Jeevan Reddy, J.
1. Two questions are referred for our opinion under section 256(1) of the Income-tax Act, 1961. The questions are :
'1. Whether, on the facts and in circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the property did not belong to the firm
2. Whether the Appellate Tribunal was justified in holding that the partners has got undefined interest in the property of the firm and as such the income from the property has to be assessed in the hands of the partner ?'
2. We may first state the facts relevant to the above questions. The partnership firm called Messrs. Jethalal Nanji and Brothers, New Bhoiguda, Secunderabad, consisted of seven partners. Their shares in the partnership were not in equal proportions. The partnership firm owned a plot No. 4 in Bhoiguda, Secunderabad. The partnership firm obtained permission for constructing a building comprising of seven flats in the said plot. The permission for construction was obtained in the name of the firm. For the purpose of the construction, a separate account called 'construction account' was opened in the account books of the firm. At the end of the construction, the total cost of the construction came to Rs. 2,15,174. After the construction was completed, the total expenditure incurred was divided into seven equal portions and the amount transferred to the individual accounts of the seven partners. For the assessment years in question, the partners claimed that these seven flats are not the property of the partnership firm, but are their individual properties and, therefore, the income from these seven flats should not be included in the income of the firm. They claimed that these seven flats were constructed for their individual purpose and that they are in self-occupation of the said flats. The Income-tax Officer rejected this claim. He observed that the site belonged to the firm, that the municipal sanction was obtained in the name of the firm and that the construction was made out of the funds of the partnership firm. He also observed that there is no deed of transfer by the firm in favour of the partners and,therefore, the property remains and continues to remain the property of the firm only and has never become the property of the partners. Accordingly, he included the income from said building in the income of the firm.
3. On appeal, the Appellate Assistant Commissioner took a different view. Agreeing with the assessee, he held that the intention of the partners from the very beginning was to construct seven flats for themselves for their personal occupation and that the property had never become the property of the firm. According to him, the building comprising of seven flats was always the property of the partners themselves and hence there is no question of any transfer. He observed thus :
'The flats were never treated by the partners as the property of the firm. Instead of withdrawing monies from time to time for the construction, they maintained a common construction account and finally transferred the expenditure to their individual accounts.........It is immaterial that the municipal sanction was obtained in the name of the firm......This is not a case where the property of the firm has been transferred to the partners by debit to their accounts in their profit sharing ratios.'
4. This reasoning of the Appellate Assistant Commissioner has been affirmed by the Appellate Tribunal.
5. The question is whether the view taken by the Appellate Assistant Commissioner and the Appellate Tribunal is not tenable in law and on the facts of the case
6. To reiterate the facts, they are these. The site belongs to the firm. Permission for construction was obtained in the name of the firm. The construction was made by drawing funds out of the funds of the partnership firm, but by debiting them to a separate account called 'construction account'. After the construction was complete, necessary entires were made by debiting the account of the partners and the cost of construction was shared equally by all the seven partners which is variance with their shareholding in the partnership firm. The flats are occupied by the partners for themselves separately and individually. Upon these facts, it is contended by Mr. Suryanarayana Murthy, learned standing counsel for the Revenue, that the inference is irresistible that the building, viz., the seven flats, became the property of the partnership firm and that the partners, attempt to transfer the same by making entries at the end of the construction is of no avail in law. On the other hand, it is contended by Sri Ranganatha Chary and Sri Seshavatharam, learned counsel for the assessees, that it was no a case of transfer to the partners, of any property belonging to the firm, but what really happened was that the building was constructed by the partners themselves from out of their own amounts which amounts were no doubt drawn from the partnership firm. It is argued that since the partnership firm consisted of these seven partners, the monies spent for construction are their own monies which fact is evident from the entries made in the account books at the end of the construction. The question is whether the view canvassed by the assessees and which has been accepted by the two appellate authorities cannot be said to be justified and warranted in the circumstances the of the case We think it is. Mr. Suryanarayana Murthy is right in law when he says that if the property concerned herein can be said to have become the property of the partnership firm at any point of time, it cannot be transferred to the partners by merely making entries in the account books in whatever manner those entries are made. But the crucial question is, 'did the building ever become the property of the partnership firm ?' Now, in this case, instead of creating a separate fund for the construction of the building/flats, the partners drew amounts from time to time from the partnership account, entering them in a separate account called 'construction account' and after the construction was complete, they distributed the same amount by making the necessary debit entries in the names of the partners. In the above circumstances, it is equally possible to say that the partners did spend their own amounts for the construction of the seven flats for their self-occupation and that the intention at all points of time was to treat the said seven flats as the separate property of the seven partners. It is not doubt true that the permission for construction was obtained in the name of the partnership firm. But since the partnership firm consisted of these very seven partners, the said fat cannot be said to be so crucial as to negative their intention which is evident from their conduct referred to above. It is also borne out from the record that soon after making the aforesaid debit entries at the end of the construction of the building, the flats were mutated in the separate names of the partners, that they have occupied them separately and they have also been paying taxes separately in their individual names.
7. We are therefore, of the opinion that the inference drawn by the two appellate authorities from the above facts cannot be said to the unjustified or unwarranted. It cannot be said that such inference cannot flow from the above facts.
8. Mr. Suryanarayana Murthy placed strong reliance upon the decision of this court in Abdul Kareemia & Bros. v. CIT : 145ITR442(AP) . We are, however, of the opinion that the facts of that case are totally distinct. What happened there was that the assessee-firm which was formed in 1963, treated the said property right from 1963 as the property of the firm. The income from the building was treated as the income of the partnership firm. Depreciation was also claimed by the firm and this went on till 1969 when entries were made in the firm's books transferring the properties to the partners individually and it was claimed that by virtue of the said entries, the properties ceased to be the property of the partnership firm and became the separate property of the individual partners. This was negatives by this court and, in our opinion, rightly. In the said case, the property was treated as the property of the firm for a period of six years. The income was assessed in the hands of the firm and the firm also claimed depreciation. In such a situation, the property could not have been transferred by the firm to the partners by the simple method of making entries in the accounts. But, in this case, we have agreed with the appellate authorities in holding that the said seven flats never became the property of the firm, but they were the properties of the seven partners separately and individually from the very beginning. In other words, there is no question of any transfer of the property by the firm to the partners in this case. In this view of the matter, we do not think that the principle of the said decision advances the case of the Revenue.
9. In the above circumstances, we answer the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. No order as to costs.