TMI Blog1969 (2) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of a dealer in iron and hardware goods. On October 14, 1954, the firm purchased a property consisting of certain leasehold rights in plots Nos. 90, 91 and 92 in an industrial area of Lucknow, together with the superstructure standing thereon, including a lime mill, a godown, quarters and outhouses, etc., for a sum of Rs. 27,000. In the sale deed of the said date, registered on October 16, 1954, the purchasers are shown as " M/s. Ram Narain and Brothers through Sri Ram Narain, son of Hari Ram, a partner of the said firm, resident of Aish Bagh, Lucknow ". After purchase, the income from this property was returned as the income of the firm and it was assessed as such under section 9 of the Act up to the year 1957-58. In the assessment for the year 1958-59, this income, which amounted to Rs. 9,690, was excluded from the return of the firm and shown in the individual returns of the partners on the ground that the ownership of the property had been transferred to the individual partners by adjustments made in the relevant entries in the books of account. The debit balance relating to this property in the firm's books had been transferred to the accounts of the partners in their p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Tribunal. The Tribunal allowed the appeal holding that the property belonged to the firm itself and that the income therefrom was liable to tax in its hands. It also held that the provisions of section 9(3) of the Act could not be invoked as the property was owned by the firm as such, and not by the partners as individuals having definite and ascertainable shares in the property. The Appellate Tribunal thus restored the order of the Income-tax Officer. On the above facts the following questions of law have been referred to this court for opinion at the instance of the assessee : " 1. Whether the property admittedly once owned by the firm as such, ceased to be so owned by it by reason of the entries made in the account books of the firm ? 2. Whether, even though the property is owned by the firm as such, can it be held to have been owned by its partners, with definite and ascertainable shares, so as to constitute themselves into an association of persons, so that the share of each partner in the income from the property is includible in his total income? " As already noted, the property in question was acquired by the firm through Sri Ram Narain, one of its se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be transferred by the partners and, if so, when such transfer is made by the partners in favour of themselves, whether it can be effected by adjustment of entries in the books of the firm relating to the investments made on the property. The Indian Partnership Act lays down that a partner is not authorised, by reason of his implied authority, as an agent of the firm, to transfer immovable property of the firm in the absence of any usage or custom of trade to the contrary. Section 19 runs as follows : " 19. (1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this section is called his 'implied authority'. " (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to... (g) transfer immovable property belonging to the firm, or... " Sub-section (1) lays down that a partner has the implied authority, subject to the provisions of section 22, to do any act to carry on, in the usual way, business of the kind carried on by the firm. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r administrators, as personal or movable and not real or heritable estate. " In spite of the provisions of this section, it has been held that when partnership property is converted into separate property of the partners a deed is necessary where the property consists of land. Lindley observed as follows in his book on Partnership (12th edition, at page 370) : " 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 an agreement to that effect : for neither a deed nor (save where the property consists of land) even a writing is absolutely necessary ;... " At pages 394-395 of the same treatise the learned author deals with the manner in which the share of a partner in partnership can be transferred: " Form of transfer.-In so far as the share of a partner consists of a right, on dissolution, to a proportionate part of all the assets, the nature of the assets must be considered and the transfer effected in such form as the nature of the assets requires. Where: the assets consist of chattels and legal (as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have been maintained in the Indian enactment without substantial change. Prior to the enactment of the Indian Partnership Act, 1932, the law relating to partnership was contained in Chapter XI of the Indian Contract Act, 1872. It would appear from the report of the Special Committee appointed in 1930 by the Government of India to consider the Bill to define or amend the law relating to partnership in India, that it was considered expedient to incorporate the language of the English enactment in the important provisions of the Indian Partnership Act with a view to " attract to difficult cases in India the benefits of English judicial experience. " It is well settled that where the basis of the Indian legislation on a particular subject is the English law, the courts would be justified in seeking guidance and help from the decision of the English courts. In State of Punjab v. Sodhi Sukhdeo Singh, the Supreme Court has observed that in such cases the correct way of looking at the Indian statute is to interpret it in the manner which is in accord with the English law. If the principles of the English law are to be followed it would appear that the partners of a firm can convert imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the same time, they have debited the capital accounts of each of the seven individual partners by the proportionate part of the investment corresponding to his relative share and thereby reduced the amounts of the capital which each of the partners had contributed to the firm. In other words, the partners paid the price of the property to the firm out of their own capital account by the transfer entries indicated above. These entries do not have the effect of converting the property of the firm into the personal property of the partners. The property in question, therefore, continued to remain the property of the firm, despite such entries. An alternative contention of the assessee which has given rise to the second question under reference is that, even if the property be owned by the firm, the income therefrom is assessable, under sub-section (3) of section 9 of the Act, in the hands of the individual partners according to their shares in the firm. Sub-section (3) of section 9 of the Act provides : " 9. (3) Where property is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench, repelled the contention that the partners of a firm are assessable individually under 9(3) of the Act, in respect of the income from property belonging to the firm and observed as follows : "To our mind, this sub-section deals with the income of that immovable property which is owned by two or more persons as co-owners and when their respective shares in that property are definite and ascertainable. We do not think this sub-section can normally apply in the case of income from partnership property. The property of the firm as envisaged in section 14 of the Partnership Act is a part of the assets of the firm. In law the joint effects of a partnership firm belong to a firm and a partner has no individual property in specific assets of the firm and has no exclusive right to possess or use the partnership property. The interest of each partner is a share in the firm after the partnership debts are paid and after the partnership accounts are settled and the rights of partners inter se are adjusted. " We respectfully concur in the view expressed by the learned Chief Justice. The result is that both the questions under reference are answered in the negative and against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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