1981 PLP 17 (PTD)

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm." The principal question that arises for determination in this reference is whether the assessee brought the building in which he was carrying on the hotel business, into the stock or capital of the firm. Section 5 of the Transfer of Property Act, 1882, defines transfer of property as an act by which a living person conveys property, in present or in future, to one or more other living persons or to himself and one or more other living persons. Thus, a person can transfer a property from himself to himself and one or more other living persons. Section 17(1)(b) of the Registration Act, 1908, provides, inter alga, that a non‑testamentary instrument which purports or operates to create, declare, assign, limit or extinguish any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, shall be registered. If the hotel building was transferred by the assessee to the partnership firm under an instrument of conveyance, such instrument should have been registered under the Registration Act in order to constitute a valid transfer. It is undisputed that in the present case there was no instrument under which the assessee purported to convey the hotel building to the partnership firm. But the question is whether a partner can bring his individual immovable property into the stock or capital of the firm otherwise than by means of a registered instrument of conveyance. In Prem Raj Brahmin v. Bhani Ram Brahmin I L R 1 Cal. 191, a Division Bench of the Calcutta High Court referred to section 239 of the Indian Contract Act and section 14 of the Indian Partnership Act and held that under the provisions of those two Acts for the purpose of bringing the separate properties of a partner into the stock of the firm it is not necessary to have recourse to any written document at all, that as soon as a partner intends that his separate properties should become partnership properties and they are treated as such, then by virtue of the provision is of the Contract Act and the Partnership Act, the properties become the properties of the firm and that this result is not prohibited by any provision in the Transfer of Property Act or the Indian Registration Act. A similar view was taken by a Division Bench of the Patna High Court in Firm Ram Sahay Mall Rameshwar Dayal v. Bishwanath Prasad A I R 1963 Pat.

221. Their Lordships observed thus at page 223: "The legal position, therefore, appears to be that no written or registered document is necessary for an individual to contribute any land or immovable property as a contribution against his share of the capital of a new partnership business." In Commissioner of Income‑tax v. Janab N. Hyath Batcha Sahib (1969) 72 I T R 528 (Mad.), a Division Bench of the Madras High Court held that when a partner brings in certain items into the partnership at the time of its formation, such items become the property of the partnership and that such change of ownership is brought about not by any transfer, but by the very intention of the parties to treat such property belonging to one or more of the members of the partnership as that of the firm. In Chief Controlling Revenue Authority v. Chidambaram A I R 1970 Mad. 5 a Division Bench of the Madras High Court held that when a partner brings some of his assets with an intention to treat the same as partnership asset, by virtue of section 14 of the Partnership Act, such property could be thrown into the partnership stock without any formal document so as to make it the property of the firm. The same view was taken by another Division Bench of the Madras High Court in R. M. Ramdnathan Chettiar v. Controller of Estate Duty (1975) 99 I T R 410 (Mad.). From the aforesaid decisions it is clear that a partner can bring his immovable property to the stock or capital of the firm as his contribution thereto without a registered instrument. But the learned standing counsel maintained that on this question the Supreme Court and this Court have taken a contrary view. He referred us to the decision of this Court in Ram Narain and Brothers v. Commissioner of Income‑tax (1969) 73 I T R 423 (All.). There, a partnership firm had purchased certain immovable properties. Subsequently, the partner claimed that the ownership of one of such properties had been transferred by the firm to one of the individual partners by adjustment made in the relevant entries in the books of accounts. One of the questions that arose for determination in that case was whether a property admittedly once owned by the firm as such, ceased to be so owned by it by reason of certain entries made in the account books of the firm. A Division Bench of this Court took the view that the partners of a firm can convert an immovable property belonging to the firm into personal property of any of them by means only of an instrument in writing, that mere entries in the books of accounts of the firm do not have the effect of converting such property of the firm into the personal property of any of the partners and that such property, therefore, continues to remain the property of the firm despite such entry. In the aforesaid case the question whether a partner can bring his immovable property as his contribution to the stock or capital of, the firm without a registered instrument, did not arise for determination. Hence, that decision cannot be of any assistance to the learned standing counsel. The learned standing counsel next sought to derive support from the following observation of the Supreme Court in. Commissioner of Income‑tax v. Hind Construction Ltd.: (1972) 83 I T R 211 (S C): "Nor can a person by handing over his goods to a partnership of which he is a partner and that as his share of capital be considered as having sold the goods to the partnership." The aforesaid observations cannot, in our opinion, be understood as laying down the proposition that a partner cannot bring his immovable property as his contribution to the stock or capital of the firm except by means of a registered instrument of transfer. As a result of the foregoing discussion, our answers to the questions referred to us are in favour of the assessee and as follows:‑ "(1) On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the business assets consisting of the Grand Hotel could be transferred to the partnership only by a registered deed and that in the absence of such deed the building remained the individual property of Shri K. D. Pandey. (2) On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the entire value of the building was assessable in the hands of the assessee, individual." The assessee will get his costs from the revenue. Advocate's fee is assessed Rs.

200. Questions answered in the negative.