1993 (1) TMI 77 - SC - Income Tax

Supreme Court clarifies arbitration award distribution not requiring registration under Registration Act

The Supreme Court held that the arbitration award involving the distribution of partnership assets did not require registration under Section 17(1) of the ... Whether the interest of a partner in partnership assets is to be treated as movable property or both movable and immovable depending on the character of the property for the purposes of section 17 of the Registration Act? Held that:- The award read as a whole makes it absolutely clear that the arbitrators had confined themselves to the properties belonging to the two firms and had scrupulously avoided other properties in regard to which they did not reach the conclusion that they belonged to the firm. On a correct reading of the award, we are satisfied that the award seeks to distribute the residue after settlement of accounts on dissolution. While distributing the residue the arbitrators allocated the properties to the partners and showed them in the schedules appended to the award. We are, therefore, of the opinion that on a true reading of the award as a whole, there is no doubt that it essentially deals with the distribution of the surplus properties belonging to the dissolved firms. The award, therefore, did not require registration under section 17(1) of the Registration Act. Appeal allowed. Issues Involved:1. Whether the arbitration award required registration under Section 17(1) of the Registration Act.2. Whether the distribution of partnership assets, including immovable properties, on dissolution amounts to a partition or transfer requiring registration.3. The legal implications of the partnership property and the rights of partners in the partnership assets.Issue-wise Detailed Analysis:1. Whether the arbitration award required registration under Section 17(1) of the Registration Act:The primary contention was whether the arbitration award, which involved the distribution of partnership assets including immovable properties, required registration under Section 17(1) of the Registration Act. The Division Bench of the High Court concluded that the award required registration because it conferred exclusive rights to the allottees in the properties allotted under the schedules. The Division Bench held that since the award was not registered, no proceeding for making the award the rule of the court could be entertained, as the court had no jurisdiction to grant a decree in terms of the award.2. Whether the distribution of partnership assets, including immovable properties, on dissolution amounts to a partition or transfer requiring registration:The Supreme Court analyzed whether the distribution of partnership assets on dissolution, including immovable properties, amounted to a partition or transfer requiring registration. The Court referred to several precedents, including Addanki Narayanappa v. Bhaskara Krishnappa, CIT v. Juggilal Kamalapat, CIT v. Dewas Cine Corporation, and Malabar Fisheries Co. v. CIT. The Court reiterated that the interest of a partner in the partnership assets is considered movable property, regardless of the nature of the property. Upon dissolution, the distribution of the residue among the partners does not constitute a partition or transfer of immovable property, and thus does not require registration under Section 17 of the Registration Act.3. The legal implications of the partnership property and the rights of partners in the partnership assets:The Court examined the provisions of the Partnership Act, 1932, which clarify that the property brought into the stock of the firm or acquired by the firm during its subsistence constitutes the property of the firm. Each partner has a share in the profits and, upon dissolution, a share in the residue after settlement of accounts. The Court emphasized that the firm is not a legal entity but a compendious name for the partners, who have a joint interest in the partnership property. The distribution of the residue among the partners on dissolution does not involve a transfer or partition of immovable property.Conclusion:The Supreme Court concluded that the award did not require registration under Section 17(1) of the Registration Act. The Court noted that the Division Bench of the High Court had erroneously interpreted the award as conferring exclusive rights to the allottees. The Court clarified that the award dealt with the distribution of the residue after the settlement of accounts on dissolution, and thus did not necessitate registration. The Court allowed the appeals, set aside the impugned orders of the Division Bench, and remitted the matters to the Division Bench to address the other contentions raised in the appeal. The Court also directed that the award pending for registration may be registered by the Sub-Registrar, notwithstanding the objection raised by one of the partners.