TaxTMI 
TaxTMI 
1971 (5) TMI 73
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....he partnership has been dissolved with effect from 15th September 1960. The third party (Narendra Bahadur Singh) was given all the stocks, assets, and liabilities, including, all debts as per books of accounts of the firm. He was entitled to carry on the business under the old name and style. The other three partners were not entitled to or liable for the profits or loss of the business or for the liabilities that may be incurred by the third party (Narendra Bahadur Singh) hereinafter. In lieu of their capital, advances, profits and loss and interest, if any, accrued upto the 15th of September. 1960, the 1st party, the 2nd party and the 4th party had agreed to receive and 3rd party had agreed to pay, the amount mentioned hereunder respectively against their names, in full satisfaction of their respective shares, interest, profits and claim whatsoever in the said firm. The 1st party (Purshottam Das Lallu Bhai) was to receive ₹ 48,000,00, the 2nd party (Smt. Deliben) ₹ 45,000.00 and the 4th party (Smt. Kikiben) ₹ 13,000.00 from the third party. In order to secure payment of these sums, the third party had hypothecated and charged certain properties. 3. It has not b....
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.... be paid, next the capital advanced by each partner is paid back to him. Thereafter, under Clause (iv) of Sub-section (b) of Section 48, the residue is divided between the partners in accordance with their shares. 8. In [1966]3SCR400 , the Supreme Court held that, on dissolution of the partnership, the right of a partner is to get the value of his share in the net assets of the partnership as on the date of dissolution, but after a deduction of liabilities and prior charges. 9. Dealing with the settlement of accounts of a partnership firm on its dissolution, the Supreme Court in Commr. of Income Tax, Madhya Pradesh, Nagpur and Bhandara v. Dewas Cine Corporation, [1968] 68 ITR 240 held:-- "The distribution of surplus is for the purpose of adjustment of the rights of the partners in the assets of the partnership it does not amount to transfer of assets." In that case, the two partners had brought a theatre each into the partnership. On dissolution of the partnership, it was agreed that each theatre be returned to its original owner in satisfaction partially or wholly of his claim to a share in the residue of the assets after discharging the debts and other obligations.....
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....fied. On liquidation being completed, the firm is extinguished. The shares of the partners vanish. There are no co-owners. Nothing can be released or relinquished by one in favour of other co-owners. 12. My answer to the Questions referred to this court are:-- 1. The document is not a deed of release. It is a deed of dissolution cum-three mortgages. 2. The document is not an instrument of conveyance and is not chargeable to additional duty as such. Abani Kumar Kirty, J. 13. This is a reference under Section 57 of the Indian Stamp Act. The Chief Controlling Revenue Authority has stated a case and has referred the following two questions for decision to this Court:-- (1) Whether the document is a Dissolution of partnership-cum-three Mortgages-cum-three Releaes as contended by the executants ? (2) Whether the document amounts to a Dissolution of partnership-cum-three Mortgages-cum-three conveyances for ₹ 48,000/-, ₹ 45,000/- and ₹ 13,000/-respectively chargeable with the aggregate duties of three conveyances under Article 23 of Schedule I-B of the U.P. Stamp Amendment Act, 1958 read with Section 6 Ibid? 14. The material facts are given below. Four person....
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....ptember 1960, the first, second and fourth parties had agreed to receive and the third party had agreed to pay the amounts noted respectively against the names of the said parties in full satisfaction of their respective shares, interest, profits and claim whatsoever in the said firm. The first party was to receive ₹ 48,000/-, the second party ₹ 4,5000/-and the fourth party ₹ 13,000/- from the third party. The amount payable to each of such party was to be paid by incitements as mentioned in the document. In Clause 10 it was provided that in order to secure the payment of the total sum of ₹ 1,06,000/-, the third party had agreed to hypothecate and charge the properties mentioned therein. It is not necessary to refer to the other clauses of the document. The controversy really relates to the contents of Clauses 2 and 3 of the document referred to above. 16. In order to appreciate the correct legal position, it would be necessary to refer to certain provisions of the Indian Partnership Act. Section 40 of that Act provides that:-- "A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners." ....
