1. The following question has been referred to this court for its opinion at the instance of the Revenue :
'Whether, on the facts and in the circumstances of the case, income from the property known as 'Kannammai Building' is includible in the assessment of the assessee-firm for the assessment year 1973-74 ?'
2. The assessee-firm is the owner of the property known as 'Kanammai Building', 122, Mount Road, Madras. The value of the building shown in the balance-sheet of the firm as on March 31, 1972, is Rs. 26,13,441. The building has been let out to various business concerns for rent and rents as also service charges are collected from them. Till the assessment year 1972-73, the income from the building was assessed as income of the firm. For the assessment year 1973-74, the assessee-firm did not admit either the rental income or the service charges received from the property. The assessee explained the omission on the ground that the building has been transferred by the firm to its partners by virtue of an agreement and that the partners are directly in receipt of the income and the service charges from the portions of the property transferred to them and that the firm is not in actual receipt of any income either as rent or as service charges. Thus the assessee's case before the ITO was that the firm was no longer the owner of the property, that therefore, the income therefrom cannot be assessed in its hands and that, in fact, the property has been treated as belonging to a co-ownership and the share income therefrom has been returned by the partners in their individual returns. The ITO did not accept the assessee's stand on the ground that the transfer of the property was not made by means of a document in writing duly registered as required under the provisions of the Transfer of Property Act and that an immovable property owned by the firm cannot be transferred to its partners by a mere a mere agreement to divide the property or by mere book entry. In support of that view, the ITO relied on the decision of the Allahabad High Court in Ram Narain and Brothers v. CIT : 73ITR423(All) . Thus the entire income from the building in the year 1973-74 was assessed in the hands of the firm.
3. The assessee took the matter in appeal to the AAC who held that the agreement entered into between the partners to divide the property can be taken to be a document transferring title from the firm to its partners and, therefore, the income accruing from the property by way of rent and service charges after the date of the agreement should be assessed in the hands of the individual partners and not in the assessee's hands.
4. The Revenue, aggrieved by the decision of the AAC, took the matter in appeal to the Income-tax Appellate Tribunal contending that the immovable property belonging to a firm cannot be transferred to any one including its partners during its continuance except under a document duly registered in accordance with s. 17(b) of the Registration Act. In support of its submission, the Revenue relied on the decision of the Supreme Court in CIT v. Juggilal Kamplapat : 63ITR292(SC) , and also the decision of the Allahabad High Court in Ram Narain and Brothers v. CIT : 73ITR423(All) . On behalf of the assessee reliance was placed before the Tribunal upon the ruling of the Madras High Court in CIT v. Janab N. Hyath Batcha Sahib : 72ITR528(Mad) . The Tribunal held that the ruling of the Supreme Court in CIT v. Juggilal Kamlapat : 63ITR292(SC) will not apply to the facts of the case and that in view of the decisions of this court in CIT v. Janab N. Hyath Batcha Sahib : 72ITR528(Mad) and Ramaswamy Chettiar v. Asst. CED : 92ITR195(Mad) , the decision of the Allahabad High Court in Ram Narain and Brothers v. CIT : 73ITR423(All) supporting the stand of the Revenue cannot be followed. It also referred in support of its view to one of its earlier judgments dated August 25, 1976 in Third ITO v. Dadha and Company (I.T.A. No. 381/MDS-1974-75). The Revenue is aggrieved by the said order of the Tribunal holding that a mere agreement entered into between the partners to divide the property of the firm is sufficient to transfer title to immovable property from the firm to its partners.
