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TMI Blog1982 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... e income from the property there has also been a return filed by the partners as individuals and that has been accepted by the Revenue for some years. On October 15, 1970, these properties were sold to a third party for Rs. 2,00,000. The said sale deed had been executed by two of the partners of the firm and the legal representative of the deceased partner by name Lalchand Dadha. The purchase price as well as the interest received from the purchaser were credited to the accounts of the two partners and the legal representative of the deceased partner. On these facts the ITO came to the conclusion that though the sale deed was executed by the individuals, it should be treated as a sale on behalf of the firm and if so treated the capital gains arising out of the transaction as well as the income from the property and the interest on unpaid purchase price were all to be assessed in the hands of the firm. He also computed the capital gains to be Rs. 1,80,500 and added the same along with the income of Rs. 9,500 and the interest of Rs. 4,390 to the profit under s. 41(2) and ultimately determined the total income of the year at Rs 1,97,260. Aggrieved by the said decision of the ITO, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, the Appellate Tribunal was right in confirming the deletion of the various additions made by the Income-tax Officer consequent on the sale of the properties Nos. 161-162, Nyniappa Naicken Street, Madras-3, by the assessee-firm ?" Admittedly, the properties were purchased in the name of the firm and the sale consideration has proceeded from the firm. Ever since the date of the purchase till the assessment year 1964-65, income from these properties have been regularly assessed in the hands of the firm. It is on November 16, 1963, during the accounting year ended November 4, 1964, book entries have been made removing these properties from the list of partnership assets and putting them in the names of the individual partners with respect to their respective shares. The individual partners have been assessed with respect to their respective shares of the income from these properties since then. There is no other document in writing evidencing the transfer of an interest in the properties from the firm to the individual partners. According to the Revenue unless there is some document of transfer from the firm to the individual partners the properties should be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the distribution of assets on a dissolution of the firm. In this case there is no question of dissolution. Even when there is no dissolution of the firm, the properties of the firm had been divided as between the partners by way of book entries. Even on the basis, as has been held by the Supreme Court in the above decision, that the properties of the firm should be deemed to have been held in common by all the partners constituting the firm, as the firm itself, which has no legal entity, cannot hold the properties, there cannot be a division of the properties purchased in the name of the firm as amongst the partners by making entries in the accounts of the firm without actual dissolution of the firm. Even if we take the firm's properties as the properties owned and enjoyed in common by the partners, still such common properties cannot be possessed and enjoyed in severalty unless there is a document in writing. In a case where the properties are owned in common by several persons each of them is entitled to every particle of those properties but when it is divided and enjoyed in severalty there is actually a transfer of interest by mutual release. When common ownership of two i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a release deed. In this view the book entries made on November 16, 1963, showing the common properties of the partners as the separate properties of each of the partners to the extent of their share cannot have any effect without there being any instrument evidencing the said transfer of a common interest into a separate and individual interest. If the book entries are not sufficient to constitute a transfer of the common interest in the properties into a separate interest of the partners, the properties will be taken as the firm's properties and the ultimate sale by the two partners and the legal representative of the other partner should be taken to have been executed only on behalf of the firm. In this view of the matter the assessment made in this case assessing the firm to capital gains and also assessing the income and interest earned on the unpaid consideration should be sustained as correct. On the contrary the view taken by the Tribunal cannot be legally sustained. The questions referred are, therefore, answered in favour of the Revenue. The Revenue will have its costs. Counsel fee Rs. 500. (rupees five hundred only). BALASUBRAHMANYAN J.-I Wish to add a few words to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst place, the book entries do not make a conversion of any kind known to law. They are only entries made by the book-keeper. They are rightly called book entries, and those entries find place in the account books. They cannot, by their own force, effect any conveyance, release, partition or other transfer of immovable properties. What is more, the entries do not even evidence a partition. All the entries taken together only show two distinct positions, the original position under which the properties were under co-ownership and the subsequent position under which it is shown that separate values of the properties or figures as against the co-owners. A combined reading of these two entries will only give release of what was the position devoutly wished for by the parties which has not been properly brought about by any effective transaction known to law. The law requires a degree of formality in regard to transfers of immovable property. A partition may not technically be a fullfledged transfer of ownership, because those who receive their shares under the partition may be rightly regarded as co-owners and the partition in any case does not confer a new title on them. Still there i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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