TaxTMI 
TaxTMI 
1993 (1) TMI 77
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....these disputes the six brothers entered into an arbitration agreement dated October 8, 1981, which was as under : "We are carrying on business in partnership together with other partners under several partnership names. We are also holding shares and managing the public limited company, namely, the Madras Vanaspati Ltd., at Villupuram. Disputes have arisen among us with respect to the several business concerns, immovable and movable properties standing in our names as well as other relatives. We are hereby referring all our disputes, the details of which would be given by us shortly to you, namely, Sri B. B. Naidu, Sri K. R. Ramamani and Sri Seetharaman. We agree to abide by your award as to our disputes." All the three arbitrators were fairly well-conversant with the business carried on in different names by the aforesaid two partnership firms ; the first two being their tax consultants and the third being their chartered accountant. The parties, therefore, had complete faith and trust in their objectivity and impartiality. The arbitrators accepted and entered upon the reference and after giving the disputants full and complete opportunity to place their rival point....
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....rected the disputants to bear them equally. At the end of the award, the properties falling to the share of the disputants have been set out in detail in Schedules 'A' to 'F' referred to earlier. After the award was made on July 9, 1984, Original Petition No. 230 of 1984 was filed by S. V. Chandrapandian and others for a direction to the arbitrators to file their award in court which was done. Thereupon, the applicants, S. V. Chandrapandian and others, filed Miscellaneous Application No. 3503 of 1984, requesting the court to pass a decree in terms of the award. Before orders could be passed on that application. Original Petitions Nos. 247 and 275 of 1984 were filed by S. V. Sivalinga Nadar and S. V. Harikrishnan, respectively, under section 30 of the Arbitration Act to set aside the award. The said applications came up for hearing before a learned single judge of the High Court. Various points were raised and decided by the learned single judge, but it would be sufficient for our purpose to refer to the one which we are called upon to decide in these groups of appeals. That is to be found in paragraph 71 of the judgment of the learned single judge. The contention urged was that ....
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....ing the award registered. The parties in all these proceedings are directed to bear their own costs." It may here be mentioned that after the making of the award one of the arbitrators Sri B. B. Naidu passed away on October 20, 1984. At the request of some of the parties, the surviving arbitrators presented the award before the District Registrar, Madras, for registration on October 27, 1984. Even though the signature of the deceased arbitrator was identified by the surviving arbitrators the document was kept pending for registration. In the meantime, on January 23, 1987, the advocate for Sivalinga Nadar served notice on the Registrar not to register the document and threatened to take proceedings in court if the document was registered. It will thus be seen that the registration of the document was blocked by one of the disputants Sivalinga Nadar on the premise that the High Court had in Original Petition No. 247 of 1984 granted a stay against the operation of the award on September 5, 1984. Against the judgment of the learned single judge, the matter was carried in appeal to a Division Bench of the High Court of Madras. The Division Bench of the High Court reversed the afor....
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.... and in the course of the business of the firm, and includes also the goodwill of the business. It is also clarified that unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm shall be deemed to have been acquired for the firm. Section 15 says that the property of the firm shall be held and used by the partners exclusively for the purposes of the business subject, of course, to contract between the partners. Says section 18, subject to the provisions of the Act, a partner is the agent of the firm for the purposes of the business of the firm. Under section 19, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, shall bind the firm. This authority to bind the firm is termed as "implied authority". Section 22 lays down that in order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm. Section 29 deals with the rights of a transferee of a partner's interest. Sub-section (1) thereof provi....
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....f his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm. Chapter VII deals with the registration of firms, etc., and Chapter VIII contains the saving clause. The above provisions make it clear that regardless of the character of the property brought in by the partners on the constitution of the partnership firm or that which is acquired in the course of business of the partnership, such property shall become the property of the firm and an individual partner shall only be entitled to his share of profits, if any, accruing to the partnership from the realisation of this property and upon dissolution of the partnership to a share in the money representing the value of the property. It is well-settled that the firm is not a legal entity, it has no legal existence, it is merely a compendious name and, hence, the partnership property would vest in all the partners of the firm. Accordingly, each and every partner of the firm would have an interest in the property or asset of the firm but during its subsistence no partner can deal with any port....
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....nst principles of natural justice, (ii) deliberate acts in leaving out certain properties from consideration, e.g., shareholdings of Madras Vanaspati Ltd., stock-in-trade and cash deposits, the properties of Velayudha Perumal Nadar, etc., and (iii) failure to grant him a higher share to which he was entitled. No contention was raised regarding the want of registration of the award. However, being a question of law, the learned single judge entertained the plea and rejected it but it found favour with the Division Bench. We now think it convenient to reproduce the relevant part of section 17 of the Registration Act : "17(1). The following documents shall be registered, if the property to which they relate is situate in a district in which and if they have been executed on or after the date on which Act No. XVI of 1864, or the Indian Registration Act, 1866 (20 of 1866), or the Indian Registration Act, 1871 (8 of 1871), or the Indian Registration Act, 1877 (3 of 1877), or this Act came or comes into force, namely,-- (a) instruments of gift of immovable property ; (b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish....
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....00 ; [1966] 3 SCR 400, the members of two joint Hindu families, the Addanki family and the Bhaskara family, had entered into partnership for carrying on business of hulling rice, etc. ; each family having a half share in that business. The capital of the partnership comprised among other things, certain lands belonging to the two families. The firm acquired more lands in the course of business. Differences arose whereupon two members of the Addanki family filed a suit for dissolution of the partnership and accounts. All the members of the two families were made parties to the suit either as plaintiffs or as defendants. The Bhaskara family contended in defence that the partnership was dissolved in 1936 and accounts were settled between the two families under a karar executed in favour of Bhaskara Gurappa Setty, the karta of the Bhaskara family, by five members of the Addanki family representing that family. The defendants, therefore, contended that the plaintiffs had no cause of action and the suit for dissolution of partnership and accounts was not maintainable. The relevant part of the agreement --karar reads as under (at page 1302 of AIR 1966) : " As disputes have arisen in ou....
