1. These are appeals filed by the assessee against the orders of the Commissioner (Appeals), Jodhpur, dated 5-5-1983 and contain ground Nos.
5 and 4 for 1979-80 and 1980-81 out of which the last ground, the authorised representative, Shri S.D. Saraf, submits, be treated as withdrawn. The other ground Nos. 4 and 2 for 1979-80 and 1980-81 related to the inclusion of income in respect of 9 godowns which were till 31-1-1979 the properties of the firm and vide dissolution deed dated 31-1-1979 the said 9 godowns along with all the liabilities secured on such properties were taken out from the books of the firm and treated as properties jointly owned by the partners of the firm individually. The IAC considered the fact of the dissolution deed as on 31-1-1979 which is reproduced below: Whereas the said parties have been carrying on partnership business under the name and style of Sri Ganganagar Fertilizer Corporation at Sri Ganganagar and whereas the terms of their partnership were re-recorded in the partnership deed executed between the first to fifteenth parties (sixteenth party being minor at that time) on 20th May, 1978, and whereas the firm carried on business of manufacture and sale of N.P.K. Granulated Fertilizers and also owned 9 godowns which were let out to Food Corporation of India and which were financed by the Bank of Baroda and whereas this godown section was branch of the firm and whereas the partners have by mutual consent dissolved that branch section and have divided among themselves the cost of godowns and the bank loan and whereas this dissolution of godown section and allotment of wares of each partner to his individual account tantamounts to allotment of partnership property to the individual partner on partial dissolution and whereas the parties desire to reduce in writing the facts and terms of this partial dissolution in writing to avoid any future complications and disputes; Now this indenture, the said parties do hereby agree to abide as under-- 1. That the godown section of Sri Ganganagar Fertilizer Corporation stands dissolved on this 31st January, 1979, and the cost of godowns has been allocated and divided amongst the partners in proportion to their shares in the profits of the firm and the bank loan as outstanding on 31-1-1979 has also been divided among the partners in proportion to their share in the profits of the firm, more particularly described in Schedule I to this partial dissolution deed.
2. That the said godowns, 9 in all, and the office block together with 10 bighas of agricultural lands converted for above purpose and on which godowns have been constructed shall belong to the partners of the firm as individual owners in proportion to their profit sharing ratio in the firm and that the said property has been excluded from the properties and assets of the firm, Sri Ganganagar Fertilizer Corporation.
3. The outstanding loan of Rs. 21,45,375.72 taken on the mortgage of the above godowns for building these godowns and remaining outstanding on 31-1-1979 with interest up to date has also been allocated amongst the partners in proportion to their profit sharing ratio in the firm. This loan shall be payable by the partners individually by way of receipt of rent of the godowns and otherwise and that this loan has ceased to be liability of the firm subject to clause 5 of this agreement.
4. That the agreement executed by Sri Gangangar Fertilizer Corporation with Food Corporation of India and contract with them letting out the godowns on hire is and shall remain binding on the partners and for all intents and purposes, the agreement will be considered as one entered by the firm for and on behalf of the individual partners with effect from this date. The firm will continue to receive rents from the Food Corporation of India for and on behalf of the individual partners and shall also be acting as authorised agents of the individual owners, i.e., co-owners and their acts, deeds and things shall be binding on the parties to this agreement.
5. That the bank account with Bank of Baroda shall continue in the name of the firm and that the firm shall operate the bank account as representative and authorised agent of the co-owners and shall be depositing the rent cheques and shall be responsible to the bank for the repayment of the loan and interest and other expenses as indemnifying agents of the said parties.
6. That the said parties as co-owners of the godown section shall pay 3 per cent of the rent receipts as commission, remuneration and other charges to the firm for acting as agents of the co-owners for the purpose of supervision of the property, realisation and collection of rents, operation of bank account and for indemnifying the bank. This commission shall be payable on 31st March of each year.
