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TMI Blog1984 (7) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... ies have been carrying on partnership business under the name and style of Sri Ganganagar Fertilizer Corporation at Sri Ganganagar and whereas the terms of their partnership were re-recorded in the partnership deed executed between the first to fifteenth parties (sixteenth party being minor at that time) on 20th May, 1978, and whereas the firm carried on business of manufacture and sale of N.P.K. Granulated Fertilizers and also owned 9 godowns which were let out to Food Corporation of India and which were financed by the Bank of Baroda and whereas this godown section was branch of the firm and whereas the partners have by mutual consent dissolved that branch section and have divided among themselves the cost of godowns and the bank loan and whereas this dissolution of godown section and allotment of wares of each partner to his individual account tantamounts to allotment of partnership property to the individual partner on partial dissolution and whereas the parties desire to reduce in writing the facts and terms of this partial dissolution in writing to avoid any future complications and disputes ; Now this indenture, the said parties do hereby agree to abide as under--- 1. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. 6. That the said parties as co-owners of the godown section shall pay 3 per cent of the rent receipts as commission remuneration and other charges to the firm for acting as agents of the co-owners for the purpose of supervision of the property, realisation and collection of rents, operation of bank account and for indemnifying the bank. This commission shall be payable on 31st March of each year. 7. The parties themselves shall bear and pay all rent, taxes and other charges, if any, in respect of the property consisting of godowns, office block and the land appurtenant thereto and in case the firm pays any such rent, taxes or charges the firm shall be entitled to disbursement of the same from co-owners. The firm shall keep and maintain proper accounts in respect of receipt of rent and payments of instalments and interest to bank and payment of other expenses incurred by them for and on behalf of the co-owners and shall be entitled to disbursement of the same from the co-owners." He was of the view that the dissolution deed which provided distribution of assets consequent to the dissolution of that portion of the business which represented income from letting out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1932 provides what would be the property of the firm and section 15 of the Indian Partnership Act provides what is the application of the property of the firm. It is argued that the partnership property and its application is, therefore, subject to contract between the partners and it is this contract amongst the partners which decides and gives indication of the intention of the partners as to what would be the partnership property. In support of his contention the assessee relied on CIT v. Amber Corpn. [1981] 127 ITR 29 (Raj.) as well as to the Supreme Court decision in Dulichand Laxminarayan v. CIT [1956] 29 ITR 535, Addanki Narayanappa's case, CIT v. R.M. Chidambaran Pillai 1977 CTR SC 71, Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC) and also the decision of the Gauhati Bench of the Tribunal in Jaichand Lal Bhura v. ITO [1981] 11 TTJ 200. Reliance was also placed on the Madras High Court decision in Addl. CIT v. Govindoss Purushothamdoss [1980] 124 ITR 319. The argument of the assessee was that the firm had two sources of income-one being income on account of business of manufacture and sale of N.P.K. Granulated Fertilizer and the other being income from letting out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the circular, the department requires (sic) the fact that the property of the firm is jointly and severally held by the partners and ill respect of house property exemption under section 33(1)(n) wherever admissible shall be allowed. Shri Saraf argued that sections 14 and 15 of the Indian Partnership Act clearly give the powers to the partners as to what is to be treated as the firm's assets or the firm's property. The provisions of sections 14 and 15 are as under : " 14. The property of the firm.--- Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm. 15. Application of the property of the firm.---Subject to the contract between the partners, the property of the firm shall be held and used by the partners exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been distributed and the partners again combined to carry on the other business of manufacture of N.P.K. Granulated Fertilizer. He further argued that the reading of the dissolution deed clearly indicates this fact. There is no prevention in law for dissolution or the partners agreeing not to carry on a particular business. He also referred to the order of the Gauhati Bench of the Tribunal in Jaichand Lal Bhura's case which is reproduced below : " . . . It has been held by the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa 1966 (3) SCR 400 that 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 and once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It is also well settled that the action of bringing a property as capital to the firm or withdrawing it therefrom does not amount to a transfer and even if it relates to immovable property it does not require any registration. (See the decision of the Gauhati High Court in the case of Radhika Mohan Shome, IT Reference No. 23 of 1969, da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument in writing to indicate the contrary intention of the partners that the assets so purchased would not be partners' assets, but shall remain as the firm's assets, they held that an immovable property belonging to firm can be converted into personal property only by means of an instrument in writing, and that mere entry in the books of account of the firm does not effect transfer of the firm's property to the personal property of the partners and that the partners of the firm cannot be assessed as the co-owners in respect of income from such properties. In between they also considered the requirement of section 17(1)(b) of the Indian Registration Act and remarked that such instrument must need registration. The important sections as per the Indian Partnership Act binding the partners, vis-a-vis, the property under sections 14 and 15 are sections 19 and 22. Section 14 details with what would be deemed to be the property of the firm. Section 15 talks of the application of such property by the partners for the purpose of firm's business. Section 19 talks of rights and duties of the partners and section 22 talks of various modes of doing acts by the partners to bind the firm. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property of the partnership. Since under section 33(1)(n) property belonging to the deceased will qualify for exemption and since the expression ' belong ' would include cases where an interest less than full ownership exists, exemption under section 33(1)(n) would be admissible in respect of a house belonging to the firm. 3. The contents of this circular may be brought to the notice of all the officers working in your charge. Sd/- P.K. Chopra, Central Board of Direct Taxes [F. No. 309/29/80-ED]." The assessee had clearly mentioned his intention of excluding the godowns as property of the business and information in this regard had been intimated to the bank as well as to the Food Corporation of India. Now the only question that needs to be considered in the light of various judgments cited by the authorised representative is whether registration under section 17(1)(b) would be required to complete the above-said transfer of the assets by the firm to its partners. There are a number of decisions which have been cited by the assessee regarding non-requirement of registration when a partner brings in any assets and treat the same as his contribution to the firm's asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners if reduced to a writing does not require any specific registration. We are in agreement with the authorised representative, Shri Saraf, that there are a number of cases wherein the property registered in the names of all the partners or some of the partners is treated as firm's asset as per agreement among the partners, but in those cases there is no requirement of registration in favour of the firm. When this situation is acceptable why not the corollary, i.e., adjustment of mutual rights by withdrawing the assets of the partnership by the partners, which in the instant case is among all the partners and in the same ratio as they had been sharing the profits or losses. We are also in agreement with the case cited by Shri Saraf in CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532 (Kar.) while dealing with the question of applicability of deduction of a house in wealth-tax under section 5(1)(iv) of the Wealth-tax Act, 1957. In the light of the above discussion and also keeping in view of the CBDT's circular as also the Indian Partnership Act, we are of the view that in the instant case the partners have clearly stated their intention of excluding the property representing 9 godo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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