 34(3) were not applicable and (b) whether there was a transfer of assets with in the meaning of the words 'otherwise transferred' occurring in s. 34(3) (b) of the Act. The <ORG> answered the second question in the affirmative and against the assessee holding that a dissolution of a firm amounted to extinguishment of the rights of the firm in the assets of the partnership and accordingly was a transfer within the meaning of s. 2(47) of the Act and that, therefore the provisions of s. 34(3)(b) applied to the case. 697 Allowing the appeals to this Court, ^ HELD: 1. There is no transfer of assets involved even in the sense of any extinguishment of the firm's rights in the partnership assets when distribution takes place upon dissolution. [709 F] 2. Section 34(3) (b) of the Act is not applicable to the case an(l the view of the <ORG> is upheld. [710 E] 3. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly in common the assets of the partner ship and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and, there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of s. 2(47) of the Act. [709 E] 4. On a plain reading of s. 34(3) (b) it will appear clear that before that provision can be invoked or applied three conditions are required to be satisfied: (a) that the ship, machinery or plant must have been sold or otherwise transferred, (b) that such a sale or transfer must be by the assessee and (c) that the same must be before they expiry of eight years from the end of the previous year in which it was acquired or installed. It is only when these three conditions are satisfied that any allowance made under s. 33 shall be deemed to have been wrongly made and the Income-tax officer acting under s. 155(5) will be entitled to withdraw such allowance. [703 C-D] 5. Section 2(47) gives an artificial extended meaning to the expression 'transfer' for, it not merely includes transactions of 'sale' and 'exchange' which in ordinary parlance would mean transfers but also 'relinquishment' or 'extinguishment of rights' which are ordinarily not included in that concept. [703 E] 6. <CITATION> , 68 I.T.R. 240, the concept of distribution of assets consequent upon the dissolution of the firm was considered in the context of the balancing charge arising under the second proviso to s. 10(2) (vii) of the 1922 Act. This Court held that the expression "sale or sold" when used in s. 10(2)(vii) and the second proviso thereto must be understood in their ordinary meaning and that "sale" according to its ordinary meaning meant a transfer of property for a price, and further enunciated the proposition that the distribution of surplus upon dissolution of a partnership after discharging debts and obligations was always by way of adjustment of rights of partners in the assets of the partnership and did not amount to a transfer such less for a price. The question of raising a balancing charge against the dissolved firm, a separate taxable entity which had been allowed depreciation in the earlier years, was also considered by the Court and it took the view that no balancing charge arose against the firm inasmuch as no sale or transfer was involved in the transaction of distribution of the assets to erstwhile partners of the firm consequent upon its dissolution. [703G, 704 E-G] 7. In <NAME> case, 79 I.T.R. 594, the concept of distribution of assets to the partners of a firm consequent upon its dissolution was considered in the context of the charge on capital gains arising under s. 128(1) of the 1922 Act. This Court observed that the rights of the parties were adjusted by handing 698 over to one of the partners the entire assets and to the other partner the money value of his share and such a transaction was neither a sale nor exchange nor transfer of the assets of the firm. [704 H, 705 D] 8. (i) It is well-known that commercial men and accountants on the one hand and lawyers on the other have different notions respecting the nature of the firm. [705 H] (ii) Commercial men and accountants are apt to look upon a film in the light in which lawyers look upon a corporation i.e. as a body distinct from the members composing it, and having rights and obligations distinct from those of its members. [706 B] (iii) The firm is not recognised by English lawyers as distinct from the members composing it. What is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. [706 G, H] Lindley on Partnership 12th Edn. pp. 27 and 28; referred to. 9. In English jurisprudence a firm is only a compendious name for certain persons who carry on business or have authorised one or more of their number to carry it on, in such a way that they are jointly entitled to the profits and jointly liable for the debts and losses of the business. Further, partnership property is regarded as belonging to the firm, but this is only for the purpose of distinguishing the same from the separate property of the partners. But, in law the partnership property is jointly owned by all the partners composing the firm. [707 B-C] 10. The position as regards the nature of a firm and its property in Indian Law under the Indian Partnership Act , 1932 is almost the same as in English law. Here also a partnership firm is not a distinct legal entity and the partner ship property in law belongs to all the partners constituting the firm. The Indian Act , like the English Act avoids making a firm a corporate body enjoying the right of perpetual succession, [708 <CITATION> ., AIR 1948 PC 100; referred to. 11. A partnership firm under the Indian Partnership Act , 1932 is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property in which all partners have a joint or common interest. [709 <CITATION> and 12 Ors.,  3 S.C.R. 400, referred to. 12. Every dissolution must in point of time he anterior to the actual distribution; division or allotment of the assets that takes place after making accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist; then follows the making of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment. of rights between them. The distribution, division or allotment of assets to the 699 erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. [710 C] 13. The view Of the <ORG> that thy. distribution of assets effected by a deed takes Place eo instanti with the dissolution or that it is effected by the dissolved firm not accepted. [710 D] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.. 196- 199/ 73.

