P L D 1973 Lahore 356 (PLP)

M. S. H. QURESHI, J.‑

This order will dispose of three Reference applications under section 66(2) of the Income‑tax Act, 1922 bearing Nos. 5, 6 and 7, as they raise a common point for determination.

2. The respondent‑assessee is a firm with Sheikh Jamal Din and Sheikh Ghulam Hussain as partners, which had been running an Ice factory. The factory which had been transferred by the Settlement Authorities in favour of Sheikh Ghulam Hussain had been taken on lease by the partnership for three years beginning from 1st July 1958 for the purpose of carrying on the business of ice production by the partnership. The partnership bad in the assessment for the years 1959‑60, 1960‑61 and 1961‑62, claimed statutory depreciation on the machinery building etc. but the same had been refused by the Income‑tax Officer on the ground that the factory was not owned at the relevant time by the assessee, the permanent transfer having taken place much later. The Appellate Assistant Commissioner, before whom the assessee went in appeal, however, held that on the receipt of the Provisional Transfer Order, the assessee had for all legal purposes become the owner of the factory and the building and that it was entitled to the depreciation asked for In the appeal which the Department filed against the order of the Appellate Assistant Commissioner, the Income‑tax Appellate Tribunal held that the ownership of the factory had in fact been transferred in the first instance to Ghulam Hussain, a partner of the firm, from whom the firm had taken it over under a lease for three years, and that as the books of the assessee firm showed that the factory etc. had been treated as the property of the firm in all respects, the assessee was for all legal purposes, to be taken as the owner of the property and thus entitled to the depreciation. The Tribunal, therefore, upheld the order of the Appellate Assistant Commissioner and dismissed the Department's appeal. The Department then moved an application under section 66(I) of the Income‑tax Act requiring the Tribunal to refer the following question of law to the High Court:

Whether on the facts and in the circumstances of the case, there was any evidence before the Appellate Tribunal to come to the conclusion that the assessee‑firm was the owner of the factory which entitled it to depreciation under section 10(2)(vi) of the Income‑tax Act. The application was, however, dismissed, whereupon the Department has now come up before this Court in the said three petitions filed under section 66(2) of the Income‑tax Act for a direction to the Tribunal to refer the said question of law to this Court.

3. Malik Muhammad Nawaz, learned counsel for the assessee, vehemently contended that the question was not refer able under section 66 of the Income‑tax Act on the grounds that‑ (i) the question did not arise out of the order of the Tribunal; and (ii) whether the factory was the property of the firm, or not, was a question of fact.

4. As regards the first ground, it is no doubt true that the consideration, which had really weighed with the Income‑tax Officer as well as the Appellate Assistant Commissioner, was whether in the absence of the permanent transfer documents the property could be deemed accrued to the ownership of the firm. Both the authorities had ignored the fact that the property had been transferred by the Settlement authorities to Sheikh Ghulam Hussain and not to the partnership. The position was, however, made clear by the Tribunal, who held: "It is, therefore, abun dantly clear that ownership in the ice factory had in fact been transferred to Mr. Ghulam Hussain." The Tribunal had, how ever, treated the property as that of the partnership. The question whether the ownership of the property vested, at the relevant time in Sheikh Ghulam Hussain or it was the property of the partnership, was, therefore, very much present before the Tribunal and as such there is no force in the contention that the question did not arise out of the Tribunal's order.

5. As to the second ground, the Tribunal's view, that the firm was to be treated "for all legal purposes" to be the owner of the property, was based entirely on the entries in the books of the partnership, which, according to the Tribunal, showed "that the factory etc., was treated a9 the property of the firm in all respects." It is to be seen if the inference drawn by the Tribunal was correct and if the same can be agitated before this Court.

6. Section 14 of the Partnership Act, which relates to the property of tie firm, is as follows :‑ "

14. Subject to contract between the partners, the pro perty of the firm includes all property and rights and interests in property originally brought in to the stock of the firm, or acquired, by purchase or otherwise, by or for the firm or for the purpose and in the course of the business of the firm, and includes also the goodwill of the business. 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." Sh. Abdul Haq, learned counsel for the Department, contend ed that the property could not be deemed acquired in the absence of a registered instrument or some similar conveyance. Such a contention had been raised in Rama Sundari Ray v. Syameadra Lal Ray (I L R 2 Cal. 1), but the same had been repelled in the light of an earlier decision in Krishna Kishore Gupta v. Devendra Nath Gupta (referred to in Rama Sundari Ray's case), wherein Pan charidge, J., bad held, as follows:‑-- When and by what means, it is asked, did the three brothers divest themselves of their rights as joint devisees of the immovable assets of the alleged partnership? No conveyance is produced, and it is suggested that for the transfer to be effectual a conveyance was essential. Under section 54 of the Transfer of Property Act no interest would be created by a contract of sale, even if one could be proved, and by the same section, a registered instrument is made compulsory, c.f., the observations of Asutosh Mookerjee, J. in Jadu Nath Poddar v. Rup Lal Poddar. I am impressed by this argument, but I think the answer is to be found in section 253 of the Contract Act, and that property is effectually "brought into the partnership stock" within the meaning of the section. if the partners agree to treat it as such. The language is wide and I see no reason to construe it as being subject to the formalities required by the Transfer of Property Act in the case of a sale of immovable property. The learned Judge had further observed :‑ It is admitted that in England no conveyance is necessary in such cases. I do not think that I am required to express any opinion on the question whether this is due to the doctrine of part performance. As far as India is concerned it is enough to say that whether any particular item of property, be it immov able, or movable, has been brought into partnership‑stock is a question of a sale of immovable property.

7. A property owned or acquired by the partners and con tributed or transferred by them to the partnership may become the property of the firm. It is not necessary for a partner to bring his property into partnership, or, to transfer it, by a registered instrument. In fact, an answer to the question, whether or not a property has become partnership property. depends upon :the intention of the parties as manifested by an express or implied agreement such as deed of partnership, and by the act and conduct of the partners. In the present case we find that the Partnership deed contains the following recital :

Whereas the parties hereto have taken on lease an Ice Factory styled, Jamal Ice Factory, Hussain Agahi, Multan from party No. 2 for a period of 3 years beginning from the first July 1958, and have agreed to carry on the business of Ice pro duction in partnership with each other. The Tribunal, as already stated, had found that the books of ‑the firm showed that the Factory etc, had been treated as the property of the firm in all respects. No interference is possible with this conclusion of the Tribunal, because the question of ascertainment of the intention of the partners as to the treatment of the property is a question of fact as had been held in the aforesaid cited case of Krishna Kishore Gupta. The question is thus nest referable under section 66 of the Income‑tax Act, 1922.

8. We answer the reference accordingly. We, however, make no direction as to costs. K. B. A. Reference answered.