JUDGMENT Pandey J. 1. Under section 66 (1) of the Income-tax Act, 1922, the Income-tax Appellate Tribunal, Bombay, has, at the instance of the assessee, referred to this Court for its opinion the following question of law: "Whether, on the facts and in the circumstances of the case, the amount of Rs. 44, 380/, was rightly included in the total income of the assessee for the year 1952-53 under the second proviso to section to (2) (vii) of the Income-tax Act"? 2. The facts material for the reference are these. The assessment year is 1952-53 and the relevant period of the corresponding previous year is 1 April 1951 to 30 September 1951. By an agreement made on the last mentioned date, the firm Dewas Cine Corporation, Dewas, was dissolved. It had come into being presumably as a result of an oral agreement, between the two partners, S.G. Sanghi and Hariprasad, with effect from 1 March 1947. While S.G. Sanghi owned the theatre called Vikas, the other partner owned another theatre called Nagar Niwas. They allowed the two theatres to be used for the business of the firm. Actual the theatres were brought into the books of the partnership as assets valued at Rs. 1,65,000/- and Rs. 1,00,000/- respectively and depreciation on these assets were adjusted and claimed at the prescribed rates as under: Assessment years Amounts 1950-51 Rs. 20,322 1951-52 Rs. 17,868 1952-53 Rs. 7,932 _______ ________ Rs. 46,122 Less depreciation on furniture 1,742 ________ Balance Rs. 44, 389 _________ When the firm was dissolved on 30 September 1951, the theatres were "handed over from this date to the owner of the respective cinema houses". In the books maintained by the partners, the assets were shown as taken over on 1 October 1951 at the prices shown above less the amount of depreciation. 3. The Income-tax Officer treated the firm as a registered firm under section 23 (5) (b) of the Act and included under the second proviso to section 10 (2) (vii) of the Act the amount of Rs. 44,380 in the total income of the firm on the view that the theatres were taken back by the partners at the original cost prices. Being aggrieved, the assessee appealed to the Appellate Assistant Commissioner, who allowed the appeal and excluded Rs. 44,380 in the total income of the firm on the view that the theatres were taken back by the partners at the original cost prices. Being aggrieved, the assessee appealed to the Appellate Assistant Commissioner, who allowed the appeal and excluded Rs. 44,380 from the total income mainly on the ground that the theatres had really been transferred tack to the partners at the depreciation values. Against this order, the Revenue appealed to the Tribunal which, by its order dated 19 April 1962 set aside the earlier order and restored the one passed by the Income-tax Officer. 4. The reasons which impelled the Tribunal to take a different view may be given in its own words: "when the partnership was formed, it has been by consent of both the partners that the two theatre, had been taken into its books by due credit to the respective partners for the value if them contributed by each of them. There has thus been a transfer of the theatres in fact. When those theaters are re-transferred to the respective owners through every (? very) books, there is a sale of the nature contemplated under section 10 (2) (vii). Any profit or loss on such sale has necessarily to come in for attention under that section. The entries adjusting the depreciation and writing up the assets to their original value on the date of dissolution, amount to total recoupment by way of a writing back of the entire depreciation till then claimed. This has nothing to do with writing down the assets over again by the individual partners. After taking over, they can deal with the valuation in any manner they please. If the situation is as Mr. Mulla presented, the credit to the partners for the write back must be for Rs. 26,403/- to Sanghi and Rs. 19,719 to Hariprasad and not Rs. 23,02l/- equally as has been shown. This only shows that, between both the partners who had equal interest in the firm, for purpose of dissolution, both the assets had been assumed not to have depreciated at all during the period of partnership. In other words, it is an admission that whatever depreciation had been already claimed by the assesses before the Income-tax authorities and allowed by them constituted a wrong claim which had been righted by those entries. In other words, it is an admission that whatever depreciation had been already claimed by the assesses before the Income-tax authorities and allowed by them constituted a wrong claim which had been righted by those entries. This is just the situation that section 10 (2) (vii) has been designed to cover. In our opinion, the Appellate Assistant Commissioner has misinterpreted and wrongly understood the nature of the book entries. The book entries in this case are not just meaningless entries. It is on the basis of there