TMI Blog1993 (1) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... property represented a capital asset within the meaning section of 2(14) of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that there was no transfer of a capital asset of the assessee-firm within the meaning of section 45 of the Income-tax Act, 1961, and/or whether such finding of the Tribunal was otherwise vitiated, having been arrived at by ignoring relevant evidence and relying on irrelevant materials ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that no income chargeable to Income-tax under the head 'Capital gains' within the meaning of section 45 of the Income-tax Act, 1961, arose to the assessee-firm ? " The question relates to " capital gains " purportedly arising to the firm in respect of the immovable property in the wake of the transfer of the property in favour of the senior partner by necessary book entries in the accounts of the firm. The background relating to this immovable property is that the property situate at Behala was purchased with the funds of the firm in the name of the said senior partner, viz., Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de up to ascertain the share of each partner in the then existing assets of the firm and each partner gets back what he owned jointly with the other partners. The Income-tax Officer as well as the Appellate Assistant Commissioner have proceeded on the footing that the entries made in the books of the firm amounted to a transfer or relinquishment of the rights over the property under consideration which, we think, is not correct. It is well-settled, as has been pointed out in the case of CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 (SC), that rights in immovable property are neither created nor extinguished merely by adjustment entries in the account books. The law requires certain formalities before the title to an immovable property can pass from one person to another. Until such formalities are completed, there can be no transfer or extinguishment or relinquishment of the rights in immovable properties. Thus, in the instant case, we find that, in the eye of law, Sri Kedar Nath Poddar was all along the owner and there was no legal transfer of the property in question when he allowed the same to be treated as the asset of the firm. Nor was there any legal transfer when he took away ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration under section 17(1) of the Registration Act. Thus, in the case of dissolution, any relinquishment of immovable property in favour of particular partner does not require registration. But, that is not the case here. In this case, the firm continued, but the immovable property which the firm had been treating as the asset of the partnership was given over to the senior partner by book entries. From this, one cannot hasten to the conclusion that, on the basis of the decision of the Supreme Court cited above, there was a transfer attracting the provisions of section 45. Before us is not the kind of transfer, which the Supreme Court held to take place on the dissolution of partnership. This transfer is during the subsistence of the firm, the transferee-partner continuing as a partner. Now, section 47 sets out certain transactions which are not to be regarded as transfers. Distribution of capital assets on the dissolution of a firm is one such excluded category of transactions. Therefore, even if, in the present case, there was a transfer in the wake of dissolution, the case would not have come within the mischief of section 45 by virtue of the exception carved out by section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of the firm. Following the principle as stated by the Supreme Court in Addanki Narayanappa, AIR 1966 SC 1300, the asset belonged to the firm. But the same principle does not apply in the case of reversion of the property to the same partner unless it takes place in the distribution of partnership assets on dissolution. In our view, the transfer of the property to an existing partner by mere adjustment of book entries otherwise than in connection with dissolution of the partnership or retirement of the partner from the partnership not accompanied by duly registered deed of conveyance constitutes no transfer. This has also been the view taken by the Madras High Court in CIT v. Dadha and Co. [1983] 142 ITR 792 (Mad). We can draw indirect support from the view of the Madras High Court which held that the partners on behalf of the firm cannot divide an immovable property among themselves in the absence of a registered conveyance. In that case, the book entries were made showing the common properties of the partners as the separate properties of each of the partners to the extent of his share. The Madras High Court held that the book entries cannot have any effect without there be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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