Appeals by Special Leave from the Judgment and order date 14-7-1972 of <ORG> in Income Tax Reference Nos. 115-118 of 1970.

<NAME>, <NAME> and <NAME> for the Appellant.

<NAME> and Miss <NAME> for the Respondent. The Judgment of The Court was delivered by TULZAPURKAR, J.-These appeals by special leave raise an interesting question of law whether the distribution of assets of a firm consequent on its dissolution amounts to a transfer of assets within the meaning of the expression "otherwise transferred" occurring in s. 34 (3) (b) of the Indian Income Tax Act , 1961, having regard: to the definition of 'transfer' in s. 2(47) of the Act ?

The facts giving rise to the question lie in a narrow compass. The appellant (<ORG>) is a dissolved firm represented by one of its erstwhile partners. The firm as originally constituted on April ], 1959 consisted of four partners and carried on six different business in six different names and styles namely, (a) <ORG>, (b) <ORG>, (c) <ORG>, (d) <ORG>, all at Falluruthy, (e) <ORG> at the Industrial Estate at Alavakkot and (f) <ORG> at Viskhapatnam in Andhra Pradesh. The firm was dissolved on March 31, 1963 and under the deed of dissolution executed by and between the partners, the first business concern was taken over by one of the partners, the remaining five concerns by two of the other partners and the fourth partner received a sum of Rs. 3,81,082/- in lieu of his respective shares in the assets of all the businesses of the firm. It appears that during the four assessment years 1960-61 to 1963-64 the firm had installed various items of machinery in respect of which it received development rebate in its respective tax assessments under s. 33 of the Act. On dissolution of the firm on March 31, 1963, the Income-tax Officer took the view that s. 34 (3) (b) of the Act applied on the ground that there was a sale or transfer of the machinery by the firm within the period mentioned in that section and accordingly acting under s. 155 (5) of the Act he withdrew the development rebate allowed to the firm for the said assessment years, the amending, orders being passed against the dissolved firm. The assesses i.e., the dissolved firm through one of its erstwhile partners preferred appeals against the order of the Income-tax officer withdrawing the development rebate but the appellate Assistant Commissioner by his order dated July 24, 1964 dismissed the appeals holding that s. 155(5) was rightly resorted to since s. 34 (3) (b) of the Act applied to the case. The matter was carried in further appeals; by the dissolved firm to <ORG>, Cochin Bench, Ernakulam, and it was contended that the distribution of the assets of the firm consequent on its dissolution did not amount to a sale or transfer and, therefore, the transaction would not come within the purview of s. 34 (3) (b). The <ORG> by its common order dated January 6, 1970 allowed the appeals holding that the case fell within the principle laid down by this Court in the case of <CITATION> and that there was no question of any sale or transfer within the meaning of s. 34(3) (b) in a transaction involving the adjustment of the rights of the partners of a dissolved firm.

At the instance of the <ORG>, the <ORG> referred two questions of law to <ORG> for its opinion, namely "(1) Whether on the facts and in the circumstances of this case, the Appellate <ORG> was legally correct in holding that there was no question of sale and that it was only an adjustment of the mutual rights of the partners and that the provisions of section 34 (3) were not applicable ?