entries the firm has obtained defecto ownership of the assets, claimed depreciation during the period of the partnership and also has restored the assets to their former owners. These entries have a clear meaning and must be given due importance. The A.A C's order is accordingly set aside and the Inc me tax Officer's order restored." It is urged before us that the two partners had merely allowed the use of their theatres and had not by any means known to law transferred them to the partnership and that, in these circumstances, there is no evidence to support the conclusion that the theatres were assets of the partnership. In our opinion, the theatres had to be, in the circumstances of the case regarded as : “property originally brought into the stock of the firm” within the meaning of section 14 of the Indian Partnership Act, 1932, and so constituting property of the firm. A direct authority on the point is Robinson vs. Ashton, (1875 20 Equity Cases 25. In that case, on the formation of a partnership, it was agreed that the business would be carried on at a mill belonging to John Robinson, one of the partners. In the books of the partnership, the value of the mill was credited in his favour. Thereafter; from time to time, sums were expended in making additions to, and improvements in, the mill. In the yearly balance-sheets, the mill was valued at the original value increased by the amount expended on it but less a certain amount on account of depreciation. The partners were also allowed interest on the amounts standing to their credit in the capital accounts. In the yearly balance-sheets, the mill was valued at the original value increased by the amount expended on it but less a certain amount on account of depreciation. The partners were also allowed interest on the amounts standing to their credit in the capital accounts. It was held, that, in the absence of any special agreement, the mill was an asset of the partnership and that on a sale of the business, under which the purchase money of the mill was largely in excess or its value in the books, the difference was profit divisible amongst the partners. Since this aspect of the question was not strongly pressed before us, we do not consider it necessary further to dwell thereon. 6. It is, however; urged that the second proviso to section 10 (2) (vii) of the Act is not attracted because, in this cast, there was no sale of any building, plant or machinery. On behalf of the Revenue, it is contended that this question was not referred and should not be considered, or answered, by this Court. The question referred to us is farmed in general terms but, as paragraph 7 of the statement of the case shows, it was specifically urged before the Tribunal that, following the dissolution of the partnership: there was no sale. In this situation, the question must be regarded as arising out of the order and so included in the general question referred to this Court: Commissioner of Income-tax Bombay vs. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 SC. 7. On the main aspect of the question canvassed before us, we think that there was, in this case, no sale. The word "sale" is not defined in the Act and its ordinary conception is that property in something is transferred for a price as a result of negotiation and agreement. So, compulsory acquisition is not regarded as a sale within the meaning of the second proviso to section, 10 (2) (vii) of the Act,: Callcatta Electric Supply Corporation vs. Commissioner of Income-tax (1951) 19 ITR 406 . It is the real nature of the transaction and not merely the book entries which are material: Roger & Co. So, compulsory acquisition is not regarded as a sale within the meaning of the second proviso to section, 10 (2) (vii) of the Act,: Callcatta Electric Supply Corporation vs. Commissioner of Income-tax (1951) 19 ITR 406 . It is the real nature of the transaction and not merely the book entries which are material: Roger & Co. vs. Commissioner of Income-tax (1958) 34 ITR 336, Further, upto time of dissolution, the two partners were co-owners, of the two theatres that being so, if, upon dissolution immovable property jointly owned by them is merely distributed; there is, or can be no sale. "The transaction is if we may say so, analogous to an exchange because the arrangement, which is brought about by the distribution, signifies the surrender of a portion of a joint right in exchange for a similar right from the co-sharer. Having regard to these-considerations, we are of opinion that the distribution of immoveable property of the dissolved firm was not a sale of building, machinery or plant within the meaning of the second proviso to section 10 (2) (vii) of the Act and the amount of Rs. 44,380/- could not be included in the total income of the firm. 8. We answer the question referred to us in the manner indicated above and direct that the Revenue shall pay all costs of this reference Hearing fee is fixed at Rs. 100/-.