7. The parties themselves shall bear and pay all rent, taxes and other charges, if any, in respect of the property consisting of godowns, office block and the land appurtenant thereto and in case the firm pays any such rent, taxes or charges the firm shall be entitled to disbursement of the same from co-owners. The firm shall keep and maintain proper accounts in respect of receipt of rent and payments of instalments and interest to bank and payment of other expenses incurred by them for and on behalf of the co-owners and shall be entitled to disbursement of the same from the co-owners.
He was of the view that the dissolution deed which provided distribution of assets consequent to the dissolution of that portion of the business which represented income from letting out of godowns to Food Corporation of India, was not complete without there being registration of such deed under Section 17(1)(b) of the Indian Registration Act, 1908. He was also of the view that the dissolution would mean complete dissolution and partial dissolution is unheard of.
He relied on the Allahabad High Court judgment in the case of Ram Narain & Bros. v. CIT  73 ITR 423. In his order he reproduced some portion of the abovementioned order and placed reliance on the words: ... In point of fact, conversion of firm's property into personal property of the partners involves a declaration that the interest of the firm in the property is extinguished and that thenceforward the property would belong to the partners in their individual capacity according to their shares in the firm. Such a declaration falls within the purview of Section 17(1)(b) of the Indian Registration Act and the instrument of conversion must be registered. (p. 430) Since registration of the property in the names of the partners was not done in accordance with Section 17(1)(b) which required that any non-testamentary instrument which purports or operates to create, declare, assign, limit, or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of Rs. 100 and upwards, to or in immovable property, such document shall be registered. He said that the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300 had observed that in Joharmal v. Tejram Jagrup 1893 ILR 17 Bom. 235 the Bombay High Court took the view that though a partner's share does not include any specific part of any specific item of partnership property where the partnership is entitled to immovable property, such share does not include an interest in immovable property and every instrument operating to create or transfer right to such share requires to be registered under the Indian Registration Act. The ITO was, therefore, of the view that dissolution deed, dated 31-1-1979 does not mean to exclude the income of 9 godowns from the firm's income as the godowns were not transferred in the names of the partners and there being no registration as required under Section 17(1)(b). Before the Commissioner (Appeals) it was argued by the learned authorised representative on behalf of the assessee that Section 40 of the Indian Partnership Act, 1932 provides what would be the property of the firm and Section 15 of the Indian Partnership Act provides what is the application of the property of the firm. It is argued that the partnership property and its application is, therefore, subject to contract between the partners and it is this contract amongst the partners which decides and gives indication of the intention of the partners as to what would be the partnership property. In support of his contention the assessee relied on CIT v. Amber Corpn.  127 ITR 29 (Raj.) as well as to the Supreme Court decision in Dulichand Laxminarayan v. CIT  29 ITR 535, Addanki Narayanappa's case (supra), CIT v. R.M. Chidambaran Pillai, Malabar Fisheries Co. v. CIT  120 ITR 49 (SC) and also the decision of the Gauhati Bench of the Tribunal in Jaichand Lal Bhura v. ITO  11 TTJ 200. Reliance was also placed on the Madras High Court decision in Addl. CIT v.Govindoss Purushothamdoss  124 ITR 319. The argument of the assessee was that the firm had two sources of income--one being income on account of business of manufacture and sale of N.P.K. Granulated Fertilizer and the other being income from letting out of 9 godowns to Food Corporation of India. The assessee was of the view that the godown business was a branch which was dissolved by means of dissolution deed dated 31-1-1979. The other business, namely, manufacture and sale of N.P.K. Granulated Fertilizer continued to remain with the firm. The Commissioner (Appeals), however, was not impressed with all these arguments. He was of the view that dissolution means dissolution of the firm in totality and not partly. He also observes that the references of various cases made by the IAC are quite valid and the property will be continued to be owned by the firm till the necessary registration is done as per Section 17(1)(b). He was also of the view that number of decisions of the High Court as well as the Supreme Court had held consistently that a partnership property is distinct from the property of the partners. During the continuance of the firm, no one partner can say that he owns any particular portion of the property of firm. The partner's interest in the property of the firm cannot be identified with the property of the firm though the interest of the partner has to be worked out taking into account all the properties of the firm. He relied on the Allahabad High Court judgment in Ram Narain & Bros.' case (supra) and held that the property could only be transferred to the partners by the firm by completing the formalities of registration as per the Indian Registration Act. This having not been done, the property remains as property of the firm.
