Karnataka High Court
K. Azra Jabeen vs State Of Karnataka on 3 October, 1980
Equivalent citations: AIR1981KANT17, ILR1981KAR202, 1981(1)KARLJ570, AIR 1981 KARNATAKA 17, ILR (1981) 1 KANT 202 (1981) 1 KANT LJ 570, (1981) 1 KANT LJ 570
Bench: K. Jagannatha Shetty, M.N. Venkatachaliah
JUDGMENT Jagannatiia Shetty, J.
1. This is a Reference made by the Chief Controlling Revenue Authority under Section 54 of the Karnataka Stamp Act, 1957.
The matter arises in this way:
In March, 1975, a coffee plantation of Mudigere Taluk was purchased in the joint names of Mrs. K. Azra Jabeen and her brother K. Anwar Ali. In January, 1976 they entered into a partnership firm styled as 'Kodagibyle Estate'. The entire Property purchased by them was put into the stock of the partnership firm. In July, 1978 the firm was dissolved and a document dated 24th July, 1978 was executed distributing the assets of the firm in specie as between the two partners. The estate along with the building thereon was allotted to the share of the sister while a cash of Rs. 4,80,786/- was paid to her brother. The stamp duty on the deed was paid treating it as a deed of partition with an additional stamp duty payable on a deed of dissolution of partnership. When the deed was presented for registration, it was impounded by the Sub-Registrar of Mudigere and later referred to the Deputy Commissioner under Section 33 of the Stamp Act. On l2th December, 1978, the Deputy Commissioner made an order holding that the document was a conveyance and not a deed of partition. He directed recovery of deficit stamp duty of Rs. 42,649-50 P. with a penalty equal to ten times thereon. Being aggrieved by the said order, the petitioner appealed to the Chief Controlling Revenue Authority under Section 53(1) of the Act. The said Authority, following the decision of this Court in M. A. Venkatachalapathi vs. State of Mysore (1966) 1 Mys LJ 21: AIR 1966; Mys 323 (FB), has confirmed the order of the Deputy Commissioner. But at the request of the petitioner, the case has been referred to this Court for opinion on the disputed question.
2. We have now to determine the true nature of the document. Mr. Nanjunda swami. counsel for the petitioner persuasively urged that tile document is no more than a deed of dissolution of partnership, although it was styled as an instrument of partition. He also urged that the decision of this Court in Venkatachalapathi's case is no longer good law in view of the subsequent decisions of the Supreme Court. The document in question states :
"1. The entire properties shown in the Schedule 'A' hereunder is allotted to the First Party absolutely and for over and a sum of Rs. 4,80,786/- is allotted to the Second Party."
It further states :
"2. The Second Party gives up the possession of the 'A' Schedule Properties and the Second Party has received the above said sum of Rs. 4,80,786/- from the First Party, through her- P. A. Holder Mr. K. Hafizur Rahman, out of the assets of the partnership firm, under a pay order No. 254/78 dated 24-7-1978 issued by Vijaya Bank Ltd.. Chickmagalur Branch paid before the Sub-Registrar and the said sum is hereby acknowledged by the Second Party in full satisfaction."
Then it proceeds in these terms :
"7. The Second Party from this day onwards shall not have any right of his own to enter into the 'A' Schedule Properties."
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"10. The Second Party shall have no objections whatsoever for the receiving by the First Party of all the documents lodged with the Vijaya Bank Ltd. Aldur, in respect of the 'A' Schedule Properties by the parties hereto and the Second Party has handed over to the First Party all the documents in relation to the 'A' Schedule properties that have bad been in his custody up to this date."
The deed then concludes :
"15. The Partnership firm under the two deeds, dated 27-1-1976 and 1-9-1976, between the two parties relating to the 'A' Schedule Properties as stated above, has been dissolved.
xx xx xx xx xx "17. The value of the 'A' Schedule Properties is Rs. 34,856-50 and the value of the amount received under this document by the Second Party, is Rs. 4,80,786/- as per 'B' Schedule. The stamp duty payable on this document is Rs. 820-56 (on 'A' Schedule properties, which is lesser). As this document also purports to be a dissolution of the Partnership an additional stamp duty of Rs. 3/- is also included in the above said stamp duty, apart from a further sum of Rs. 3/- towards agreement clauses. on these presents : -"
It is clear from the general frame and tenor of the deed that the real intention of the parties thereto was to dissolve the firm and to distribute the properties thereof between themselves. All the immovable properties of the firm were allotted to the petitioner and she was not given any cash amount. The brother of the petitioner who was the other partner of the firm was paid a sum of Rs. 4,80,786/- out of the assets of the firm. He was not given a share in the immovable properties of the firm although indisputably be had such a share. It was thus an adjustment of the rights of the partners in the assets of the firm which was dissolved by consent. No doubt, the deed was styled at its head as "partition deed". But when the facts are fully set out in the deed party's choice as to nomenclature and about the legal effects of those facts is of no consequence in the construction of the document. There can be no estoppel by reason of any admission as to such effect. A rule of construction must find out the real nature of the document from what the parties have said notwithstanding the nomenclature thereof. Let us no examine the legal position.
