JUDGMENT : Raveendran, J. 1. THIS is a reference under s. 26(1) of the GT Act, 1958 (Act, for short). The facts leading to the reference are briefly as follows : 1.1. The petitioner is a partnership firm with five partners (mother and four sons) carrying on business as civil engineering contractors. The firm owned several moveable assets (machinery). On 9th July, 1977, certain debits were made to the respective accounts of the five partners with the firm (i.e., Rs. 21,454, Rs. 22,981, Rs. 31,234, Rs. 22,370 and Rs. 27,996 aggregating to Rs. 1,26,035) stated to be the value of certain machinery distributed by the firm to the partners. While some machineries were given to the partners individually, one machine was given to all the five partners to be held by them jointly as co-owners. As a result, the firm ceased to be the owner of said machinery and the five partners became the owners of the machinery so distributed either individually or as co-owners. Shortly thereafter the five partners of the petitioner firm formed another partnership with three others under the name and style of B. P. Sales Corporation on 10th Oct., 1977 and contributed the said machinery (which were distributed to them by the petitioner firm) to the new firm by valuing the same as Rs. 1,86,000, Rs. 1,89,000, Rs. 1,92,500, Rs. 1,91,400 and Rs. 1,88,200 in all Rs. 9,48,100. Immediately thereafter, the new firm sold the said machinery, for a price of Rs. 10,76,220. 1.2 The assessing authority by order dt. 20th Jan., 1988 held that the distribution of assets was neither as a consequence of dissolution of the firm nor as a consequence of retirement of any partner of the firm and distribution of some of the assets of the firm to its partners, to enable them to hold the same as their own property, amounted to a transfer of such assets, by the firm to the partners. He held that the three transactions, i.e., the distribution of the machinery to the five partners by the assessee-firm at the book value of Rs. 1,26,035, the contribution of such assets by the said five partners immediately thereafter to another new firm by valuing them at Rs. 9,48,100 and sale thereof by the new firm at Rs. 10,76,220 constituted a device to avoid payment of capital gains tax. He, therefore, treated the difference between Rs. 1,26,035, the contribution of such assets by the said five partners immediately thereafter to another new firm by valuing them at Rs. 9,48,100 and sale thereof by the new firm at Rs. 10,76,220 constituted a device to avoid payment of capital gains tax. He, therefore, treated the difference between Rs. 10,76,220 (the price at which the machinery were sold by B. R. Sales Corporation) and Rs. 1,26,035 (the value at which the machinery were distributed by the petitioner firm to its partners) i.e., Rs. 9,50,125 as deemed gift by the petitioner firm and subjected the same to gift-tax. 1.3 Petitioner filed an appeal against the said order of the GTO. The appellate authority upheld the order of the assessing authority, by order dt. 16th Aug., 1988. However, instead of taking the market value of the assets as on the date of deemed gift (9th July, 1977) as Rs. 10,76,220, the appellate authority took the value as Rs. 9,48,100 (the value at which the machinery were contributed by the partners of the petitioner-firm to the new firm). The appellate authority, therefore, directed the GTO to complete the assessment by subjecting the difference between Rs. 9,48,100 and Rs. 1,26,035 to gift-tax. 1.4 Feeling aggrieved by the order of the appellate authority, the assessee as well as the Department filed appeals before the Tribunal. While petitioner challenged the determination of market value as Rs. 9,48,100 instead of Rs. 1,26,035 in GTA No. 45/Bang/88, the Department challenged the determination of the market value as Rs. 9,48,100 instead of Rs. 10,76,220, in GTA No. 47/Bang/88. Both the appeals were rejected by the Tribunal by a common order dt. 18th June, 1990 holding that the distribution of machinery on 9th July, 1977 was a transfer in the nature of sale, for a consideration of Rs. 1,26,035 and as it was less than the market value of Rs. 9,48,100, the difference between the market value and the specified consideration amounted to gift. Reference/Points for consideration 2. ON an application by the petitioner, the Tribunal has referred the following question of law for decision under s. 26(1) of the GT Act, 1958, arising from its order dt. 1,26,035 and as it was less than the market value of Rs. 9,48,100, the difference between the market value and the specified consideration amounted to gift. Reference/Points for consideration 2. ON an application by the petitioner, the Tribunal has referred the following question of law for decision under s. 26(1) of the GT Act, 1958, arising from its order dt. 12th June, 1990 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the distribution of plant and machinery belonging to the assessee-firm by it to its partners constituted a transfer of the assets and hence, it was a case of deemed gift by way of sale of the assets at a consideration less than the market price thereof ?" Sri G. Sarangan, learned counsel appearing for the petitioner, submitted that distribution of assets belonging to a partnership firm to its partners, does not constitute a transfer for the following reasons : (a) a partnership is an association or a combination of persons who agree to carry on business with a motive to share profits of the business carried on by all or any of them, acting for all of them; (b) a partnership firm is not a legal entity, but is merely a compendious and collective name of the individuals who are the partners; (c) each partner has dominion over the entire assets of the firm; (d) no transfer is involved either when any asset of the firm is allotted to a partner on his retirement from the firm or when the assets of the firm are distributed among the partners on the dissolution of the firm, as such allotment amounts to adjustment of share/capital; similarly, when a partner contributes his personal asset towards the capital of the firm or when a firm distributes its assets to the partner/s during the subsistence of the firm, by debiting its value to the partner's account, it merely involves an adjustment of the share and capital of such partner/s and does not involve any transfer. 