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K.D. Pandey Vs. Commissioner of Wealth-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberWealth-tax Reference No. 700 of 1973
Judge
Reported in[1977]108ITR214(All)
ActsWealth-tax Act, 1957; Partnership Act, 1932 - Sections 14
AppellantK.D. Pandey
RespondentCommissioner of Wealth-tax
Appellant AdvocateR.K. Gulati, ;S. Kumar and ;J.C. Pandey, Advs.
Respondent AdvocateDeokinandan and ;Ashok Gupta, Advs.
Excerpt:
- .....individual immovable property into the stock or capital of the firm otherwise than by means of a registered instrument of conveyance. 11. in prem raj brahmin v. bhani ram brahmin ilr [1946] 1 cal 191, a division bench of the calcutta high court referred to section 239 of the indian contract act and section 14 of the indian partnership act andhold that under the provisions of those two acts for the purpose of bringing the separate properties of a partner into the stock of the firm it is not necessary to have recourse to any written document at all, that as soon as a partner intends that his separate properties should become partnership properties and they are treated as such, then by virtue of the provisions of the contract act and the partnership act, the properties become the.....
Judgment:

Chandrashekhar, J.

1. At the instance of the assessee, the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') has referred to this court the following two questions under Sub-section (1) of Section 27 of the Wealth-tax Act, 1957:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the business asset consisting of the Grand Hotel building could be transferred to the partnership only by a registered deed, and in the absence of such a deed the building remained the individual property of Shri K. D. Pandey

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the entire value of the building was assessable in the hands of the assessee, individual ?'

2. The facts of the case have been set out in the statement of the case and it is unnecessary to repeat them here. Suffice it to say that the assessee who was running a hotel as its sole proprietor entered into a partnership with his son under a deed of partnership dated April 16, 1966, to run the same business. In that firm his share of profits and losses was 75 per cent. In the wealth-tax assessment for the year 1967-68 he claimed that he had transferred his entire business assets including the hotel building which belonged to him individually to the newly formed partnership, that the building became the property of the firm and that he had only 75 per cent. share in the building.

3. The Wealth-tax Officer included the entire value of the building in the assessee's net wealth.

4. In the appeal preferred by the assessee, the Appellate Assistant Commissioner upheld his claim that the building had become the property of the partnership firm and that only his share of 75 per cent. of the value of the building should be included in his net wealth.

5. In the further appeal by the revenue, the Tribunal held there was no effective transfer of the building from the assessee to the partnership firm, that he continued to be the owner of the entire building and that the entire value thereof should be included in his net wealth.

6. Section 14 of the Indian Partnership Act, 1932, reads:

'14. Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purpose and in the course of the business of the firm, and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.'

7. The principal question that arises for determination in this reference is whether the assessee brought the building in which he was carrying on the hotel business, into the stock or capital of the firm.

8. Section 5 of the Transfer of Property Act, 1882, defines transfer of property as an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons. Thus, a person can transfer a property from himself to himself and one or more other living persons.

9. Section 17(1)(b) of the Registration Act, 1908, provides, inter alia, that a non-testamentary instrument which purports or operates to create, declare, assign, limit or extinguish any right, title or interest of the value of one hundred rupees and upwards, to or in immovable property, shall be registered.

10. If the hotel building was transferred by the assessee to the partnership firm under an instrument of conveyance, such instrument should have been registered under the Registration Act in order to constitute a valid transfer. It is undisputed that in the present case there was no instrument under which the assessee purported to convey the hotel building to the partnership firm. But the question is whether a partner can bring his individual immovable property into the stock or capital of the firm otherwise than by means of a registered instrument of conveyance.