(2) Whether on the facts and in the circumstances of this case, there was a transfer of assets within the meaning to the words 'otherwise transferred' occurring in Section 34(3) (b) to the Income-Tax Act ?" <ORG> answered the second question in the affirmative and against the assessee and in view of that answer, declined to answer first question as being unnecessary. <ORG> took the view that this Court's decisions in <ORG> case (supra) and <NAME> case to the effect that the distribution, division or allotment of assets between partners of firm consequent on its dissolution amounts to a mutual adjustment of rights of the partners and does not amount to a sale or transfer had been rendered under the Income-Tax Act , 1922 wherein the expression 'sale' or 'transfer' had not been defined whereas in the 1961 Act by which the case was governed, the expression 'transfer' had been defined by s. 2(47) in a very wide manner so as to include not merely a sale or exchange but also 'extinguishment of any rights' in capital assets. <ORG> hold that a dissolution of a firm amounted to extinguishment of the rights of the firm in the assets of the partnership and accordingly was a transfer within the meaning of s. 2(47) of the Act and that, therefore, the provisions of s. 34(3) (b) applied to the case. It is this view of <ORG> that is being challenged before us in these appals by the assessee.

Counsel for the assessee contented that <ORG> has clearly erred in taking the view that the dissolution of a firm amounts to extinguishment of the rights of the firm in the assets of the partnership. be pointed out that in the two decisions referred to above this <ORG> has clearly enunciated what happens in law upon the dissolution of a firm namely, that the distribution, division or allotment of assets between the partners on dissolution of the firm is merely an adjustment of rights inter se between them and that no sale or transfer is involved in such distribution, division or allotment. According to him there is no change in this legal position even after the enactment of the definition of 'transfer' in s. 2(47) in the 1961 Act. Reference was made to this <ORG>'s decision in <CITATION> where this <ORG> has held that no transfer of capital assets within the meaning of s. 2 (47) of the, 1961 Act was involved when a shareholder received money representing his shares on the distribution of the net assets of the company in liquidation, that he must be regarded as having received that money in satisfaction of the rights which belonged to him by virtue of his holding the shares and that the transaction did not amount to any sale, exchange, relinquishment of capital assets or extinguishment of any rights therein. In any case, he contended that in every case dissolution must be anterior in point of time to the distribution that takes place after making accounts and discharging all debts and. liabilities and as such there is no transfer of any assets by the assessee (i.e. the dissolved firm) to any person as contemplated by s. 34(3) (b), but all that happens is that upon dissolution and upon making up of accounts and discharge of liabilities it is the erstwhile partners who mutually adjust their rights and it is by way of adjustment of such rights that distribution, division or allotment of assets takes place. He, therefore urged that s. 34 (3) (b) was inapplicable to the case.

On the other hand, counsel for the <ORG> pressed <ORG> view for our acceptance. He urged that the question has to be considered under the 1961 Act in light of the definition of 'transfer' contained in s. 2 (47) which includes within its scope even 'extinguishment of rights in capital assets'. According to him , during the continuance of the partnership the machinery undoubtedly belonged to the firm, the firm as a separate taxable entity got the benefit Of development rebate which was sought to be withdrawn in as much as the firm's rights in the machinery got extinguished upon dissolution and the same got transferred or vested ill individual partner or partners as a result of distribution or allotment made between them be stated qua the. erstwhile partners there may not be any transfer of assets and there may be mutual adjustment of rights but qua the firm there is certainly extinguishment of its rights in the assets of the partnership and in that sense there is a transfer of assets within the definition under s. 2 (47) of the Act.

Since in these appeals the question raised relates to the withdrawal of development rebate under s. 34 (3) (b) read with s. 155 (5) of the 1961 Act in the light of the definition of the expression transfer given. under s. 2 (47) of the Act, it will be desirable to note what these provisions are. Section 34 (3) (b) in so far as is material reads:

"34. Conditions for depreciation allowance and development rebate.

x x x x x 3(b) If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act , 1922 (XI of 1922), Gin respect of the ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub-section (5) of section 155 shall apply accordingly."

Section 155(5) is a procedural provision enabling <ORG> in a case falling under s. 34(3) (b) to recompute the total income of the assessee for the relevant previous year and make the necessary amendments; in other words, acting under this provision the Income-tax officer withdraw is the development rebate already granted A by passing an amending order. It further provides that such amending order has to be passed within a period of 4 years to be reckoned from the end of the previous year in which the sale or transfer took place.