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....nt of accounts between partners upon dissolution of the firm and it will, therefore, be correct to say that, for the purposes of the Indian Partnership Act, and, irrespective of any mutual agreement between the partners, the share of each partner is, in the words of Lindley : 'his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged." In CIT v. Juggilal Kamalapat [1967] 63 ITR 292 ; [1967] 1 SCR 784 ; AIR 1967 SC 401, the facts were that three brothers and one J entered into a partnership business. The firm owned both movable and immovable properties. Some time thereafter the three brothers created a trust with themselves as the first three trustees and simultaneously executed a deed of relinquishment relinquishing their rights in and claims to all the properties and assets of the firm in favour of J and of themselves in the capacity of trustees. Thereafter a new partnership firm was constituted between J and the trust with specified shares. The trust brought a sum of Rs. 50,000 as its capital in the new firm. The new firm applied for registration under section....
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....venue appealed to this court. This court after referring to sections 46 and 48 of the Partnership Act held that on the dissolution of the partnership each theatre must be deemed to be returned to the 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. In law there was no sale or transfer by the partnership to the individual partners in consideration of their respective share in the residue. In taking this view reliance was once again placed on the decision of this court in Addanki Narayanappa's case, AIR 1966 SC 1300. In CIT v. Bankey Lal Vaidya [1971] 79 ITR 594 ; AIR 1971 SC 2270, this court pointed out that on dissolution of a partnership the assets of the firm are valued and the partner is paid a certain amount in lieu of his share of the assets, the transaction, is not a sale, exchange ;or transfer of assets of the firm and the amount received by the partner cannot be taxed as capital gains. In taking this view reliance was placed on the decision of this court in CIT v. Dewas Cine Corporation [1968] 68 ITR 240. Again in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 ; [....
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....ng but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of section 2(47) of the Act." From the foregoing discussion, it seems clear to us that regardless of its character the property brought into the stock of the firm or acquired by the firm during its subsistence for the purposes and in the course of the business of the firm shall constitute the property of the firm unless the contract between the partners provides otherwise. On the dissolution of the firm each partner becomes entitled to his share in the profits, if any, after the accounts are settled in accordance with section 48 of the Partnership Act. Thus, in the entire asset of the firm all the partners have an interest albeit in proportion to their share and the residue, if any, after the settlement of accounts on dissolution would have to be divided among the partners in the same proportion in which they were entitled to a share in the profit. Thus during the subsistence of the partnership, a partner would be entitled to a share in the profits and after its dissolution to ....
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....e any extinguishment of interest of other partners in the allocated property in the sense of a transfer or extinguishment of interest under section 17 of the Registration Act. Therefore, viewed from this angle also it seems clear to us that when a dissolution of the partnership takes place and the residue is distributed among the partners after settlement of accounts there is no partition, transfer or extinguishment of interest attracting section 17 of the Registration Act. Strong reliance was, however, placed by learned counsel for the respondents on two decisions of this court, namely, (1) Ratan Lal Sharma v. Purshottam Harit, AIR 1974 SC 1066 ; [1974] 3 SCR 109, and (2) Lachhman Dass v. Ram Lal, AIR 1989 SC, 1923 ; [1989] 3 SCC 99. In so far as the first mentioned case is concerned, the facts reveal that the appellant and the respondent who had set up a partnership business in December, 1962, soon fell out. The partnership had a factory and other movable and immovable properties. On August 22, 1963, the partners entered into an agreement to refer the dispute to the arbitration of two persons and gave the arbitrators full authority to decide their dispute. The arbitrators made....
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....turned on the interpretation of the award in regard to the nature of the assignment made in favour of the appellant. So far as the second case is concerned, we think it has no bearing since that was not a case of assignment of partnership property under a dissolution deed. In that case, the dispute was between two brothers in 2 1/2 killas of land situate in Panipat, Haryana. The said land stood in the name of one brother--the appellant. The respondent contended that he was a benamidar and that was the dispute which was referred to arbitration. The arbitrator made his award and applied to the court for making it the rule of the court. Objections were filed by the appellant raising various contentions. The award declared that half share of the ownership of the appellant shall "be now owned by Shri Ram Lal, the respondent in addition to his half share owned in those lands". Therefore, the award transferred half share of the appellant to the respondent and since the value thereof exceeded Rs. 100, it was held that it required registration. It is, therefore, obvious that this case has no bearing on the point in issue herein. In the present case, the Division Bench of the High Court c....
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.... to one partner or the other, as the case may be, cannot change the character of the document or the nature of assignment because that would in any case be the effect of the distribution of the residue. The property falling to the share of the partner on the distribution of the residue would naturally then belong to him exclusively but so long as in the eye of law it is money and not immovable property, there is no question of registration under section 17 of the Registration Act. Besides, as stated earlier, even if one looks at the award as allocating certain immovable property since there is no transfer, no partition or extinguishment of any right therein, there is no question of application of section 17(1) of the Registration Act. The reference to other land and buildings and house properties jointly owned by the disputants in clause (c) of paragraph 10 of the award merely indicates that certain properties belonging to the firm stood in the names of individual partners or in their joint names but they belonged to the firm and, therefore, they were taken into account for the purpose of settlement of accounts under section 48 of the Partnership Act and distributed on the determin....