11. In Prem Raj Brahmin v. Bhani Ram Brahmin ILR [1946] 1 Cal 191, a Division Bench of the Calcutta High Court referred to Section 239 of the Indian Contract Act and Section 14 of the Indian Partnership Act andhold that under the provisions of those two Acts for the purpose of bringing the separate properties of a partner into the stock of the firm it is not necessary to have recourse to any written document at all, that as soon as a partner intends that his separate properties should become partnership properties and they are treated as such, then by virtue of the provisions of the Contract Act and the Partnership Act, the properties become the properties of the firm and that this result is not prohibited by any provision in the Transfer of Property Act or the Indian Registration Act.

12. A similar view was taken by a Division Bench of the Patna High Court in Firm Rant Sahay Mall Rameshwar Dayal v. Bishwanath Prasad : AIR1963Pat221 . Their Lordships observed thus at page 223 :

'The legal position, therefore, appears to be that no written or registered document is necessary for an individual to contribute any land or immovable property as a contribution against his share of the capital of a new partnership business.'

13. In Commmissioner of Income-tax v. Janab N. Hyath Batcha Sahib : [1969]72ITR528(Mad) a Division Bench of the Madras High Court held that when a partner brings in certain items into the partnership at the time of its formation, such items become the property of the partnership and that such change of ownership is brought about not by any transfer, but by the very intention of the parties to treat such property belonging to one or more of the members of the partnership as that of the firm.

14. In Chief Controlling Revenue Authority v. Chidambaram : AIR1970Mad5 , a Division Bench of the Madras High Court held that when a partner brings some of his assets with an intention to treat the same as partnership asset, by virtue of Section 14 of the Partnership Act, such property could be thrown into the partnership stock without any formal document so as to make it the property of the firm.

15. The same view was taken by another Division Bench of, the Madras High Court in R.M. Ramanathan Chettiar v. Controller of Estate Duty : [1975]99ITR410(Mad) .

16. From the aforesaid decisions it is clear that a partner can bring his immovable property to the stock or capital of the firm as his contribution thereto without a registered instrument. But the learned standing counsel maintained that on this question the Supreme Court and this court have taken a contrary view. He referred us to the decision of this court in Ram Narain and Brothers v. Commissioner of Income-tax : [1969]73ITR423(All) . There, a partnership firm had purchased certain immovable properties. Subsequently, the partners claimed that the ownership of one of such properties had been transferred by the firm to one of the individual partners by adjustment made in the relevant entries in the books of accounts. One of the questions that arose for determination in that case was whether aproperty admittedly once owned by the firm as such, ceased to be so owned by it by reason of certain entries made in the account books of the firm. A Division Bench of this court took the view that the partners of a firm can convert an immovable property belonging to the firm into personal property of any of them by means only of an instrument in writing, that mere entries in the books of accounts of the firm do not have the effect of converting such property of the firm into the personal property of any of the partners and that such property, therefore, continues to remain the property of the firm despite such entry.

17. In the aforesaid case the question whether a partner can bring his immovable property as his contribution to the stock or capital of the firm without a registered instrument, did not arise for determination. Hence, that decision cannot be of any assistance to the learned standing counsel.

18. The learned standing counsel next sought to derive support from the following observations of the Supreme Court in Commissioner of Income-tax v. Hind Construction Ltd. : [1972]83ITR211(SC) :

'Nor can a person by handing over his goods to a partnership of which he is a partner and that as his share of capital be considered as having sold the goods to the partnership.'

19. The aforesaid observations cannot, in our opinion, be understood as laying down the proposition that a partner cannot bring his immovable property as his contribution to the stock or capital of the firm except by means of a registered instrument of transfer.

20. As a result of the foregoing discussion, our answers to the questions referred to us are in favour of the assessee and as follows :

'(1) On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the business assets consisting of the Grand Hotel could be transferred to the partnership only by a registered deed and that in the absence of such deed the building remained the individual property of Shri K.D. Pandey.

(2) On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the entire value of the building was assessable in the hands of the assessee, individual.'

21. The assessee will get his costs from the revenue. Advocate's fee is assessed at Rs. 200.


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