1976 (7) TMI 74 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the transfer of immovable properties by a firm to its partners through book entries.
2. Requirement of registration of the transfer under Section 17(1)(b) of the Indian Registration Act.

Detailed Analysis:

1. Validity of the Transfer of Immovable Properties by a Firm to its Partners through Book Entries:

The case revolves around whether the transfer of immovable properties by a firm to its partners through mere book entries constitutes a valid transfer. The assessee, a registered firm, transferred its immovable properties to its partners on 14th April 1972 by making corresponding entries in the books of accounts. The Income-tax Officer did not accept this transfer, arguing that immovable properties could not be transferred by mere book entries and continued to assess the income from these properties in the hands of the firm. The Appellate Assistant Commissioner (AAC), however, upheld the assessee's contention, citing rulings of the Madras High Court that the interest of a partner in the partnership asset, including immovable property, is movable property. The AAC's decision was challenged by the Revenue in this appeal.

2. Requirement of Registration of the Transfer under Section 17(1)(b) of the Indian Registration Act:

The Revenue contended that the AAC erred in holding that the transfer of immovable properties by a firm to its partners by mere book entries is valid. It argued that such a transfer without a deed in writing and registration, as required under Section 17(1)(b) of the Indian Registration Act, was void. The Revenue relied on the ruling of the Allahabad High Court in the case of Ram Narain and Brothers vs. Commissioner of Income-tax, U.P., which held that an instrument of conveyance must be executed and registered to transfer property from the firm to the partners. The assessee's counsel, on the other hand, argued that the Supreme Court in Addanki Narayanappa vs. Bhaskara Krishnappa had held that the interest of partners in partnership assets is movable property and does not require registration under Section 17(1) of the Registration Act.

Judgment Analysis:

The Tribunal carefully considered the rival submissions and the principles enunciated by the Supreme Court in the relevant rulings. The Tribunal noted that the Allahabad High Court's decision in Ram Narain and Brothers vs. Commissioner of Income-tax, U.P. supported the Revenue's stand but was not in line with the Supreme Court's authoritative pronouncements. The Supreme Court in Commissioner of Income Tax, West Bengal, Calcutta vs. Juggilal Kamalapat and Addanki Narayanappa vs. Bhaskara Krishnappa had held that the interest of a partner in partnership assets, including immovable property, is movable property and does not require registration under Section 17(1) of the Registration Act.

The Tribunal also referred to the Madras High Court's ruling in R.M. Ramanathan Chettiar and Another vs. Controller of Estate Duty, Madras, which held that the share of a partner in a firm owning immovable properties is movable property. Consequently, the Tribunal upheld the AAC's order, affirming that the transfer of immovable properties by the firm to its partners through book entries was valid and did not require registration.

Conclusion:

The appeal of the Revenue was dismissed, and the order of the Appellate Assistant Commissioner was upheld. The Tribunal concluded that the transfer of immovable properties by the firm to its partners through book entries was valid and did not necessitate registration under Section 17(1)(b) of the Indian Registration Act, following the Supreme Court's rulings.