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TMI Blog1983 (11) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of Shri Chandra Prakash Agarwal who had pooled it as his capital in Laxmi Trading Co. which used it as partnership property. When Laxmi Trading Co. was dissolved and the assessee-firm was being formed, Shri Chandra Prakash Agarwal, who was also partner in the new firm, agreed to have the property used by the new firm for its business. The dissolution agreement, it was claimed only described distribution of the partnership assets in kind and that it became the assessee's property by agreement between the parties and that there was no transfer which required registration. It was contended that the assessee-firm was the owner of the property. The ITO did not agree with the contention. He also found that the property being a godown would have been entitled only to 5 per cent and not 10 per cent depreciation as claimed by the assessee, even if it were eligible for depreciation. The assessee took up the matter in appeal. It was argued before the first appellate authority that on dissolution of Laxmi Trading Co., the property reverted to its titular owner Shri Chandra Prakash Agarwal who had brought it as his share of capital to the assessee-firm as is evident from the narration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consideration of Rs. 80,000 was paid by the assessee-firm and it appears as firm's property in its books. These facts are sufficient to establish the claim of the assessee that it is the owner of this asset for depreciation purposes. The Allahabad High Court in Addl. CIT v. U. P. State Agro Industrial Corpn. Ltd. [1981] 127 ITR 97 held that ownership to property should not be equated with title to property. Even possession coupled with payment of consideration, it was held, was sufficient to entitle the taxpayer to depreciation even without a formal registered deed though the property involved was an immovable one. This view has been characterised as a 'liberal' one not probably strictly warranted by law by the authors of Sampath Iyengar's Law of Income-tax Seventh edition, Vol. 2, page 1260. But this view has been followed by this Tribunal in a number of cases. But as regards claim of depreciation allowance by a firm on assets which became firm's property by partner bringing it to the firm, there can be no controversy. The Madras High Court in the case of CIT v. Smt. M. Rajeswari Vedachalam [1972] 86 ITR 753 found that the property standing in the name of one of the partners w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1932, make it clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representating the value of the property. 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 upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48. The whole concept of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on dissolution. It is, however, pointed out that the dissolution deed of Laxmi Industries dated 1-7-1980 described the devaluation of the property as under : "3. That the property of the firm including acres 2.15 guntas of land and all buildings in the said land situated at Alagnur Village, Karimnagar District, was sold and delivered possession to the firm if Vishnu Industries, Alagnur, Karimnagar District, and the sale consideration was received in full." It is stated on behalf of the revenue that this clause contemplates transfer of immovable property from Laxmi Trading Co. directly to the assessee-firm and that such transfer is certainly invalid without a registered instrument. But we find it difficult to read a dissolution deed as an instrument of transfer. The dissolution deed must be read as merely settling the terms of agreement between the partners. The property stood in the name of Shri Chandra Prakash Agarwal and was partnership property of erstwhile firm of Laxmi Trading Co. 'Release deed' dated 30-12-1979 which is anterior to dissolution deed says that the property was allotted to him and he brought it to the assessee-firm, Vishnu Industries. It is also common grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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