3.1 Strong reliance was placed by the petitioner on the decision of the Supreme Court in Malabar Fisheries andamp; Co. vs. CIT . The question that arose for consideration in that case was whether distribution of assets of a firm consequent upon its dissolution amounted to a transfer of assets, for purpose of IT Act, 1961. 3.1 Strong reliance was placed by the petitioner on the decision of the Supreme Court in Malabar Fisheries andamp; Co. vs. CIT . The question that arose for consideration in that case was whether distribution of assets of a firm consequent upon its dissolution amounted to a transfer of assets, for purpose of IT Act, 1961. It was held that a partnership firm under the Partnership Act, 1932 is not a legal entity, distinct from the partners constituting it; and 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 assets, all that is meant is property or assets in which all partners have a joint or common interest; and therefore, the consequence of distribution, division or allotment of assets to the partners, upon dissolution, after discharging the liabilities, is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of firm's right in the partnership assets amounting to a transfer of assets within the meaning of s. 2(47) of the IT Act. 3.2 Reliance is also placed on the decision of the Supreme Court in Addl. CIT vs. Mohanbhai Pamabhai and the decision of the Kerala High Court in CGT vs. T. M. Luiz Kannamally which dealt with cases of retirement of partners and held that when a partner retires from a partnership, there can only be a readjustment of rights between the retiring partner and the continuing partners in the assets of the partnership and no element of transfer of gift is involved in the transaction. 3.3 He next relied on the decision in Ramnarain vs. CIT , wherein the Allahabad High Court quoted with approval the following passage from Lindley on Partnership (15th Edn.) at page 510 : "It is competent for partners by agreement among themselves, to convert that which was partnership property into the separate property of an individual or vice versa." 3.4 He did not refer to any decision dealing with distribution of the partnership assets by the firm to its partners resulting in conversion of the partnership property into separate property of the individual partner. But relying on the principle that there is no transfer when partnership property is allotted to a partner on dissolution of the firm or on retirement of a partner from the firm, he contended that there will be no transfer when a partnership distributed its assets to its individual partners, during the subsistence of the partnership. 3. SRI N. V. Seshachala, learned standing counsel for the Department, conceded the correctness of the propositions (a) to (c) put forth by the petitioner's learned counsel (vide para 3 above). He also did not dispute the correctness of the first part of proposition (d) that there is no transfer, when assets are allotted to a partner either on his retirement or on dissolution of the firm. But, he contended that the said principle will not apply to a situation where a partner contributes his personal assets to the firm or where a firm distributes its assets to its partners. He, thus, joined issue in regard to the second part of proposition (d) put forth by the learned counsel for petitioner and contended that (i) a firm is distinct and separate from the individual partners, in so far as taxation laws are concerned; (ii) contribution of an asset by a partner to the firm and distribution of some of the assets of the firm, by the firm, to its partners during the subsistence of the firm, will amount to transfer of property; and (iii) the difference between the market value and the consideration for which the property is so transferred by the firm to the partner will constitute a deemed gift by the firm. 4. ON the facts of the case and the contentions urged, the following points arise for consideration : (a) When a partnership firm allots or distributes its assets to its partner during the subsistence of the firm, without there being either dissolution or retirement, whether such distribution or allotment would amount to a transfer by the firm to its partners or a mere adjustment of the shares and capital of the partners in the firm. (b) Even if the distribution amounted to a transfer, whether a firm is a 'person' which can be subjected to gift-tax under the GT Act. (b) Even if the distribution amounted to a transfer, whether a firm is a 'person' which can be subjected to gift-tax under the GT Act. (c) If so, whether the firm will be liable to pay gift-tax on the difference between the market value the asset so allotted/distributed on the date of allotment/distribution and the amount that is debited to the partner's account, as the value of such asset. Re. Point (a) : A brief reference to the relevant provisions of the Act is necessary to consider the question. Sec. 2(xii) defines 'gift' as a transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth