1982-VIL-487-AP-DT

Equivalent Citation: [1983] 142 ITR 706, 33 CTR 38, 12 TAXMANN 349

ANDHRA PRADESH HIGH COURT

Date: 28.10.1982

COMMISSIONER OF INCOME-TAX, AP

Vs

AV BHANOJI RAO (DECD)

BENCH

Judge(s)  : CHENNAKESAV REDDY., RAMACHANDRA RAJU 

JUDGMENT

The judgment of the court was delivered by

RAMACHANDRA RAJU J.-This is an application under s. 256(2) of the I.T. Act to direct the Income-tax Appellate Tribunal, Hyderabad, to state a case and refer the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the capital gains levy in respect of conveyance, dated January 29, 1972, is justified ?"

The assessee was the owner of a land admeasuring 5,455 sq. yards in Alipur ward of Visakhapatnam Municipality. He entered into a partner-ship with one K. Poornachandra Rao in December, 1969, to construct and run a cinema theatre. The capital of the business was stated to be three lakhs. The assessee was to contribute Rs. 1 lakh and he threw the above extent of land in the common stock as representing his share of contribution of one lakh. A regular partnership deed with the aforesaid terms was executed by the partners on May 16, 1970. Some time prior to January 29, 1972, the partners applied for a loan from the Life Insurance Corporation, at whose instance, a formal document dated January 29, 1972, was executed and registered by the assessee in favour of the firm. That document was valued at Rs. 1 lakh and was styled as a deed of conveyance "for no consideration ". While making the assessment for the year of assessment 1972-73 for the accounting period ending with March 31, 1972, the ITO brought to charge the capital gain arising out of the said transfer treating the transfer to have come into effect on January 29, 1972. The assessee's appeal to the AAC was dismissed. On further appeal by the assessee to the Income-tax Appellate Tribunal, the Tribunal held, firstly, that there was no transfer and even if there was a transfer, it was effected during the accounting year 1969-70 and the transfer was not effected during the assessment year 1972-73. The Tribunal accordingly excluded the income-tax on such capital gains as (not?) having arisen during the assessment year 1972-73. The Revenue applied before the Tribunal to refer the question of law, stated above, to this court for its opinion. The Tribunal rejected that application, mainly on the ground that the capital gains did not accrue to the assessee during the accounting period 1971-72 and in that view of the matter, the question whether the transfer took place during the accounting year 1969-70 would be purely academic and did not warrant any reference on the question whether the capital gains accrued to the assessee during the accounting year 1969-70.

On behalf of the Revenue, it is strenuously contended before us that the transfer was effected only in terms of the conveyance deed dated January 29, 1972, and not during the accounting year 1969-70. According to the learned standing counsel, the transfer could be made only by duly registered document which was executed on January 29, 1972, and the transfer could not have been made otherwise during December, 1969, or in terms of the partnership deed dated May 16, 1970. We do not find any substance in this submission. It is enough if reference is made to the following observations made by the Supreme Court in Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300 (p. 1304, Col. 2):

" 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. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in it would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. 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."

The aforesaid decision of the Supreme Court has been followed by the Rajasthan High Court in CIT v. Amber Corporation [1974] 95 ITR 178 and CIT v. Amber Corporation [1981] 127 ITR 29. In the first of these two cases, the assessee was a partnership firm consisting of Maharaja Man Singh and his four sons who carried on a hotel business at Jaipur. The four sons, who owned the Rambagh Palace, treated the palace as forming part of the common stock of the firm. The partnership deed provided that on the dissolution of the firm, the palace should revert to the four sons in equal shares at its written down value as appearing in the books of account of the partnership. In the returns filed for the two assessment years 1959-60 and 1960-61, the firm claimed depreciation on that palace. The learned judges held that once the palace was treated as forming part of the common stock of the partnership, the partnership became entitled to claim depreciation on that building. In the second of the cases, the learned judges, were dealing with a similar claim for depreciation made for the assessment year 1961-62. It was contended that in the absence of registration, no such transfer could be given effect to and the property known as Rambagh Palace cannot be considered to have been contributed towards the assets of the partnership in the absence of registration. The learned judges held (p. 32) :

" Even if a property contributed by one partner be an immovable property, no document, registered or otherwise, is required for transferring the property to the partnership. "

A similar view is expressed by the Madras High Court in R.M. Ramanathan Chettiar v. CED [1975] 99 ITR 410 and by the Patna High Court in Firm Ram Sahay Mail Rameshwar Dayal v. Bishwanath Prasad [1963] AIR 1963 Pat 221.

The facts found are that the assessee contributed the site in question towards his capital contribution in December, 1969, itself. That transfer could be validly effected without the parties taking recourse to a registered document. The deed of assignment dated January 29, 1972, was executed by the assessee to satisfy the Life Insurance Corporation which insisted on the execution of a registered document before it agreed to advance any loan to the partnership firm. The transfer of the site having already been made in December, 1969, there could not have been a second transfer of the property over again in favour of the partnership in terms of the assignment deed dated January 29, 1972. That is the reason why though the document was executed for Rs. 1 lakh, it was also styled as document executed " for no consideration ". The Tribunal is, therefore, correct in holding that the capital gains did not accrue during the accounting year 1971-72 for assessing the same for the assessment year 1972-73. We accordingly dismiss the application, but in the circumstances, without costs.

 

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