2. Before us, the learned authorised representative, Shri Saraf, filed copies of various submissions that were made by him before the IAC as well as the Commissioner (Appeals). He also filed copies of the dissolution deed dated 31-1-1979 as also the partnership deed dated 1-2-1979. He also filed copy of intimation to the bank, dated 31-3-1979 that there was a partial dissolution deed in respect of the godown section and the loans relating to the godowns that the same are jointly and severally owned by the partners in their individual capacity and has got nothing to do with the firm. He also filed a copy of the CBDT Circular No. 330, dated 6-3-1982 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1985 cdn., P. 1537] which was issued under the Estate Duty Act, 1953 ('the 1953 Act') regarding admissibility of exemption under Section 33(1)(n) of the 1953 Act. He said, according to the circular, the department requires (sic) the fact that the property of the firm is jointly and severally held by the partners and in respect of house property exemption under Section 33(1)(n) wherever admissible shall be allowed. Shri Saraf argued that Sections 14 and 15 of the Indian Partnership Act clearly give the powers to the partners as to what is to be treated as the firm's assets or the firm's property. The provisions of Sections 14 and 15 are as under: 14. The property of the firm.--Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes 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 interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.
15. Application of the property of the firm.--Subject to the contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.
Shri Saraf said that the entire dissolution deed has to be read in the light of the provisions contained in Sections 14 and 15. He said the Rajasthan High Court in Amber Corpn.'s case (supra) had held that even if a property contributed by one of the partners be an immovable property, no document, registered or otherwise, is required for transferring the property to the partnership. He further drew our attention to the Supreme Court judgment in the case of Dulichand Laxminarayan (supra). He said that in that judgment it has been clearly held that a firm is not a legal entity or person. He also referred to the Supreme Court judgment in Addanki Narayanappa's case (supra). He said their Lordships observed that partnership is in the nature of joint venture and they observed that once a property is brought in by the partners it would cease to be its exclusive property and during the tenure of partnership, all the partners would continue to have interest in the property in the same proportion as their share in the joint venture of business of partnership. He also referred to the Supreme Court judgment in the case of R.M. Chidambaran Pillai (supra). He said in that judgment that the Supreme Court recognised the collective ownership of the partners and he referred to the case of Malabar Fisheries Co. (supra). The Supreme Court had held that partnership firm is not a distinct legal entity and the partnership property in law belongs to all the partners constituting the firm. He further observed, when one talks of the firm's property or firm's assets, all that is meant is property or assets in which the partners have a joint or common interest. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership. Shri Saraf was therefore of the view that if the partners mutually decide and agree that henceforth the godowns of the firm shall cease to be a partnership asset, was well covered (sic) in view of the abovementioned orders and also Section 14.
He also argued that in the instant case, the partners had taken out by means of an agreement dated 31-1-1979, the various godowns along with all the liabilities in the same proportion as they were sharing income or loss therefrom. They could have as well carried out the complete dissolution by which the assets relatable to the godowns could have been distributed and the partners again combined to carry on the other business of manufacture of N.P.K. Granulated Fertilizer. He further argued that the reading of the dissolution deed clearly indicates this fact. There is no prevention in law for dissolution or the partners agreeing not to carry on a particular business. He also referred to the order of the Gauhati Bench of the Tribunal in Jaichand Lal Bhura's case (supra) which is reproduced below:Addanki Narayanappa v. Bhaskara Krishnappa 1966 (3) SCR 400 that the whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property and once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It is also well settled that the action of bringing a property as capital to the firm or withdrawing it therefrom does not amount to a transfer and even if it relates to immovable property it does not require any registration. (See the decision of the Gauhati High Court in the case of Radhika Mohan Shome, IT Reference No. 23 of 1969, dated 28-9-1973.) This is because as pointed out by Lindley on Partnership, 13th edition at page 350 the ultimate test as what is and what is not partnership property must still be the agreement of partners as it is competent for partners by agreement amongst themselves to covert what is the joint property of all into the separate property of some one or more of them and vice versa. Hence it is that an immovable property which stands in the name of one of the partners has to be regarded as that of the firm as long as the partners agree to treat it as such. (p. 201) He said it is observed that it is also well settled that bringing in a property as capital or withdrawing the capital though may relate to the immovable property does not tantamount to transfer. He said the Gauhati Bench had recognised the fact that the ultimate test as to what is and what is not the property of the firm must still be the agreement of the partners as it is only they who are competent to decide as to what would be treated as the property of the firm and what would not be the firm's property. The learned departmental representative relied on the orders of the authorities below and on the Allahabad High Court judgment in Ram Narain & Bros. case (supra).