and includes the transfer or conversion of any property referred to in s. 4, deemed to be a gift under that section. Sec. 2(xxiv) defines 'transfer of property' as any disposition, conveyance, assignment, settlement, delivery or other alienation of property and, without limiting the generality of the foregoing includes, among other, the grant or creation of any lease, mortgage easement, licence, power, partnership or interest in the property or any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. Sec. 4(1) enumerates five categories of transfers which shall be deemed to be gifts for the purposes of the Act. What is relevant is the first category covered by cl. (a) which provides that, for the purposes of the Act, where a property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of transfer exceeds the value of the consideration, shall be deemed to be a gift made by the transferor. The deemed gifts described in cls. (b) to (e) of s. 4(1) and in s. 4(2) are not relevant for this case and it is not, therefore, necessary to refer to them. 5. DEALING with the aforesaid provisions, this Court in Khoday Eswarsa andamp; Sons vs. CGT , observed that the Act is self contained. The deemed gifts described in cls. (b) to (e) of s. 4(1) and in s. 4(2) are not relevant for this case and it is not, therefore, necessary to refer to them. 5. DEALING with the aforesaid provisions, this Court in Khoday Eswarsa andamp; Sons vs. CGT , observed that the Act is self contained. The purpose of the special definition of 'transfer of property' in s. 2(xxiv) is to rope in artificial devices which may include mere agreements or arrangements, intended to confer gifts, which may not, however, fall under the normal incoming or 'transfer' of gifts; and the definition of 'gift' in s. 2(xii) is wide enough to include many transactions which could not ordinarily be described as transfers of property and has a wider import than the meaning given to 'gift' in s. 122 of the Transfer of Property Act. Moreover, the definition of 'gift' in the Act is an inclusive definition and gives an artificial extension to the meaning of the word 'gift' by deeming certain transactions to be gifts under s. 4. In order to find out whether a transaction falls within the provisions of s. 4, two separate enquiries have to be made : (i) as to the existence of 'transfer of property', the essence of such transfer being passing of control over the economic benefits of a property rather than any technical changes in title; and (ii) as to the adequacy of consideration to be decided in a broad commercial sense. 6. The general principles relating to partnership under the Partnership Law have been viewed differently under taxation laws. In CIT vs. A. W. Figgies andamp; Co. andamp; Ors. , the Supreme Court held that, while partnership law does not recognise a partnership firm as a legal entity, but only a collective or compendious name for all the partners and the partnership has no separate legal existence, for the purpose of taxation laws, the partnership is recognised as a distinct assessable entity; and that the technical view of the nature of partnership, under English Law or Indian Law; that a firm is but a collective name for individuals carrying on business in partnership, cannot be taken in applying the taxation laws. In Malabar Fisheries' case (supra), the Supreme Court after noticing that under the Scottish System of law, the firm is a legal person distinct from the parties composing it, unlike the English law which avoid making a firm a distinct legal entity, quoted with approval the following passage from the decision of the Privy Council in Bhagwanji Morarji Goculdas vs. Alembic Chemical Works Co. Ltd. AIR 1948 PC 100 : "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 entity continues so long as the firm exists and continues to carry on 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 rights of perpetual succession." 7. DEALING with the question whether any partner can claim any specific right in the assets of the partnership during its subsistence, the Supreme Court in Addanki Narayanappa vs. Bhaskara Krishnappa held : ".... 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 any one. His right is to obtain such profits, if any, as fall to his share from time to time and again upon the dissolution of the firm, to a share in the assets of the firm which remain after satisfying the liabilities...." "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 trading asset of the partnership in which all the partners would have interest in proportion of 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 shares in the business of the partnership. As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement, after a deduction of liability and prior charges. It is true that even during the subsistence of the partnership, a partner may assign his share to another. In that case, what the assignee would get be only that which is permitted by s. 