Section 2(47) defines the expression "transfer" thus: "2(47) "transfer", in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof, under any law." On a plain reading of s. 34(3) (b) it will appear clear that before that provision can be invoked or applied three conditions are required to be satisfied: (a) that the ship, machinery or plant must have been sold or otherwise transferred, (b) that such a sale or transfer must be by the assessee and (c) that the same must be before the expiry of 8 years from the end of the previous year in which it was acquired or installed. It is only when these three conditions are satisfied that any allowance made under s. 33 shall be deemed to have been wrongly made and the Income-tax officer acting under s. 155(5) will be entitled to withdraw such allowance. Further, s. 2(47) gives an artificial extended meaning to the expression 'transfer' for, it not merely includes transactions of 'sale' and 'exchange' which in ordinary par- lance would mean transfers but also 'relinquishment' or 'extinguishment of rights' which are ordinarily not included in that concept. The question is whether the distribution, division or allotment of assets of firm consequent on its dissolution amounts to a transfer of assets within the meaning of the words "otherwise transferred" occurring in s. 34(3) (b) of the Act, regard being had to the definition of "trans- for" contained in s. 2(47) ? To put it pithily, the question is whether the dissolution of a firm extinguishes the firm's rights in the assets of the partnership so as to constitute a transfer of assets under s. 2(47) ?

In <ORG> case (supra) the concept of distribution of assets consequent upon the dissolution of the firm was considered in the context of the balancing charge arising under the second proviso to s. 10(2) (vii) of the 1922 Act. In that case two individuals, each of whom owne da cinema theatre, formed a partnership to carry on business of exhibition of cinematograph films, bringing the theatres into the books of the firm as its assets. For the assessment years 1950-51 to 1952-53 the Income Tax Officer allowed depreciation aggregating to Rs. 44,380/- in the assessment of the firm in respect of the two theatres. On the dissolution of the firm on September 30.

1951, the theatres were returned to their original owners. In the books of the firm the assets were shown as taken over at the original price less the depreciation allowed, the depreciation being equally divided between the two erstwhile partners. The <ORG> took the view that by restoring the theatres to the original owners there was a transfer by the partnership and the entries adjusting depreciation and writing off the assets at the original value amounted to local recoupment of the entire depreciation by the partnership and on that account the balancing charge arose under the second proviso to s. 10(2) (vii) of the Act. This Court held that on the dissolution of the partnership, each theatre had to be deemed to be returned to the original owner in 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 theaters were not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue, and, therefore, the amount of Rs. 44,380/- could not be included in the total income of the partnership as a balancing charge arising under the second proviso to s. 10(2)(vii) .

It is true that this <ORG> was concerned with interpreting the expression "sold" used in s. 10(2) (vii) and the second proviso thereto, when the expressions "sale or sold" had nowhere been defined in the Act, and, therefore, this <ORG> held that those expressions when used in s. 10(2) (vii) and the second proviso thereto must be understood in their ordinary meaning and that "sale" according to its ordinary meaning meant a transfer of property for a price. This <ORG> further enunciated the proposition that the distribution of surplus upon dissolution of a partnership after discharging its debts and obligations was always by way of adjustment of rights of partners in the assets of the partnership and did not amount to a transfer much less for a price. It is significant to note that the question of raising a balancing charge against the dissolved firm, a separate taxable entity which had been allowed depreciation in the earlier years, was considered by this <ORG> and this <ORG> took the view that no balancing charge arose against the firm inasmuch as no sale or transfer was involved in the transaction of distribution of the assets to erstwhile partners of the firm consequent upon its dissolution.