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....st until its affairs are finally and completely wound up. It is only after the dissolution of the firm that its affairs can be wound up at the instance of any of the partners. Till the debts and liabilities of the firm have been fully paid off no partner can claim any particular property as his own nor can he claim that he has any specific share or interest in any property of the firm. It is only when after payment of all the debts and liabilities of the firm there is a surplus left that a partner can have the surplus distributed according to his rights. The accounts of the firm as between the partners have to be settled, subject to agreement by them, in accordance with the rules stated in Section 48. The partners of a firm presumably are not co-owners of "the property of the firm" or its assets. This to my mind is adumbrated by the decision in [1966]3SCR400 . In that case the following observation of Cornelious, J. in Ajudhia Pershad Ram Pershad v. Sham Sunder AIR 1947 Lah 13 was expressly approved in paragraph 6 of the judgment:-- "............It is obvious that the Act (Partnership Act) contemplates complete liquidation of the assets of the partnership as a prel....
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....ot;firm" as defined in the Act has to come to an end. Under Section 39 of the said Act, the dissolution of partnership between all the partners of a firm is called the dissolution of the firm. From Sections 40, 41, 42 and 43 of that Act, it will be clear that dissolution does not require any particular procedure and a dissolution of a firm may be brought about even involuntarily as a result of the expiry of the term of partnership or by the death of a partner or on the adjudication of a partner as an insolvent. In a case where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. Thus, it will be clear that under the Partnership Act, no formal document of dissolution of partnership is necessary nor are the rights or liabilities of the partners determined by the mere dissolution of the firm. 22. Section 3 of the Stamp Act provides that every instrument mentioned in Schedule I shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore. In Article 46 of Schedule I, the instrument mentioned is "Instrument of dissolution of partner....
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.... the agreement by the parties. Thus, it is clear that by mutual agreement between them, the partners can and are legally entitled to settle accounts between them of a dissolved firm in any other manner subject, however, to the statutory liabilities under the Act. The document read as a whole indicates that irrespective of their capital contributions or advances made by them and irrespective also of the profits and losses, the first, second and fourth parties agreed to receive from the third party the specified amounts from the third party who alone appeared to have been eager to carry on the business as his individual business. The document does not show whether and, if so, to what extent the amounts which the first, second and the fourth party respectively agreed to accept would be covered by or payable out of the assets of the firm. The document also does not show whether in fact after the payment of all debts and liabilities of the firm any divisible surplus would have been left and, if so, how much. In the circumstances, the document in question can reasonably be construed only as recording a special mode of adjustment and settlement of accounts between the partners in accordan....
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....harged with stamp duty payable on a deed of Release but not on an Instrument of Conveyance. In support of this argument reliance was placed on Chief Controlling Revenue Authority, Board of Revenue, Madras v. Lakshmanan Chettiar, AIR 1970 Mad 348 . The document with which we are concerned however, cannot be treated as a deed of Release; therefore, it is not necessary to consider the aforesaid authority. For the same reason it is also not necessary to consider the case reported in Board of Revenue v. V.M. Murugesa Mudaliar AIR 1955 Mad 641 . 27. The learned counsel for the State relied on the decision of the Bombay High Court in the matter of Hira Lal Navalram ILR (1908) 32 Bom 505. In that case the heirs of a deceased partner having a four anna share in firm relinquished all his claims over the four annas share for ₹ 17,341/-in favour of one of the partners. The document in question was treated as a conveyance on sale of property, namely, the four annas share in the Pressing Factory which belonged to the Partnership. The facts and circumstances of that case were entirely different from the instant case. This case was distinguished in Marudakkal v. Arumugha Goundar AIR 1958 Ma....