3. After hearing the rival submissions, we shall deal with the Allahabad High Court judgment in Ram Narain & Bros.' case (supra). This must be read in the light of the dissolution deed dated 31-1-1979.
Their Lordships held in that particular case that the firm had purchased certain immovable property and by means of mere entries in the books of account of the firm, the properties were shown as transferred to the individual property. The questions that were raised before their Lordships were (a) whether transfer can be effected by means of mere entries in the books of account, (b) whether instrument in writing is necessary, and (c) whether partners would be deemed as the co-owners in respect of income from properties or otherwise. Their Lordships observed that ownership of the property by the firm is postulated in Section 14 and also referred to Section 15 regarding application of property in the firm. They also referred to Sections 19 and 22 of the Indian Partnership Act. They observed that unless contrary intention appears among the partners, the firm's property shall remain with the firm. In the light of the above they considered that since there was no instrument in writing to indicate the contrary intention of the partners that the assets so purchased would not be partners' assets, but shall remain as the firm's assets, they held that an immovable property belonging to firm can be converted into personal property only by means of an instrument in writing, and that mere entry in the books of account of the firm does not effect transfer of the firm's property to the personal property of the partners and that the partners of the firm cannot be assessed as the co-owners in respect of income from such properties. In between they also considered the requirement of Section 17(1)(b) of the Indian Registration Act and remarked that such instrument must need registration. The important sections as per the Indian Partnership Act binding the partners, vis-a-vis, the property under Sections 14 and 15 are Sections 19 and 22. Section 14 details with what would be deemed to be the property of the firm. Section 15 talks of the application of such property by the partners for the purpose of firm's business. Section 19 talks of rights and duties of the partners and Section 22 talks of various modes of doing acts by the partners to bind the firm. The reading of Section 14 clearly goes to indicate that the partners may by means of an agreement among themselves decide what could be the firm's assets and what could not be the firm's assets. This is derived from the reading of the words subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm or acquired, etc." [Emphasis supplied]. Section 15 also begins with the words 'subject to contract'.
Both these sections on cumulative reading indicate that partners by means of mutual agreement among themselves could decide as to what are the assets which should be the firm's assets and what are those assets which would be used for the purpose of their business. In the light of these two sections the dissolution deed goes to modify the original partnership deed of the partners, to the extent of deciding that these godowns will no longer be used for the purpose of business of the assessee. The partners vide dissolution deed dated 31-1-1979 decide to close down the business of letting out the various godowns and, accordingly, distribute the net interest in the properties representing godowns after setting of all liabilities thereof to the partners in the same sharing ratios as they used to share the losses or profits of the firm. Reading in this light, the circular of the CBDT wherein the CBDT had considered this fact of the property being owned by the firm and the interest of the partner in such property on his death. The CBDT circular is reproduced, the reading of which goes to indicate that the CBDT also recognises the fact that the property of the firm is owned jointly and severally by the partners and it is in this light they had said that exemption in respect of self-occupied house under Section 33(1)(n) should be allowed to the deceased.
The question as to whether exemption under Section 33(1)(n) [of the Estate Duty Act, 1953] is available in respect of a house owned by a firm in which the deceased was a partner (if the deceased was residing in the house at the time of his death) has been examined by the Board in consultation with the Ministry of Law.