In <ORG> case (supra) the concept of distribution of assets to the partners of a firm consequent upon its dissolution was considered in the context of the charge on capital gains arising under 'H s. 128(1) of the 1922 Act. In that case the respondent assessee, the <NAME> of a Hindu undivided family, entered into a partnership with to carry on business of manufacturing and selling pharmaceutical products and literature relating thereto. On the dissolution of the partnership, its assets, which included goodwill, machinery, furniture, medicines, library and copyright in respect of certain publications, were valued at Rs. 2,50,000. Since a large majority of assets was incapable of physical division, it was agreed that the assets be taken over by and the respondent assessee be paid his share of the value of the assets in money and accordingly he was paid Rs. 1,25,000/-. The question was whether the sum of Rs. 65,000/-, being part of the amount received by the respondent assessee could be brought to tax as capital gains under s. 12B(1) of the Act ? This Court held that the arrangement between the partners of the firm amounted to a distribution of the assets of the firm on dissolution, that there was no sale or exchange of the respondent's share in the capital assets to D, nor did he transfer his share in the capital assets and, therefore, the sum of Rs. 65,000/- could not be taxed as capital gains. The Court observed that 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 and such a transaction was neither a sale nor exchange nor transfer of assets of the firm.

It cannot, however, be disputed that both these decisions were rendered under the 1922 Act which did not define expressions like "sale" or "transfer" and the question is whether any difference is E; made in the legal position under the 1961 Act by reason of the enactment of the definition of the expression "transfer" in s. 2(47) , which includes within its scope a transaction by way of 'extinguishment of any rights in a capital asset' ? The precise argument which has been advanced by the counsel for the <ORG> before us, and which found Favour with <ORG> is that during the continuance of the partnership the machinery belonged to the firm, that the firm as a taxable entity received the benefit of development rebate in respect thereof under s. 33 of the Act and that upon dissolution the firm's rights in the machinery got extinguished and became vested in the partner or partners to whom it was allotted in the distribution of assets, and, therefore, the transaction so far as the firm is concerned amounts to a transfer of assets under s. 2(47) . The question is how far is it correct to say that in law the firm as such has rights in the partnership assets liable to extinguishment upon dissolution ?

It is well-known that commercial men and accountants on the one hand and lawyers on the other have different notions respecting the nature of the firm and this difference between the mercantile view and the legal view has been explained in <ORG> on Partnership 12th Edn. at pages 27 and 28 thus:

"Partners are called collectively a firm. Merchants and lawyers have different notions respecting the nature of a firm Commercial man and accountants are apt to look upon a firm in the light in which lawyers look upon a corporation i.e., as a body distinct from the members composing it, and having rights and obligations distinct from those of its members. Hence, in keeping partnership accounts, the firm is made debtor to each partner for what he brings into the common stock, and each partner is made debtor to the firm for all that he takes out of that stock. In the mercantile view, partners are never indebted to each other in respect of partnership transactions; but are always either debtors to or creditors of the firm Owing to this impersonification of the firm, there is tendency to regard its rights and obligations as unaffected by the introduction of a new partner, or by the death or retirement of an old one. Notwithstanding such changes among its members, the firm is considered as continuing the same; and the rights and obligations of the old firm are regarded as continuing in favour of or against the new firm as if no changes had occurred. The partners are the agents and sureties of the firm, its agent for the transaction of its business, its sureties for the liquidation of its liabilities so far as the assets of the firm are insufficient to meet them. The liabilities of the firm are regarded as the liabilities of the partners only in case they cannot be met by the firm and discharged out of its assets. But this is not the legal notion of a firm. The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, <ORG> have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm; but speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners com posing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer". (Emphasis supplied) .

Unlike the Scottish system of law where the firm is a legal person distinct from the partners composing it, the English Partnership Act, 1890, avoids making a firm a distinct legal entity. In English jurisprudence a firm is only a compendious name for certain persons who carry on business, or have authorised one or more of their number to carry it on, in such a way that they are jointly entitled to the profits and jointly liable for the debts and losses of the business. Further it is true that partnership property is regarded as belonging to the firm, but that is only for the purpose of distinguishing the same form the separate property of the partners. But, in law the partnership property is jointly owned by all the partners composing the firm. In <ORG> on Partnership at page 359 the following statement of law occurs:

"The expression partnership property, partnership stock, partnership assets, joint stock, and joint estate, are used indiscriminately to denote everything to which the firm, or in other words all the partners composing it, can be considered to be entitled as such."

Again at page 375 the following statement of law occurs:

"In the absence of a special agreement to that effect, all the members of an ordinary partnership are interested in the whole of the partnership property, but it is not quite clear whether they are interested therein as tenants in com mon, or as joint tenants without benefit of survivorship, if indeed there is any difference between the two. It follows from this community of interest that no partner has a right to take any portion of the partnership property and to say that it is his exclusively. No partner has any such right, either during the existence of the partnership or after it has been dissolved."

