Madras High Court
Commissioner Of Income-Tax vs E.L. Navaneetha Chettiar And Sons on 23 March, 1994
Equivalent citations: [1995]211ITR781(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT Venkataswami, J.
1. The Tribunal, at the instance of the Revenue, has referred the following two questions for the decision of this court :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the property in question is not the property of the firm after March 31, 1972, and as such the income therefrom cannot be assessed in the hands of the firm for the assessment year under consideration ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the transfer of the house property belonging to the firm, Messrs E. L. Navaneetha Chettiar and Sons, to the partners without any registered document while the firm was still in existence, by mere book entries, was a valid transfer in law ?"
2. The brief facts are the following :
These two references relate to the assessment years 1974-75, and 1975-76. The respondent/assessee was a partnership concern. For the assessment years in question, the Income-tax Officer added Rs. 6,000 and Rs. 9,000, respectively, as income from the house property. That was objected to by the assessee on the ground that as per the entries in the account books, the property was transferred to the partners and thereafter it was no longer the property of the firm and hence income from the property cannot be added to the income of the assessee-firm. The Income-tax Officer did not agree with the assessee and consequently included the said two amounts in the income of the assessee. Aggrieved by that, the assessee preferred two appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner also held that transfer without any registered document, but by merely making transfer entries in the account books of the firm, is not sufficient and, therefore, the house property continued to be the asset of the firm, and, on that view, dismissed the appeals. The assessee preferred further appeals to the Tribunal. The Tribunal purporting to follow its earlier order in Income-tax Appeal No. 381 of 1974-75, dated August 25, 1976, on a similar issue, held that the entries in the books of account are sufficient to transfer the interest in the property to the individual partners, and, on that view, allowed the claim of the respondents/assessees. Aggrieved by that, the Revenue sought the present references.
3. Mr. C. V. Rajan, learned counsel appearing for the Revenue, submitted that the Tribunal followed its earlier order in Income-tax Appeal No. 381 of 1974-75, dated August 25, 1976, that was taken up to this court by way of reference by the Revenue, and this court, in the decision rendered in CIT v. Dadha and Co. [1983] 142 ITR 792, differed from the view taken by the Tribunal and held that unless the transfer was by a process known to law, the same cannot be recognised and, therefore, the house property will continue to be the property of the firm.
4. In the said decision, the learned judges (Ramanujam J. and Balasubrahmanyan J.), though delivered separate judgments, concurred on the view abovementioned.
5. In the view of Ramanujam J. (headnote) :
". . . . . . even on the basis that the properties of the firm should be deemed to have been held in common by all the partners, as a firm is not a legal entity and cannot hold properties, there could not 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 assuming that the firm's properties were owned and enjoyed in common by the partners, such common properties cannot be possessed and enjoyed in severalty unless there is a document in writing. When common ownership of two persons is transferred into two individual ownerships, there is a transfer of an interest, in that there is a mutual release by one in favour of the other as regards the interests transferred in favour of the other. The release of the partner's share in specified properties of the firm will be a transfer of the interest in immovable property and any transfer of such interest in immovable property will require registration if the value of the interest exceeds Rs. 100. The book entries made on November 16, 1963, by which the common properties of the partners were treated as the separate properties of each of the partners to the extent of their share, could not have any effect without there being an instrument in writing evidencing the transfer of the interest.
Accordingly, the assessment of the capital gains as well as the income therefrom and the interest earned on the unpaid consideration in the hands of the firm was justified."
6. According to Balasubrahmanyan J. (headnote) :
"The only way the co-owners of immovable property have of creating separate dimensions over as many separate interests as there are co-owners would be by way of a regular deed of partition. Co-ownership of property cannot fall apart as separate individual interests without a deed of partition or at any rate a deed of mutual release. Any such instrument, whether it be a regular deed of partition or a release deed, must be duly stamped as contemplated under the Indian Stamp Act, if the value thereof is over Rs. 100.
Book entries do not make a conversion of any kind known to law. They are only entries made by the book-keeper and find a place only in account books. They cannot by their own force effect any conveyance, release, partition or other transfer of immovable properties. A combined reading of the entries in the instant case would clearly show that the position which was wished for by the parties had not been properly brought about by any effective transaction known to law."
7. It is also brought to our notice by Mr. C. V. Rajan, learned counsel appearing for the Revenue, that an attempt was made subsequently to have the earlier view taken in the case reported in CIT v. Dadha and Co. reconsidered. However, this court in the case of CIT v. Palaniappa Enterprises [1984] 150 ITR 237, reaffirmed the view taken in CIT v. Dadha and Co. , and held that there was no case for reconsideration.
8. In view of the above decisions of this court, we hold that the Tribunal was not right in deciding the issue in favour of the assessee. Accordingly, the questions are answered in the negative and in favour of the Revenue, and the Revenue is entitled to get costs from the assessee. Costs one set Rs. 1,000.