Registered transfer required for immovable property contributed as partnership capital; alleged vesting in firm failed without registration.

Land stated to have been contributed by a partner as capital to a partnership firm could not be treated as having validly passed to the firm without a registered instrument of transfer. Because no registered document existed evidencing transfer of rights in the immovable property, section 17(1)(b) of the Registration Act required compulsory registration and no legal right in the land could be said to have vested in the firm. The question was answered in the negative and against the Revenue, with the alleged contribution held not to constitute a valid transfer to the assessee-firm.

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Issues: Whether land stated to have been contributed by a partner as capital to a partnership firm could be treated as genuine and as having become the property of the assessee-firm in the absence of a registered instrument of transfer.

Analysis: The reference arose under section 256(2) of the Income-tax Act, 1961. The decisive fact was that no document evidencing a registered transfer of rights in the immovable property in favour of the firm existed. Under section 17(1)(b) of the Registration Act, 1908, instruments creating, declaring, assigning, limiting or extinguishing rights in immovable property of the prescribed value require compulsory registration. In the absence of such registration, no legal right in the land could be said to have passed to the partnership firm.

Conclusion: The question was answered in the negative and against the Revenue. The alleged contribution of the land could not be treated as a valid transfer to the assessee-firm without a registered conveyance.

Ratio Decidendi: Rights in immovable property do not pass to a transferee, including a partnership firm, unless the transfer is effected by a duly registered instrument where registration is compulsory.

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