As regards the nature of a share of a partner in a firm the following passage in <ORG> on Partnership at page 375 brings out legal position very clearly:

"What is meant by the share of a partner in his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged. This it is, and this only, which on the death of a partner passes to his representative, or to a legatee of his share.... and which - ; on his bankruptcy passes to his trustee."

The position as regards the nature of a firm and its property in Indian . law under the Indian Partnership Act , 1932 is almost the same as in English law. Here also a partnership firm is not a distinct legal entity and the partnership property in law belongs to all the partners constituting the firm. <CITATION> in para 10 of the judgment observed thus:

"Before the Board it was argued that under the Indian Partnership Act , 1932, a firm is recognised as an entity apart from the persons constituting it, and that the entity continues so long as the firm exists and continues to carry on its business. It is true that the Indian Partnership Act goes further than the English Partnership Act, 1890, in recognising that a firm may possess a personality distinct from the persons constituting it; the law in India in that respect being more in accordance with the law of Scotland, than with that of England. But the fact that a firm possesses a distinct personality does not involve that the personality continues unchanged so long as the business of the firm continues. The Indian Act , like the English Act , avoids making a firm a corporate body enjoying the right of perpetual succession. (Emphasis supplied).

It is true that under the Civil Procedure Code order XXX, as under the English Rules of Court, actions may be brought by or against partners in the name of the firm and even between firms and their members but that is only a matter of procedure. It is also true that the firm's property is recognised in more than one way (ss. 14 and 15 of the <ORG> Act ) but only as that which is "joint estate" of all the partners as distinguished from the "separate estate" of any of them, and not as belonging to a body distinct in law from its members. <CITATION> and 13 Ors, this Court after quoting with approval the aforementioned passages occurring in Lindley on <ORG>, 12th Edn., made the following observations in the context of partners' right during the subsistence as well as upon the dissolution of a firm:

<NAME>

"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, how ever, no partner can deal with any portion of the property as his own nor can he assign his interest in a specific item of property of any one. His right is to obtain such profits, if R 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 set out in cl.

(a) and sub-cls. (i), (ii) and (iii) of cl. (b) of s.

Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act , 1932 is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property. Or firm's assets all that is meant is property or assets in which all partners have a joint or common interest. If that be the position, it is difficult to accept the contention that upon dissolution the firm's rights in the partnership assets are extinguished. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly in common the assets of the partnership and, therefore, the consequences of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of s. (47) of the Act. In our view, therefore, there is no transfer of assets involved even in the sense of any extinguishment the firm's rights in the partnership assets when distribution takes place upon dissolution.

Counsel for the <ORG> referred us to a decision of <ORG> in Additional Com missioner of <CITATION> , where that Court has taken the view that when individual assets are brought in a partnership firm so as to constitute the partnership property, there is a transfer of interest of the individual to the partnership and ss. 34(3) (b) and 155(5) of 1961 Act are attracted. In the first instance, that decision dealt with the converse case and it does not necessarily follow on parity of reasoning that the distribution, division or allotment of partnership assets to partners of a firm upon its dissolution would amount to a transfer of assets as was sought to be contended by the counsel for the <ORG>. Secondly, it is unnecessary for us to express any opinion on the correctness or otherwise of the view taken by <ORG> in that case.

There is yet another reason for rejecting the contention of the counsel for the <ORG> and that is that the second condition required to be satisfied for attracting s. 34(3) (b) cannot be said to have been satisfied in the case. It is necessary that the sale or transfer of assets must be by the assessee to a person. Now every dissolution must h point of time be anterior to the actual distribution, division or allotment of the assets that takes place after making accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist; then follows the making up of accounts, then the discharge of debts and liabilities and there upon Distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It Dis not possible to accept the view of <ORG> that the distribution of assets effected by a deed takes place eo instanti' with the dissolution or that it is effected by the dissolved firm.

In the result we are clearly of the view that s. 34(3)(b) of the Act was not applicable to the case and we uphold the view of the <ORG>. The appeals are, therefore, allowed and the <ORG> will pay the costs of the appeals to the appellant.

N.V.K. Appeal allowed