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners." 8. FOLLOWING the decision in Addanki Narayanappa's case (supra), this Court in A. S. Krishna Setty andamp; Sons vs. Addl. CIT , held that when a firm gave its asset to its partners during its subsistence, it would amount to a transfer, while considering the question whether a development rebate allowed on machinery belonging to the firm, could be withdrawn by the Government, on the firm transferring the machinery to some of its partners. In that case, the partners of a firm, entered into an arrangement, whereby certain plant and machinery belonging to the firm were allotted to different partners. The development rebate was sought to be withdrawn on the ground that the firm had transferred the assets to its partners. In that case, the partners of a firm, entered into an arrangement, whereby certain plant and machinery belonging to the firm were allotted to different partners. The development rebate was sought to be withdrawn on the ground that the firm had transferred the assets to its partners. The firm contended that there was no transfer in the eye of law as the arrangement under which some of the partners became the exclusive owners of the said plant and machinery was by way of withdrawal or reduction of capital of the partners and it did not involve any transfer. This Court negatived the said contention, and after referring to the principles laid down in Addanki Narayanappa's case, held as follows : "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." In Sunil Siddharthbhai vs. CIT , the question whether contribution of a personal asset by a partner towards the capital of the firm amounted to a transfer of property came up for consideration. The Supreme Court held that it amounted to transfer, on the following reasoning : "In its general sense, the expression 'transfer of property' connotes the passing of rights in the property from one person to another. In one case, there may be a passing of the entire bundle of rights from the transferor to the transferee. In other case, the transfer may consist of one of the estates only out of all the estate comprising the totality of rights of the original owner into a joint or shared interest with other persons. An exclusive interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest, it would seem that there is a transfer of interest. An exclusive interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest, it would seem that there is a transfer of interest. Therefore, when a partner brings in his personal asset into the capital of the partnership firm as his contribution to its capital, he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm. While he does not lose his rights in the asset altogether what he enjoys now is an abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital." The Supreme Court did not agree with the contention that the position when a personal asset is brought by the firm into the partnership as contribution to the partnership capital will be the same as the position when an asset is distributed to the ex-partner on dissolution of a firm or on his retirement from the firm. The Supreme Court further held : "Therefore, what was the exclusive interest of a partner in his personal asset is, upon the introduction into the partnership firm as his share to the partnership capital, transformed into a shared interest with the other partners in that asset. Qua that asset, there is a shared interest. During the subsistence of the partnership the value of the interest of each qua that asset cannot be isolated or carved out from the value of the partner's interest in the totality of the partnership assets. And in regard to the latter, the value will be represented by his share in the net assets on the dissolution of the firm or upon the partner's retirement." ".... when a partner retires or the partnership is dissolved what the partner receives is his share in the partnership. What is contemplated here is a share of the partner qua the net asset of the partnership firm. On evaluation, that share in a particular case may be realised by the receipt of only one of all the assets. What happens here is that a shared interest in all the assets of the firm is replaced by an exclusive interest in an asset of equal value. That is why it has been held that there is no transfer. On evaluation, that share in a particular case may be realised by the receipt of only one of all the assets. What happens here is that a shared interest in all the assets of the firm is replaced by an exclusive interest in an asset of equal value. That is why it has been held that there is no transfer. It is the realisation of a pre-existing right. The position is different, it seems to us, when a partner brings his personal asset into the partnership firm as his contribution to its capital. An exclusive interest in it before it enters the partnership is reduced on such entry into a shared interest." 9. THUS, the decisions which hold that there is no transfer of property when there is a distribution of assets on dissolution or when an asset is allotted to a partner on his retirement from the firm, will be inapplicable where an asset is brought in by the partner into the partnership, it follows therefrom that they will be inapplicable, even in a converse situation where a firm distributes or gives its assets to its partner/s by debiting the value thereof to the respective partner's account, without there being either dissolution or retirement. While during the subsistence of a partnership, the value of the interest of each partner qua an asset cannot be isolated or carved out from the value of the partner's interest in the totality of the partnership assets, once it is allotted, it becomes the individual property of the partner. THUS, the shared interest becomes the exclusive interest of a partner. When an asset of the firm is allotted to a partner during the subsistence/continuation of the partnership firm (as contrasted from an allotment on dissolution of the firm or retirement of the partner), the shared interest of all the partners in the said asset, is replaced by the exclusive interest of the allottee, for consideration. To that extent, there is an extinguishment of the interests of the other partners of the firm, in the partnership asset in question and enlargement of the limited interest of the allottee into a full exclusive