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TMI Blog1990 (9) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-1982 was effected to convey the shares of the partners in the property. 3. The partners in turn sold their allotted properties at a consideration. It was contended before the ITO that the amount received by the partners on the sale was not liable to tax as capital gains and even otherwise, it was a long term capital gains. The case of the assessee was that when the property was owned by the firm, it is equally owned by all the partners and that the partners were co-owners of the property. According to the assessee, section 49(1)(iii)(b) was attracted. The ITO noted that there was no case of dissolution of the firm and, therefore, section 49 was not attracted. The ITO rejected the contention of the assessees that they were co-owners of the property of the firm, though the firm was in existence, in view of the decision of the Hon'ble Supreme Court in the case of Addanki Narayanappa v. Bhaskar Krishnappa (AIR 1966 SC 1300, at page 1303). Amongst other things, the ITO noted that during the subsistence of the firm, no partner can deal with any portion of the property as his own and, therefore, partner cannot claim himself to be a joint owner of the property held by the firm, but onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the restriction over the right of ownership of partners do not mitigate against the legal position that the owners collectively own the property. The DCIT(A), therefore, held that the property was held by the partners from 1972 onwards and it should he held to be a long term capital gains in the hands of the partners. Accordingly, the DCIT(A) did not deal with other submissions made by the assessee in their appeals. Hence, these appeals by the revenue and the cross-objections preferred by different assessees. 5. From the orders of the authorities below, it is seen that the brief facts, amongst other things were that the assessees are partners of the firm and the firm earlier acquired a plot of land and held it as its asset. Under certain circumstances, the firm decided to distribute or partition the said plot of land amongst the partners in the way which was narrated and agreed upon and as mentioned in the deed of partition which was registered. The case of the assessee is that the property was owned by the partners jointly as they are partners in the firm and as per Partnership Act, partners are the owners of the said property and when the partition of the said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss objections of the assessees may be rejected. 7. We have gone through the orders of the authorities below and the connected papers for our consideration. As stated earlier, the assessee's case is that the property or the asset owned by the firm is virtually the properties or assets belonging to the partners and that was the view expressed by the Hon'ble Karnataka High Court in the case as in CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532. It is submitted that although that was the case of the wealth-tax matters under the wealth-tax provision but the ratio decidendi would be applicable to the present issue for adjudication. In this connection, it may be helpful to refer to a decision of the Hon'ble Punjab and Haryana High Court in the case of Pearl Woollen Mills v. CIT [1980] 123 ITR 659, in which on the facts of that case, it was held that it is now well settled that for the purpose of Income-tax Act, a firm is a legal entity and is capable of owning capital assets and is liable to tax in respect of a capital gains. In that decision, the ratio of the judgment of the Hon'ble Supreme Court in the case of Addanki Narayanappa was considered. Other decisions were also considered. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered under the appropriate law. 11. In a different context under the Gift-tax Act, in the case of CGT v. Chhotalal Mohanlal [1987] 166 ITR 124, the Hon'ble Supreme Court held that the goodwill is property and when minors are admitted to the benefits of partnership in that firm and the share of an existing partner is reduced thereby, the right to the money value of the goodwill stands transferred and the transaction constitutes a " gift " under the Gift-tax Act. 12. In the case of CIT v. Bharat Engg. Corpn. [1989] 180 ITR 32, the Hon'ble Punjab Haryana High Court noted the facts of that case that the property of the firm was transferred to individual partners during the subsistence of the partnership and the same cannot be effected by mere entries in the books of account and mere agreement between partners treating the firm's property as individual property, has no effect unless a deed of conveyance is executed and registered. As stated earlier in the present case, the deed of partition was executed and registered by the parties concerned. A similar view was expressed by the Hon'ble Punjab and Haryana High Court in the case of CIT v. S.R. Uppal [1989] 180 ITR 285. 13. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and individually their respective shares received by them on division or partition of the said property. Therefore, capital gains would arise in their respective hands only. At the same time, it is only by means of book entries and on the basis of the deed of partition drawn up, executed and registered by the partners, the partners have become the owners of the property, in the instant case, in view of the fact that prior to that date, it was the firm who held the property acquired by it during the subsistence of the partnership. 16. From the materials available before us, we do not find any cost of improvement to the asset concerned. 17. It may be mentioned that in course of hearing, it has been contended on behalf of the assessees that the partners did not make any payment or consideration for obtaining of the allotted shares of the divided property. But we cannot deny the fact that the partners obtained the allotted shares as partition only on the basis of the fact that they were partners of the firm at the relevant point of time. Besides, when an asset of a concern goes out, corollary liabilities of that concern would have a corresponding effect. In other words, capital ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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