Partnership property can arise without registered conveyance when intention and accounts show immovable asset was contributed to the firm.

A partner may bring separate immovable property into the stock of a partnership by clear intention and accounting treatment, without a registered conveyance, where the property is shown in the firm's accounts as partnership asset. On that footing, the building was treated as belonging to the firm, depreciation was allowable to the assessee-firm, and rental income was not assessable in the partner's individual hands. The non-inclusion of that income did not attract concealment penalty under section 271(1)(c), particularly where the surrounding facts supported a bona fide belief that no individual liability arose.

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Issues: (i) Whether the building was transferred by the partner into the stock of the partnership and belonged to the firm for the purpose of depreciation; (ii) whether the rental income from the building was assessable in the hands of the partner; (iii) whether penalty under section 271(1)(c) was exigible for non-inclusion of rental income; (iv) whether a partner can bring immovable property into partnership stock without a registered conveyance.

Issue (i): Whether the building was transferred by the partner into the stock of the partnership and belonged to the firm for the purpose of depreciation.

Analysis: The partnership accounts and balance-sheets showed that the full value of the building was credited to the partner's capital account and treated as partnership asset from the inception of the firm. The Court treated these entries as clear evidence of the parties' intention that the property was brought into the common stock of the firm. Subsequent conduct, including the firm's treatment of the property as its own, supported that conclusion. The contrary clauses in the original deed were held to have become inoperative to that extent.

Conclusion: The building belonged to the firm and depreciation was allowable to the assessee-firm.

Issue (ii): Whether the rental income from the building was assessable in the hands of the partner.

Analysis: Once the property was held to have become partnership property, the basis for assessing rental income in the partner's individual hands disappeared. The assessment of income from the property had to follow the ownership finding recorded in favour of the firm.

Conclusion: The rental income was not assessable in the hands of the partner.

Issue (iii): Whether penalty under section 271(1)(c) was exigible for non-inclusion of rental income.

Analysis: In light of the finding that the property belonged to the firm, the partner's omission to include rental income did not attract concealment penalty. Even on the alternative view, the surrounding facts were sufficient to sustain a bona fide belief that he was not liable to include such income.

Conclusion: The penalty was not exigible and the assessee succeeded on this issue.

Issue (iv): Whether a partner can bring immovable property into partnership stock without a registered conveyance.

Analysis: Section 14 of the Partnership Act was treated as a special provision enabling a partner to contribute his separate immovable property to the partnership by bringing it into the stock of the firm. The Transfer of Property Act and the Registration Act were held not to bar such a mode of transfer where the parties intended the property to become partnership property.

Conclusion: A registered conveyance was not necessary for such a transfer.

Final Conclusion: The substantive questions were answered largely in favour of the assessee-firm and the partner, with the Court affirming that the property became partnership property and that the related assessments and penalty could not stand on the contrary premise.

Ratio Decidendi: A partner may validly bring his separate immovable property into the stock of the firm by the parties' intention and accounting treatment, without a registered conveyance, and once so brought, the property is partnership property for tax purposes.

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