Advance payment of TDS on real estate Transaction
When a partner brings immovable property as his capital on formation of firm, there is no conveyance because a partnership firm is not a distinct legal entity. Such a partnership deed mentioning the fact of the partner bringing in immovable property does not amount to conveyance, since it is governed by the partnership law and not by the transfer of Property Act, 1882 with the result that Registration Act, 1908 would have no application. A narration in the preamble to the partnership deed mentioning the pooling of the assets of the partners at the time of formation would be enough. Such a declaration in the deed to the effect that the immovable property of the partner/s will be assets of the firm will not amount to a conveyance requiring registration as has been pointed out among other cases in Chief Controlling Revenue Authority v. Chidambaram AIR 1970 Mad. 5 (FB). It is so even when such a partnership deed is in writing so that the stamp duty payable is only under Article 46 to the Schedule to the Indian Stamp Act as for a normal partnership deed. As for any transfer of asset given to a retiring partner on settlement of his accounts, there is no difference as between retirement or dissolution as was pointed out in Board of Revenue of U P v. M/s. Auto Sales AIR 79 All. 312, Samidas Moolchand Jhangiani v. Sheodas Gurdasmal (1971) 73 Bom. LR 42 and CCRA v. Chaturbhurj AIR 1977 Guj. Hence, there is no registration when a retiring partner is given an immovable property in settlement of his account consequent or retirement. As for dissolution, the law as regards stamp duty is equally well settled. The Supreme Court had decided much earlier in Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300 that what happens in dissolution is settlement of accounts, wherein the pre-existing interests of the partners are merely identified. The fact that there is immovable property among assets of the firm which are divided would make no difference because the interest of a partner in a firm is movable property. A partner is not a co-owner of the property but is only entitled to share after meeting firm’s liability. This has been recently re-iterated by the Supreme Court in S V Chandrapandian v. Sivalinga Nadar (1995) 212 ITR 592. Hence no registration is required for dissolution, even where immovable property is involved and there is agreement in writing. All that will be required for dissolution agreement is stamping as for partnership deed under Article 46 of the Stamp Act and not as a conveyance. A disclaimer, by an outgoing partner to the effect that he had no right to the property, even if made long after the dissolution, was held to be not a conveyance requiring stamping under the Stamp Act as was held in Board of Revenue v. T M Madalainadar &Co. AIR 1958 Mad. 254 (FB) in the view that it can itself serve as a dissolution deed and that such disclaimer itself can be acted upon without registration. There is hardly any option in respect of sale of firm’s property. The fact that the property originally stood as that of the two partners does not mean that they continue to be the owners. Since it is stated that the property was brought in by the two partners as respective share capital of the firm during the inception of the partnership deed, it is clear that the property has become firm’s property. It is because of Sec. 14 of the Indian Partnership Act, 1932, which would define firm’s property as “all property and rights and interest in property originally brought into the stocks of the firm or acquired by purchase or otherwise by, or for the firm…….”. Hence the property brought by the partners, even what it stands in a partner’s name or when it is acquired with the funds of the firm or otherwise is firm’s property, even if it should stand in the name of a partner. It becomes firm’s property by operation of partnership law. It does not amount to conveyance so as to require registration. It is for this reason that it was treated as not constituting transfer even for purposes by the Supreme Court in CIT v. Hind Construction Ltd. (1972) 83 ITR 211 (SC). Such pooling of assets brought in by a partner as his capital to the firm is now deemed as transfer for capital gains tax purposes under Sec. 45 (3) of the Income-Tax Act. But incidence as regards property law continues to be the same in view of Sec. 14 of the Indian Partnership Act, 1932. It will be incorrect to assume that the partners are co-owners and that each partner can part with his rights in the firm’s property. No partner has identifiable right over firm’s property as such. A partner’s right or interest in the firm is only on the residue after realising all the assets and meeting all liabilities. Such right is an actionable claim and therefore only movable property. It cannot be subject matter of transaction by any individual partner as though he had any proprietary right over such property. It was so held by the Supreme Court in connection with a dispute under the partnership law in Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300 and S V Chandra Pandian v. Sivalinga Nadar (1995) 212 ITR 592.