right in the asset. To that extent, there is an extinguishment of the interests of the other partners of the firm, in the partnership asset in question and enlargement of the limited interest of the allottee into a full exclusive right in the asset. When the asset is a partnership asset, a partner cannot claim or exercise any specific share or right over such asset to the extent of his share in the business of the partnership (as a co-owner can do in respect of a co-ownership property), as his right during the subsistence of the partnership is only to get his share of profits. But, on allotment of the asset by the firm to the partner, such partner becomes entitled to exercise over the asset, all rights of an absolute owner. In other words, what was a mere 'interest', as explained in Addanki Narayanappa's case (supra) on allotment by the firm, enlarges into an absolute right, title and interest. The extinguishment of the 'common interest' of the partners of the firm and creation of 'absolute ownership' of the partner to whom it is allotted, is as a result of the transaction of allotment of the partnership asset by the firm, to a person who continues to be its partner. Such a transaction is, therefore, a 'transfer of property' as defined in the GT Act. 10. The Madras High Court had occasion to consider a somewhat similar question in CIT vs. Bharani Pictures . In that case, in regard to a property held by a firm of two partners, one partner (P. S. R. Rao), released and relinquished his interest in favour of the other partner (P. Bhanumathi) and necessary entries were made in the books of the firm. The Madras High Court held that the transaction of release was a transfer by the firm to the partner (Bhanumathi). The Court reasoned that partners of a firm could not treat themselves as owners or co-owners of the assets of the partnership; and the firm was the owner of the property and what was owned by the firm devolved upon the individual partner only by means of the transfer, even though the document executed was termed as a 'release deed' and adjustment of consideration in the accounts of the firm was by debiting the value thereof to the respective partner's account. The Court held that when the partners of a firm vest the ownership of an asset of the firm in one of the partners, the result is that there will be a transfer of a capital asset of the firm in favour of the partners. We are in respectful agreement with the said view. In view of the extended definition of 'transfer of property' under s. 2(xxiv) and the aforesaid discussion, there can be no doubt that allotment or distribution of an asset or some of the assets of the firm, by the firm to a partner or partners, during its subsistence, so as to enable such partner/s to hold the said assets in his/their individual capacity, would clearly be a transfer of property and not adjustment of capital. Re. Point (b) 11. LEARNED counsel for the petitioner next contended that under the charging section (S. 3 of the Act), gift-tax shall be charged in respect of gift made by a 'person'; that a partnership firm is not a person as defined in s. 2(xviii) of the Act and, therefore, a gift or deemed gift by a partnership firm cannot be subjected to gift-tax under the Act. Sec. 2(xviii) of the Act defines 'person' as including an HUF or a company or an association or a body of individuals or persons, whether incorporated or not. It is contended that the said definition does not include partnerships. Reference is also invited to corresponding definition of 'person' in s. 2(31) of the IT Act, which specifically includes partnerships. 12. This question is no longer res integreta. In Khoday Eswarsa's case (supra) this Court has held that even a partnership firm is a person within the meaning of that expression, under the Act and is an assessable entity. A similar view was taken by the Allahabad High Court in CGT vs. S. B. Sugar Mills and the Madras High Court in CIT vs. Bharani Pictures (supra). The definition of person is an inclusive' definition and not an exhaustive definition. Further, the term 'association or body of individuals' occurring in the definition is wide enough to include partnership firms. Re. The definition of person is an inclusive' definition and not an exhaustive definition. Further, the term 'association or body of individuals' occurring in the definition is wide enough to include partnership firms. Re. Point (c) : Once the distribution of the firm's property to a partner, during the subsistence of the firm is held to be a transfer, and the firm is a 'person', such transfer by the firm otherwise than for adequate consideration will give rise to a deemed gift. Sec. 4(1)(a) provides that the amount by which the market value of the property at the date of the transfer, exceeds the value of consideration, shall be deemed to be a gift made by the transferor. Certain machinery belonging to the firm were distributed to the five partners on 9th July, 1977, by debiting Rs. 21,454, Rs. 22,981, Rs. 31,234, Rs. 22,370 and Rs. 27,996 as the value thereof. Within a short time thereafter, the five partners have become partners of another firm and contributed the very same machinery valuing them at Rs. 1,86,100, Rs. 1,89,900, Rs. 1,92,500, Rs. 1,91,400 and Rs. 1,88,200. The appellate authority on examination found that the said amount represent the market value on the date of transfer. Hence, the firm will be liable to pay gift-tax on the difference between the market value and the amount debited to the partners' account. 13. In view of our findings and conclusion on the points, we answer the reference in the affirmative, in favour of the Revenue and against the assessee.