2. The Board are advised that a firm has no legal existence. The partnership property vests in all the partners and every partner has an interest in the property of the partnership. Since under Section 33(1)(n) property belonging to the deceased will qualify for exemption and since the expression 'belong' would include cases where an interest less than full ownership exists, exemption under Section 33(1)(n) would be admissible in respect of a house belonging to the firm.
3. The contents of this circular may be brought to the notice of all the officers working in your charge.
The assessee had clearly mentioned his intention of excluding the godowns as property of the business and information in this regard had been intimated to the bank as well as to the Food Corporation of India.
Now the only question that needs to be considered in the light of various judgments cited by the authorised representative is whether registration under Section 17(1)(b) would be required to complete the above-said transfer of the assets by the firm to its partners. There are a number of decisions which have been cited by the assessee regarding non-requirement of registration when a partner brings in any assets and treat the same as his contribution to the firm's assets. In view of the Karnataka High Court judgment in Addl. CIT v. M.A.J.Vasanaik  116 ITR 110 and further keeping in the light of the argument of the authorised representative, Shri Saraf, that there is no element of sale here as the parties who are the co-owners in the same ratio as per firm of the properties are the same parties who were the partners in those very assets. Shri Saraf in his argument also referred to the Supreme Court decision in the case of CIT v. Bankey Lal Vaidya  79 ITR 594 and referring to this judgment the Gujarat High Court in CIT v. Mohanbhai Pamabhai  91 ITR 393, where they have considered the extended definition of Section 2(47) of the Income-tax Act, 1961, their Lordships observed as under: ...But, even in this artificially extended sense, there is no transfer of interest in the partnership assets involved when a partner retires from the partnership. If relinquishment or extinguishment of interest in partnership assets were involved in the retirement of a partner, the decision in Narayanappd's case AIR 1966 SC 1300 could not have been what it was. Section 17(1)(c) of the Registration Act requires compulsory registration of a document where it acknowledges receipt or payment of any consideration not only on account of creation, declaration, assignment or limitation but also on account of extinction of any right, title or interest in immovable property and the document in Addanki Narayanappa's case AIR 1966 SC 1300, could have, therefore, clearly and indubitably required compulsory registration, if there was any relinquishment or extinguishment of interest of members of 'A' family in the immovable properties forming part of the partnership asset. But the Supreme Court held that the transaction merely represented adjustment of the rights of the partners on dissolution and did not involve relinquishment or extinguishment of the interest of members of 'A' family in the partnership assets which included immovable properties and the document was, therefore, not compulsorily registrable. It is impossible to contend, in view of the decision of the Supreme Court, that when a partner retires from the partnership, there is relinquishment or extinguishment of his interest in the partnership assets . .. (p. 403) In the light of the above judgment, there is little doubt that the adjustment of mutual rights amongst the partners if reduced to a writing does not require any specific registration. We are in agreement with the authorised representative, Shri Saraf, that there are a number of cases wherein the property registered in the names of all the partners or some of the partners is treated as firm's asset as per agreement among the partners, but in those cases there is no requirement of registration in favour of the firm. When this situation is acceptable why not the corollary, i.e., adjustment of mutual rights by withdrawing the assets of the partnership by the partners, which in the instant case is among all the partners and in the same ratio as they had been sharing the profits or losses. We are also in agreement with the case cited by Shri Saraf in CWT v. Mrs. Christine Cardoza  114 ITR 532 (Kar.) while dealing with the question of applicability of deduction of a house in wealth-tax under Section 5(1)(iv) of the Wealth-tax Act, 1957. In the light of the above discussion and also keeping in view of the CBDT's circular as also the Indian Partnership Act, we are of the view that in the instant case the partners have clearly stated their intention of excluding the property representing 9 godowns from the firm's assets and carried out all the acts with outside parties who are directly involved like the banks who had given loans against these godowns and the Food Corporation of India who had taken these godowns on hire. The 9 godowns, therefore, should be treated as assets jointly owned by the partners in their individual capacity from 1-2-1979 and the income from letting out of godowns is to be assessed as the co-ownership as defined in Section 26 of the Indian Income-tax Act, 1922.