We may begin with Venkatachalapathi's case (AIR 1966 Mys 323)(FB). The document, which came for scrutiny there in was almost similar to the one before us. It was a deed by which one of the partners in consideration of a certain sum of money released his share in the partnership assets and retired from the firm. Consequently the firm stood dissolved. The only question that fell for decision was whether that deed was a release deed falling within Article 44 or a conveyance falling under Article 19 of the Karnataka Stamp Act. This Court held that it was a deed of conveyance. It was observed that upon the dissolution of a firm by retirement of one partner. The parties became co-owners in the assets and liabilities of the dissolved firm. It was also observed that there would be no material distinction between the share of a co-owner in a particular immoveable property and a partner's interest in the assets of the partnership. In other words, the interest a partner in the assets of a dissolved firm was treated as an interest of a co-owner in any property. That deed was accordingly held to be a conveyance chargeable to duty under Article 19 of the Schedule to the Karnataka Stamp Act. The Court, however, found it unnecessary to examine whether that deed might also be regarded as a release chargeable to duty under Article 44 of the Schedule, as under Section 6 of the Stamp Act, instruments coming within several descriptions shall be chargeable only with the highest of such duties.
3. Venkatachalapathi's case, if we may say so with great respect, did not take into account the real nature and incidents of a partner's interest in a partnership firm and the consequences of a dissolution deed by which the assets of the quondam firm are distributed in specie amongst the erstwhile partners. The said decision also seems to have overlooked the legal effect when one of the partners takes away either cash or property in lieu of his share in the partnership assets.
In Commr. of Income-tax, Madhya Pradesh, Nagpur and Bhandara v. Devas Cine Corporation, . Shah. J, (as he then was) observed :
"4. .... The distribution of surplus is for the purpose of adjustment of the right of the partners in the assets of the partnership, it does not amount to transfer of assets.
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"6. ... A partner may, it is true, in an action for dissolution insist that the assets of the partnership be realised by sale of its assets, but where in satisfaction of the claim of the partner to his share in the value of the residue determined on the footing of an actual or notional sale property is allotted, the property so allotted to him cannot be deemed in law to be sold to him."
In Commissioner of Income-tax, U. P. v. Bankey Lal Vaidya, . Shah, C. J, while examining the scope of Section 12-B (1) of the Income-tax Act, 1922, observed:
"...... A large majority of the assets were incapable of physical division, and the partners agreed that the assets be taken over by Devi Sharan Garg at a valuation, and the respondent be paid his share of the value in money. Such an arrangement, in our judgment, amounted to a distribution of the assets of the firm on dissolution .... Payment of the amount agreed to be paid to the respondent under arrangement of his share was therefore not in consequence of any sale, exchange or transfer of assets."
In Commr. of Income-tax, Madras v. Madurai Mills Co. Ltd., , the above principles have been extended to a shareholder of a company who receives certain sum of money representing his share in the assets of a company in liquidation, Khanna, J. said :
"When a shareholder receives money representing his share on destitution of the net assets of the company in liquidation, he receives that money in satisfaction of the right which belonged to him by virtue of his holding the shares and not by operation of any transaction which amounts to sale, exchange, relinquishment or transfer. In the circumstances we find it difficult to hold that the assessee company is liable to pay tax on capital gains as contemplated by Section 12-B of the Act in respect of the amount of Rs.95,944".
The same principles have been followed in Malabar Fisheries Co, v. Commr, of Income-tax, Kerala, .
In view of the aforesaid decisions of the Supreme Court, the law laid down by this Court in Venkatachalapathi's case cannot be considered as good law.
We may also point out that a Special Bench of the Gujarat High Court in Chief Controlling Revenue Authority, Gujarat State v. Chaturbhuj, AIR 1977 Guj 1 has dissented from, the view taken by this Court in Venkatachalapathi's case (AIR 1966 Mys, 323) (FB).
4. It must be borne in mind that an interest of a partner in a firm is not an interest in any specific item of the partnership property. Every partner has a right to obtain his share of profits from time to time during the subsistence of the partnership. He has also a right to get value of his share in the net assets of the partnership on dissolution of the firm or on his retirement from the firm. The partner who receives his value of his share really receives his share in the partnership and not in consideration for "transfer" of his interest in the partnership to the other partners. [See Kanga and Palkhivala's The Law and Practice of Income tax, Seventh Edition, Volume I, page 549.] In such a case, there is no "transfer" of interest in the partnership assets. Therefore, whenever the partnership accounts are adjusted and properties are distributed in specie as between the partners either upon retirement of a partner or upon dissolution of a firm, and payment of cash is made to one partner, the instrument evidencing such distribution of the assets cannot be regarded as a conveyance. Having regard to these principles, the document in the present case, in our opinion, should only be regarded as a deed of dissolution of the partnership firm chargeable to duty under Item 40 of the Schedule to the Stamp Act.
5. The Reference is accordingly disposed of.
6. Reference answered.