1. There was a partnership at will under the name and style of AR. PL. Singapore, which carried on business at that place. The partners were the family of the deceased consisting of himself, the accountable person and a third party. On April 12, 1958, the deceased sued in the High Court of Singapore for dissolution of the partnership. The same day the court appointed the deceased as receiver and manager of the properties of the firm. The dissolution ordered by the court was made effective from May 14, 1958. The firm owned both movable and immovable properties, ofwhich the value of the immovable properties was estimated at $ 1,86,000. The death was on August 15, 1958. In his return the accountable person treated the immovable properties as outside the scope of the Estate Duty Aci, 1953. But this view was not accepted by the department, which opined that the family consisting of the deceased and the accountable person was but entitled to a half share in the assets of the erstwhile firm and such share should be treated as personal property, rather than as having the character of immovable property. At the instance of the accountable person, this reference under Section 64 of the Estate Duty Act, 1953, has been made of the following question :
'Whether on the facts and in the circumstances of the case, the share of the deceased in the partnership known as 'AR. PL. Singapore' was correctly treated as movable property for the purposes of the Act '
2. We are of opinion that the revenue is correct. Mr. Thyagarajan for the accountable person urges that after the dissolution of the firm, although the erstwhile partners were entitled to share in the assets of the firm, their position in respect of them should be treated as that of co-owners and, as such, the share of each quondam partner should be regarded as an interest in immovable property. It is further pointed out that there is nothing on record to show that there was anything like an administration of the firm's assets and liabilities involving the various steps contemplated by Section 48 of the Indian Partnership Act, 1932, before the residue was divided between the sharers, and from this standpoint too, the deceased's interest in his one-fourth share in the firm's assets was immovable property. There can be no doubt that, if what is in question is immovable property outside the Indian territories, Section 21(1) of the Estate Duty Act clearly directs that such property shall not be included in the property passing on the death of the deceased. Sub-section (2) of this section confers upon the Board the power to make rules regulating the manner in which the nature and locality of different classes of assets shall be determined for the purposes of this section. Rule 7, which has been framed in exercise of this power, prescribes that the share of a partner in a partnership shall be treated as an indivisible asset for the purpose of determination of its nature and locality, and that is movable, notwithstanding that the firm owns immovable property. Prima facie, the Rule, as its language suggests, covers only the share of a partner in an existing partnership, and a dissolved partnership, without straining the language, cannot be brought within its ambit. But this does not appear to make any difference to the revenue in the instant reference.
3. The law seems to be so well settled now that it is impossible to accept Mr. Thyagarajan's proposition mentioned above. Section 29 of the Indian Partnership Act, 1932, which deals with the rights of transfer of a partner's interest, lays down by its second sub-section that, if a firm were dissolved the transferee from an erstwhile partner of his share in the quondam partnership is entitled, as against the remaining partners, to receive his share of the assets of the firm to which the transferring partner was entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution. The share of the deceased partner has, therefore, to be ascertained as on the date of dissolution of the firm, though that result is achieved after applying the steps specified in Section 48 of the Partnership Act and the residue for division in proportion to shares is eventually ascertained. The right of a partner before or after dissolution of a firm is always to share the profits of the firm, which, in the ultimate analysis, means the net assets of the firm. The right of a partner in not ,to any particular asset of the firm but only to his share in the net funds, to which the assets of the firm are converted, whether the assets were comprised of only immovable properties or both these and movable properties. At no time a partner or a quondam partner could assert his right to a share in any specific property. If in the ultimate division of the residue a quondam partner is allowed a piece of immovable property that once belonged to the firm, even in that case the law assumes it to be in lieu of his share of the profits of the firm and the allotment is, therefore, to be regarded as of a movable property in the shape of such share. This, proposition has been clearly laid down by the Supreme Court in A, Narayanappa v. B. Krishnappa, : 3SCR400 . The question there was whether a particular karar was admissible in evidence, the argument being that because it was not registered, it could not be received in evidence. The karar recited that from a particular day the firm's business was brought to a close and from that day onwards one of the partners gave up to the other his right in the machine, etc., and also in the business by way of adjustment of the mutual rights and in return he had received a piece of immovable property. The Supreme Court held that the document did not require registration and, after referring to various English cases, it summed up the position with reference to the Indian Act as follows:
'As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges.'
4. The Supreme Court referred to Ajudhia Pershad Ram Pershad v. Sham Sunder, A.I.R. 1947 Lah.13, and particularly the following passage in it:
'It is abvious that the Act contemplates complete liquidation of the assets of the partnership as a preliminary to the settlement of accounts between partners upon dissolution of the firm and it will, therefore, be correct to say that, for the purposes of the Indian Partnership Act, and irrespective of any mutual agreement between the partners, the share of each partner is, in the words of Lindley : 'his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged.'
and observed that this view commended itself to it.
5. In Tax Case No. 52 of 1965 Commissioner of Gift-tax v. Muthukantppan Chettiar : 72ITR1(Mad) a Division Bench of this court, to which one of us was a party, applied the ratio of A. Narayanappa v. B. Krishnappa in a reference arising out of the Gift-tax Act. This court held whatever be the character of the property brought in by the partners, or acquired in the course of the business, it became the property or trading assets of the firm and that a partner was entitled only to his share oi profits, if any, accruing and upon dissolution to a share in the moneys realised, which represented the value of the property.
6. In Commissioner of Income-lax v. Dewas Cine Corporation, : 68ITR240(SC) two individuals, who each owned a cinema theatre, formed a partnership to carry on business in partnership as exhibitors of cinematograph films. The cinema theatres were shown in the books of the partnership as its assets. For a number of assessment years, the partnership claimed depreciation allowance, which was granted. But on dissolution of the firm as from a certain dale, it was agreed between the two partners that the theatres should be returned to the original owners. In the books of account of the partnership the assets were shown as taken over at the original price less the depreciation allowed. The revenue as well as the Tribunal held the view that this involved a transfer, to which the proviso to Section 10(2)(vii) of the Indian Income-tax Act, 1922, would apply. The Supreme Court disagreed with that view on the ground that, on the dissolution of the partnership, each theatre had to be deemed to be returned to the original owner in satisfaction partially or wholly of his claim to a share in the residue of the assets after discharging the debts and other obligations. The conclusion was, therefore, reached that the theatres were not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue. The Supreme Court observed :
'The distribution of surplus is for the purpose of adjustment of the rights of the partners in the assets of the partnership : it does not amount to transfer of assets.'
7. It follows that, whatever is given in lieu of the share of a partner, whether a share in the profits in the shape of money or in immovable properties, it is to be regarded as In lieu of such share which in law can in no license be regarded as immovable property, by itself, but only as a personalproperty.
8. We answer the question against the assessee with costs. Counsel's feeRs. 250.