Registered instrument required for partition of immovable property; mere book entries cannot divest ownership or defeat tax assessment

Mere book entries could not validly convert immovable property standing in the firm's name into the separate property of the partners, because a partition or release of co-owned immovable property of the requisite value requires a written and registered instrument. In the absence of such valid transfer, the firm remained the owner for tax purposes. The later sale by the partners and legal representative was therefore treated as a sale on behalf of the firm, and the income from the properties, interest on unpaid consideration, and capital gains were assessable in the firm's hands. The tax treatment adopted by the Revenue was upheld.

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Issues: (i) Whether mere book entries could validly convert immovable property standing in the name of the firm into the separate properties of the partners without a registered instrument; (ii) whether, in the absence of such a valid transfer, the firm ceased to be the owner of the properties so that the capital gains and related receipts on sale could not be assessed in its hands.

Issue (i): Whether mere book entries could validly convert immovable property standing in the name of the firm into the separate properties of the partners without a registered instrument.

Analysis: The properties were purchased in the name of the firm and had been treated as firm assets for years. The later accounting entries only showed a shift from common enjoyment to separate enjoyment among the co-owners. Such a conversion of co-owned immovable property into separate interests amounts, in substance, to a partition or mutual release. Under the law relating to partition and registration, an instrument effecting such division of immovable property of the requisite value must be in writing and duly registered. Mere book entries cannot operate as a conveyance, release, or partition of immovable property.

Conclusion: Mere book entries were insufficient to effect a valid transfer or partition of the immovable properties.

Issue (ii): Whether, in the absence of such a valid transfer, the firm ceased to be the owner of the properties so that the capital gains and related receipts on sale could not be assessed in its hands.

Analysis: Since the book entries did not validly divest the firm of its interest in the properties, ownership remained with the firm. The subsequent sale by the partners and the legal representative was therefore treated as a sale on behalf of the firm. On that footing, the income from the properties, the interest on unpaid consideration, and the capital gains were properly brought to tax in the hands of the firm.

Conclusion: The firm continued to be the owner for tax purposes, and the additions made by the assessing authority were sustainable.

Final Conclusion: The reference was answered against the assessee and the tax treatment adopted by the Revenue was upheld.

Ratio Decidendi: A partition or release of co-owned immovable property of the requisite value cannot be effected by mere book entries; a registered instrument is necessary, and absent such instrument the property continues to belong to the original owner for tax purposes.

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