1984 (3) TMI 149 - AT - Income Tax

A Partner, Dissolution Of Firm, Dissolved Firm, Immovable Property, In Part, Movable Property, Partnership Firm, Set Off, Transfer Of Property

Issues Involved:
1. Validity of the partition of the ACM property.
2. Ownership of the ACM property.
3. Requirement of a registered instrument for the transfer of immovable property from a firm to partners.
4. Inclusion of ACM property in the income and wealth assessments.

Issue-wise Detailed Analysis:

1. Validity of the Partition of the ACM Property:
The primary issue was whether the half share of the assessee-HUF in the property known as Amritsar Cotton Mills (ACM) was validly partitioned as per the partition deed dated 17-11-1970. The ITO initially rejected the partition claim, arguing that the ACM property was not part of the HUF's estate but belonged to the partnership firm. The Tribunal had earlier directed a fresh enquiry, and upon re-evaluation, the ITO again rejected the partition claim for ACM. The Judicial Member disagreed with this rejection, emphasizing that the partition agreement was valid and the ACM property belonged to the HUFs, thus supporting the partition claim. The Accountant Member, however, upheld the ITO's rejection, citing the lack of a registered instrument for transferring the property from the firm to the HUFs.

2. Ownership of the ACM Property:
The ownership of ACM was contested, with the ITO asserting that the property was an asset of the partnership firm and not the HUFs. The Judicial Member highlighted overwhelming evidence, including past assessments and the conduct of the parties, indicating that the ACM property belonged to the HUFs. The Accountant Member, however, maintained that the property was introduced as capital into the firm and thus belonged to the firm, not the HUFs.

3. Requirement of a Registered Instrument for Transfer:
A significant legal issue was whether a registered instrument was necessary for transferring the ACM property from the firm to the HUFs. The Accountant Member cited legal precedents, including the Allahabad High Court's decision in Ram Narain & Bros. and Supreme Court rulings, to argue that an instrument in writing, duly registered, was required for such a transfer. The Judicial Member, however, pointed out that the dissolution deed and other documents indicated that the property was always intended to belong to the HUFs and that the firm merely managed it.

4. Inclusion of ACM Property in Income and Wealth Assessments:
The inclusion of ACM property in the income and wealth assessments of the HUFs was another point of contention. The ITO's position was that since the property belonged to the firm, it could not be included in the HUF's assessments. The Judicial Member argued that past assessments had consistently treated the property as belonging to the HUFs, and this should continue. The Accountant Member's view was that without a registered transfer, the property remained with the firm, and thus, could not be included in the HUF's assessments.

Third Member's Decision:
The Third Member, Vice President V. Balasubramanian, resolved the dispute by analyzing the dissolution of the firm and the distribution of its assets. He concluded that the ACM property was distributed in specie to the partners upon the firm's dissolution, and no registered instrument was necessary for this transfer. He cited Supreme Court decisions (CIT v. Dewas Cine Corpn., CIT v. Juggilal Kamalapat, and CIT v. Hind Construction Ltd.) to support this view. Consequently, he agreed with the Judicial Member that the ACM property should be treated as an asset of the HUFs and the partition recognized.

Conclusion:
The Tribunal ultimately held that the ACM property was validly partitioned as per the deed dated 17-11-1970, and the property belonged to the HUFs. The ITO's rejection of the partition claim was overturned, and the property was to be included in the HUF's income and wealth assessments. The appeal of the revenue was dismissed, and the appeal of the assessee was allowed.

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