Law: Income Tax Act, 1961

Section: 41,41(2),54

Income-tax--Business---Balancing charge --Capital gains---Firm---Transfer of immovable property by firm to its partners---No document in writing and no registration of transfer---Transfer was not valid---No balancing charge or capital gains arose---Indian Income Tax Act, 1961, Ss. 41(2) & 54. In order to effect valid and effective transfer of properties of the firm in favour of the partners, there must be a deed in writing and it must be registered especially where the properties are immovable properties. If there is no such valid transfer, the provisions of section 41(2) of the Income Tax Act, 1961, and the provisions relating to capital gains do not apply. CIT v. Dadha & Co. (1983) 142 ITR 792 (Mad.) fol. JUDGMENT N.V. BALASUBRAMANIAN, J.---The assessee is a partnership firm styled S.Rajamani and Thangarajan Industries carrying on business in the manufacture and sale of soapnut powder. The assessment year with which we are concerned is 1974-75, for which the relevant previous year ended on March 31, 1974. The assessee-firm was originally constituted by a deed of partnership between two partners, namely, Rajamani and Thangarajan, dated March 22, 1955, with effect from April 1, 1954. Certain properties situate at Thiruvathiyur High Road, Chennai, were purchased by the said two partners in their names and it was a common ground that the cost of the purchase was debited to the asset account of the book of the partnership firm and it was also shown as an asset in the balance-sheet. The assessee-firm also claimed depreciation on the properties for several assessment years. Similarly, other properties and assets were purchased subsequently in the names of the said two partners. During the accounting year relevant to the assessment year 1973-74, the original partners, namely, S.Rajamani and Thangarajan, took five more partners and executed a fresh partnership deed. The original two partners, namely, Rajamani and Thangarajan, during the previous year relevant to the assessment year 1974-75 took overall the assets of the firm at book value. According to the assessee, taking over of the properties of the firm originally purchased by the said two partners in…

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