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TMI Blog1992 (9) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... de as required under the Transfer of Property Act, 1882 ? 2. On the facts and in the circumstances of the case whether the capital gain is rightly assessable in the hands of the firm ? " The assessee is a duly registered partnership-firm. It was constituted by four partners : (1) Wanmalidas Maganlal, (2) Chaganlal Maganlal, (3) Jagjivandas Maganlal, and (4) Nagindas Maganlal. The firm purchased a plot of land for Rs. 31,338 on February 27, 1967. The plot was all through treated as the property of the firm up to March 17, 1976, when by an agreement between the partners, the said asset was taken out of the partnership by crediting the price of the plot to the plot account and debiting the partners' capital accounts in equal proportion in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transfer of Property Act and section 17(1)(b) of the Indian Registration Act, 1908, fall for scrutiny. No doubt, a partnership firm is not, in a strict sense, a legal entity, and is a compendious name for the partners who constitute it. But for certain purposes, some degree of personality is attached to the firm, e,g., it can acquire and own property for the purposes of its business either by regular purchase or by a contribution of a partner. Sections 14 and 15 of the Partnership Act, 1932, make this position clear. Since the firm is not a legal entity, the property no doubt vests in the partners and in that sense every partner has an interest in the property. But during the subsistence of the partnership no partner can deal with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Partnership Act, 1890, introduces a legal fiction whereby partnership realty is to be treated as movable property as between the partners inter se. Despite this provision, it has been held there that when partnership property is converted into separate property of the partners a deed is necessary. Lindley on Partnership, 12th edition, page 370, states thus: " It is competent for partners by mutual agreement amongst themselves to convert that which was partnership property into the separate property of an individual, or vice versa. And the nature of the property may be thus altered by any agreement to that effect : for neither a deed nor (save where the property consists of land) even a writing is absolutely necessary ; . . . . " It ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration that the interest of the firm in the property is extinguished and thereafter the property would belong to the partners. In common ownership each is entitled to every particle of the property and when there is division of the property there is actual transfer of interest, because there is mutual release by one in favour of the other as regards the interest transferred in favour of the other. The transaction in question amounted to release of a share in specific immovable property of the firm and, therefore, a transfer of an interest which could not have been legally made without a registered document. The view which we are taking is supported by several High Courts in the following decisions : (1) the Allahabad High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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