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Judgment
Ramanujam J.
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 ?
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 Vs. Commissioner of Income Tax, . Thus the entire income from the building in the year 1973-74 was
assessed in the hands of the firm.
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.
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 Commissioner of Income Tax, West Bengal, Calcutta Vs. Juggilal Kamalapat, , and also the decision of the Allahabad High Court in Ram
Narain and Brothers Vs. Commissioner of Income Tax, . On behalf of the assessee reliance was placed before the Tribunal upon the ruling of the
Madras High Court in Commissioner of Income Tax Vs. Janab N. Hyath Batcha Sahib, . The Tribunal held that the ruling of the Supreme Court in
Commissioner of Income Tax, West Bengal, Calcutta Vs. Juggilal Kamalapat, will not apply to the facts of the case and that in view of the
decisions of this court in Commissioner of Income Tax Vs. Janab N. Hyath Batcha Sahib, and PL. VRM. Ramaswamy Chettiar Vs. Assistant
Controller of Estate Duty, , the decision of the Allahabad High Court in Ram Narain and Brothers Vs. Commissioner of Income Tax, 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.
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 Commissioner of Income Tax Vs. Dadha and Company,
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 Commissioner of Income Tax Vs. Dadha and Company, , 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.
The learned counsel for the assessee would, however, submit that the said decision of this court in Commissioner of Income Tax Vs. Dadha and
Company, , requires reconsideration for the reason that the said decision has not referred to the following decisions of the Supreme Court and this
court in Commissioner of Income Tax, Madras Vs. R.M. Chidambaram Pillai and Others, and COMMISSIONER OF Income Tax, MADRAS-I
Vs. ABDUL KHADER MOTOR AND LORRY SERVICE., , respectively.
In COMMISSIONER OF Income Tax, MADRAS-I Vs. ABDUL KHADER MOTOR AND LORRY SERVICE., , 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 Commissioner of Income Tax Vs. Janab N. Hyath Batcha
Sahib, , 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.
The learned counsel then referred to the decision in Commissioner of Income Tax, Madras Vs. R.M. Chidambaram Pillai and Others, . 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 Commissioner of Income Tax Vs. Dadha and Company, , which specifically refers to
the decision of the Allahabad High Court in Ram Narain and Brothers Vs. Commissioner of Income Tax, , with approval which decision the
Tribunal was not inclined to accept at correct.
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.