Income-tax---

--- Firm---Income from house property---Firm transferring its immovable property valued at more than R5. 100 to its individual partners without a registered deed---Transfer is invalid---Rental income from property--To be assessed in the hands of firm---Indian Income Tax Act, 1961, S.22.

Where the assessee, a partnership firm, transferred its immovable property valued at more than Rs.100 to its individual partners without a registered deed, such transfer is not valid and the rental income arising from the property has to be assessed in the hands of the assessee-firm as income from property.

CIT v. Dadha & Co.(1983) 142 ITR 792 (Mad.) fol.

C.V. Rajan for the Commissioner.

P.P.S Janarthana Raja for the Assessee.

JUDGMENT

N. V. BALASUBRAMANIAN, J.---At the instance of the Revenue the Appellate Tribunal under section 256(1) of the Income Tax Act, 1961, has referred the following common question of law for the assessment years 1976-77 to 1978-79 for the opinion of this Court;

"Whether, on the facts and in the circumstances of the case, the Tribunal's view that the income from the property known as 'Kannammai Building' is not includible in the assessments of the -assessee firm for the assessment years 1976-77 to 1978-79 is correct in law?"

The assessee-firm is the owner of the property called "Kannammai Building", Madras. The Income-tax Officer for the assessment years 1976-77 to 1978-79 included the rental income arising from the property known as "Kannammai Building" in the hands of the assessee. The assessee claimed that the property owned by it was transferred to the individual partners by an agreement, dated January 12, 1973, and hence the income of the property should be assessed in the hands of the respective individuals. The Income-tax Officer rejected the claim of the assessee and included the income in the assessee's hands. The Commissioner of Income-tax (Appeals) on appeal by the assessee held that the action of the Income-tax Officer was justified. The assessee preferred a further appeal before the Appellate Tribunal and the Appellate Tribunal, following the earlier case in the assessee's own case in I.T.A. No.1673 (MDS) of 1976-77 dated September 30, 1977, for assessment year 1973-74, held that there was a valid transfer and the income from the property known as "Kannammai Building" cannot be included in the hands of the assessee. The order of the Appellate Tribunal is the subject matter of this tax case.

At the time of hearing of the tax case reference, Mr. C. V. Rajan, learned standing counsel, submitted that the view of the Appellate Tribunal that there was a valid transfer by the assessee-firm without a registered document is not sustainable in law. He placed reliance on the decision in CIT v. Dadha & Co.. (1983) 142 ITR 792 (Mad). We have heard learned counsel' for the Department and perused the records carefully. This Court in the above cited decision held thus (headnote):

"The only way the 'co-owners of immovable property have of creating separate dimensions over as many separate interests as there are co-owners would be by way of a regular deed of partition. Co-ownership of property cannot fall apart as separate individual interests. without a deed of partition or at any rate a deed of mutual release. Any such instrument, whether it be a regular deed of partition or a release deed, must be duly stamped as contemplated under the Indian Stamp Act, if the value thereof is over Rs.100."

In this case, the firm is a continuing firm and not a dissolved firm and without a registered deed or by any other manner known. to law it is not possible for the assessee-firm to transfer its immovable property valued at more than Rs.100 to the partners. The view of the Appellate Tribunal that there was a valid transfer of the property is not correct in view of the above decision. When once the transfer is not valid, the income arising from the property is includible only in the hands of the assessee. Hence, the view of the Appellate Tribunal that the income of the property is not includible in the assessment of the assessee-firm is not sustainable in law. Accordingly, we answer the question of law referred to us in .the negative and in favour of the Department. No costs.

M.B.A./4026/FCQuestion answered.