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TMI Blog2013 (12) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... essee relates to the assessment year 2006-07. The appeal is directed against the order of the Commissioner of Income-tax (Appeals) at Tiruchirapalli, dated February 10, 2010. The appeal arises out of the assessment completed under section 143(3) of the Income-tax Act, 1961. The assessee is a firm engaged in the business of trading in fertilisers. On June 17, 1999, Mr. Irudayaraj, one of the partners of the assessee-firm, had purchased a piece of land. The property was purchased at a cost of Rs.1,71,030. The purchase deed was registered in the name of Mr. Irudayaraj in his personal name. Mr. Irudayaraj had also withdrawn money from the assessee-firm to finance the purchase of the above stated property. In the books of account of the assessee-firm the purchase of the land was shown as an asset. As per the accounts of the assessee-firm, it is seen that the property was purchased by the firm. Accordingly, this landed property was reflected in the balance-sheet of the assessee-firm. Mr. Irudayaraj sold this property on June 17, 2005 to a third person. The sale document was executed by Mr. Irudayaraj in his personal capacity. Mr. Irudayaraj also purchased another property entitled for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's case and accordingly the firm should not have been assessed to long-term capital gains. Learned counsel also relied on the judgment of the hon'ble Madras High Court rendered in the case of CIT v. Dadha and Co. [1983] 142 ITR 792 (Mad), to bring home the point that in order to hold and enjoy an immovable property, there must be a registered deed of conveyance. Learned counsel explained that whatever may be the entries made in the books of account maintained in the course of the business, the ownership of the immovable property cannot be assigned to the firm only on the basis of those accounting entries, but, on the other hand, it is mandatory to have a registered document of conveyance transferring the property to the firm. Learned counsel explained that in the present case, even though the property was shown as the asset of the assessee-firm in its balance-sheet, the document was never executed in the name of the assessee-firm. The property always remained in the name of Mr. Irudayaraj, one of the partners of the assessee-firm. The ownership of the immovable property is always reckoned with the registered deed of conveyance and as such in the present case the ownership of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -firm was a registered firm carrying on business in pharmaceuticals, chemicals, drugs and money-lending. For the assessment year 1971-72, corresponding to the previous year ended on October 30, 1970, the firm filed a return showing an income of Rs. 1,22,180. While going through the accounts of the assessee, the Assessing Officer found that the capital account of the partners showed a credit of one-third share of sale proceeds of the house property Nos. 161 and 162, Nyniappa Naicken Street, Madras. Those properties were purchased on June 14, 1948 and February 1, 1950 by the firm and the income from the properties were being assessed in the hands of the firm until the assessment year 1964-65. During the accounting year ended November 4, 1964, entries had been made in the books of the firm removing these properties from the partnership assets and showing them as the individual properties of the partners. Thereafter the income from the properties was shown by the partners in their individual returns. This was accepted by the Revenue for some years. The properties were sold to a third party for Rs. 2 lakhs on October 15, 1970. The sale deed was executed by two of the partners of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument of conveyance. When we examine the present case in the light of the legal principles explained by the hon'ble Madras High Court in the abovementioned cases, we find that the capital gains cannot be assessed in the hands of the assessee-firm. This is because the purchase document was registered in the name of Shri Irudayaraj, one of the partners of the firm. The document was executed in his personal capacity and in his individual name. There is no recital in the purchase deed that the property was being purchased for and on behalf of the firm. Likewise, the property was sold by a sale deed executed by Shri Irudayaraj individually and in his independent capacity as the owner of the property. There is also no mention that the property belonged to the assessee-firm and the firm was actually selling the property. Even though the books of account of the assessee-firm contained entries regarding the purchase and sale of the property and the balance-sheet of the assessee-firm showed for some time the property as its own asset, such things cannot change the legal character of the transactions. The accounting entries reflected in the books of account of the assessee-firm cannot undo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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