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Commissioner of Income-tax Vs. T. Omer and Company - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberS.J.C. No. 169 of 1988
Judge
Reported in(1992)102CTR(Ori)36; [1992]196ITR736(Orissa)
ActsIncome Tax Act, 1961 - Sections 182; Indian Partnership Act, 1932
AppellantCommissioner of Income-tax
RespondentT. Omer and Company
Appellant AdvocateA.K. Ray, Adv.
Respondent AdvocateNone
Cases ReferredAddanki Narayanappa v. Bhashara Krishnappa
Excerpt:
- motor vehicles act, 1988 [c.a. no. 59/1988]section 173(1) proviso; [d. biswas, amitava roy & i.a.ansari, jj] appeal without statutory deposit but within limitation/or extended period of limitation maintainability - held, if the provision of a statute speaks of entertainment of appeal, it denotes that the appeal cannot be admitted to consideration unless other requirements are complied with. the provision of sub-section (1) of section 173 permits filing of an appeal against an award within 90 days with a rider in the first proviso that such appeal filed cannot be entertained unless the statutory deposit is made. the period of limitation is applicable only to the filing of the appeal and not to the deposit to be made. it, therefore, appears that an appeal filed under section 173 cannot..........firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or the firm's assets, all that is meant is property or assets in which all partners have a joint or common interest, (see malabar fisheries co. v. cit : [1979]120itr49(sc) .)6. the provisions of sections 14, 15, 29, 32, 37, 38 and 48 of the partnership act, 1932, make it clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm. a partner is entitled to his share of profits or loss, if any, accruing to the partnership from the realisation of this property and, upon dissolution of the partnership, to a.....
Judgment:

A. Pasayat, J.

1. At the instance of the Revenue, the following questions have been referred to this court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), by the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack (hereinafter referred to as 'the Tribunal'), for adjudication :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that individually the partners could gift the property of the firm to their respective wives during the subsistence of the partnership firm ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee-firm could not be assessed to tax on rental income from property at Madras from July, 1982?'

2. The dispute relates to one T. Omer and Company, a partnership firm (hereinafter referred to as 'the assessee'). The factual position so far as is relevant for the purpose of determination of the questions is that a building was purchased in the name of the assessee on March 12, 1982. During the assessment year 1983-84, with which we are presently concerned, each of the partners of the firm made a gift of a portion of the property to his wife on July 20, 1982. In essence, the entire property was gifted. In the return filed by the firm, the rental income in respect of the building for a period of three months, i.e., from April to June, 1982, was reflected. It was claimed by the assessee that, after the gifts on July 20, 1982, the income, if any, cannot be included in the taxable income of the partnership. This plea was not accepted by the Assessing Officer on the ground that the partners could not have gifted the property which belonged to the partnership. In appeal, the Appellate Assistant Commissioner, Cuttack Range, Cuttack, affirmed the view of the Assessing Officer. According to him, the property which was an asset of the firm could not have been gifted in the manner done because, during the subsistence of the partnership, the partners were not entitled to claim any portion of the property as exclusively belonging to them. Consequently, the purported gifts made by the partners to their wives did not divest the assessee of its ownership in the property. In that sense, the income from the property was to be assessed in the hands of the partnership. This conclusion was assailed in appeal by the assessee before the Tribunal. Allowing the appeal, the Tribunal held that the firm is not a legal entity and it cannot acquire or dispose of any property. Though the sale deed was executed in favour of the firm, all the partners became owners of the property in question because firm is the collective name of all the partners, and the partners had the right to transfer the property. Valid gift deeds were executed by the partners in favour of their respective wives and, in that view of the matter, the rental income from the property was to be included only for the period from April to June, 1982. At the instance of the Revenue, the aforesaid questions have been referred for our adjudication.

3. In spite of notice, the assessee has not entered appearance.

4. Mr. A. K. Ray, learned standing counsel, -has urged that, during the subsistence of the partnership, no partner had any definite share in the partnership property even though the partnership firm is not a legal entity and has no existence in the strict sense of the term. During the subsistence of the partnership, no partner can deal with any portion of the property as his own and, therefore, the question of assignment of any part in the specified item of the property did not arise. The contention of learned standing counsel appears to be legally sound.

5. A partnership-firm under the Indian Partnership Act, 1932 (hereinafter referred to as 'the Partnership Act'), is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or the firm's assets, all that is meant is property or assets in which all partners have a joint or common interest, (See Malabar Fisheries Co. v. CIT : [1979]120ITR49(SC) .)

6. The provisions of sections 14, 15, 29, 32, 37, 38 and 48 of the Partnership Act, 1932, make it clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm. A partner is entitled to his share of profits or loss, if any, accruing to the partnership from the realisation of this property and, upon dissolution of the partnership, to a share in the money representing the value of the property. Since a firm has no legal existence, the partnership property will vest in all the partners and, in that sense, every partner has interest in the property of the partnership. However, no partner can deal with any portion of the property as his own during the subsistence of the partnership nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and, upon dissolution of the firm, to a share in the assets of the firm which remain after satisfying the liabilities set out in the various clauses of section 48. A partner would not be able to exercise his right even to the extent of his share in the business of the partnership. It is true that, even during subsistence of the partnership, a partner may assign his share to another. But what is permissible in that regard is laid down in Section 29(1) of the Partnership Act, that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners. A similar view expressed by the Lahore High Court in Ajudhia Pershad Ram Pershad v. Sham Sunder, AIR 1947 Lah 13 and in Addanki Narayanappa v. Bhashara Krishnappa, : AIR1959AP380 , has received the seal of approval of the Supreme Court in Addanki Narayanappa v. Bhashara Krishnappa, : [1966]3SCR400 and Sunil Siddharthbhai v. CIT : [1985]156ITR509(SC) . In that view of the matter, the Tribunal went wrong in holding that the partners had the right to transfer any share in the property.

7. Our answer to the first question is that the Tribunal was not justified in law in holding that individually the partners could gift the property of the firm to their respective wives during the subsistence of the partnership firm. Consequently, our answer to the second question is that the Tribunal was not justified in holding that the assessee-firm could not be assessed to tax on the rental income from the property at Madras from July, 1982.

8. Both the questions are answered in favour of the Revenue and against the assessee. No costs.

S.K. Mohanty, J.

9. I agree.


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