5. It is pointed out by the learned counsel for the Revenue that the earlier decision of the Tribunal in the case of Dadha and company (I.T.A.J No. 381/MDS/1974-75) was the subject matter of reference to this court and this court in CIT v. Dadha and Company : 142ITR792(Mad) has clearly held that the transfer of the property belonging to the firm to the partners can be done only by a document duly registered under s. 17(b) of the Registration Act and that a transfer of immovable property from the firm to its partners cannot be effected by a mere book entry. The said decision of this Court in CIT v. Dadha and Company : 142ITR792(Mad) , applies on all fours to the facts of this case. In the case dealt with by this Court in the above decision, the transfer was effected by making book entries in the account books of the firm and, in this case, the property is said to have been divided by an agreement between the partners followed up by book entries. Therefore, substantially there is no difference between the said case and the case before us on facts. The principles of that case clearly apply to this case and, therefore, the mere agreement entered into between the partners to divide the property of the firm to the individual partners cannot be taken to be sufficient to transfer the legal title from the firm to its partners.
6. The learned counsel for the assessee would, however, submit that the said decision of this court in CIT v. Dadha and Company : 142ITR792(Mad) , requires reconsideration for the reason that the said decision has not referred to the following decisions of the Supreme Court and this court in CIT v. Chidambaram Pillai : 10ITR292(SC) and CIT v. Abdul Khader Motor and Lorry Service : 112ITR360(Mad) , respectively.
7. In CIT v. Abdul Khader Motor and Lorry Service : 112ITR360(Mad) , a Division Bench of this court had to consider the question as to whether there was a sale of buses along with the route permits by one firm to another so as to attract s. 41(2) of the I.T. Act, 1961. In that case the assessee-firm constituted under a deed of partnership dated September 28, 1950, consisted of two partners. The firm was carrying on the business of motor transport, plying buses and lorries. The vehicles together with their route permits stood in the name of Abdullah, one of the partners. Because of certain financial difficulties the firm felt that it was advantageous to enter into a partnership with two other persons to carry on the business of plying motor vehicles. Therefore, the old firm was reconstituted into a new firm with four partners on October 1, 1942, under the name and style of Messrs. Abdul Khader Motor Service. The buses together with the route permits were transferred to the new firm by the assessee-firm as also its liabilities. For the year 1963-64, two separate returns were filed by the assessee-firm as well as the new firm. The ITO took the view that the transfer of the buses with the route permits from the assessee-firm to the new firm amounted to a sale so as to attract s. 41(2) of the Act. When the matter went before the Tribunal, the Tribunal held that there was no sale of buses by the assessee-firm to the partnership of four persons and, therefore, there could be no assessment under s. 41(2) and also no levy of tax as capital gains. The matter was taken on this court and this court agreed with the view taken by the Tribunal that the transfer of the buses cannot be taken to be a sale as contemplated by s. 41(2). The court, following the decision of this court in CIT v. Janab N. Hyath Batcha Sahib : 72ITR528(Mad) , held that when a person handed over his property to a firm of partners consisting of himself and others, there is no transfer of property so as to constitute a sale. But the principle of that decision will not apply to the facts of this case. That was a case where the partner brought in certain properties to the firm in addition to the capital contributed by him and such a transaction of bringing his property to the firm of which he is a partner has consistently been held to be not a transfer at all, for normally, a transfer will arise only if an asset is transferred for consideration for money or money's worth.
8. The learned counsel then referred to the decision in CIT v. Chidambaram Pillai : 10ITR292(SC) . That decision does not also support his contention that in this case the agreement entered into between the partners to divide the properties of the firm could be treated as sufficient to transfer the title in the property from the firm to the partners. That case merely referred to the well-known principle that ality and that though in income-tax law a firm is a unit of assessment, still it is not a full person. Those observations were made by the Supreme Court in connection with the question as to whether there could be a contract of employment between a firm and a partner. That decision cannot be taken to throw any light on the question in issue before us. We are, therefore, of the view that the assessee has not made out any case for reconsideration of the decision rendered by this court in CIT v/ Dudha and Company : 142ITR792(Mad) , which specifically refers to the decision of the Allahabad High Court in Ram Narain and Brothers v. CIT : 73ITR423(All) , with approval which decision the Tribunal was not inclined to accept at correct.
9. The question referred to us, therefore, is answered in the affirmative and against the assessee. The assessee will pay the costs of the Revenue Counsel's fee Rs. 500.