Kerala H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the firm was, not dissolved on April 12, 1974 ?

Counsel Appeared

P. Radhakrishnan & M.M. Mathew, for the Petitioner : N.R.K. Nair, for the Respondent

K.S. PARIPOORNAN, J.:

The petitioner is an assessee to income-tax. The matter relates to the asst. yr. 1975-76.

2. In this petition, filed under s. 256(2) of the IT Act, the petitioner prays that the Tribunal may be directed to refer the two questions of law, specified in paragraph 4 of the petition, for the decision of this Court. The questions are as follows:

” (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the firm was, not dissolved on April 12, 1974 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal had any material to hold that the capital gains was assessable in the hands of the applicant- firm and not in the hands of the individual partners ? “

3. The petitioner-firm consisted of four partners. The firm was constituted as per deed dated January 14, 1970. It had constructed a building on the properties belonging to it in M. P. Road, Calicut, and was running M/s Sri Hari Lodge there. One of the partners of M/s Sri Hari Lodge sold his share in the assets of the firm on April 8, 1974, to M/s Y. M. Andru Haji and four others. On April 17, 1974, the other three remaining partners executed a release deed in favour of M/s Y. M. Andru Haji and four others. On June 24, 1974, the four partners execute a deed of dissolution of the partnership. It was stated therein that the firm had discontinued its business from April 12, 1974, and should be deemed to have dissolved by mutual consent w.e.f. April 12, 1974, In the asst. yr. 1975-76, the question of assessing capital gains came up for consideration. The plea of the assessee (petitioner) was that the transfer was effected after the dissolution of the firm and so capital gains and profits under s. 41(2) of the IT Act arising from the transaction are not assessable in the hands of the firm. The plea was rejected by the ITO. He computed the capital gains and profits under s. 41(2) of the Act. The ITO categorically held that the dissolution of the firm was effective only from June 24, 1974, when the deed of dissolution was executed. However, on appeal, the CIT (A) accepted the plea of the assessee. It was held that the transfer was by individual partners and so the capital gains and profits under s. 41(2) of the Act are assessable only in the individual assessments of the four partners. The Revenue took up the matter in second appeal before the Tribunal. After an exhaustive review of the factual and legal position, the Tribunal found that there was an effective transfer of the properties to the Bombay firm only after the execution of the release deed by the three partners on April 17, 1974, and that in this case, the plea of the assessee that there was a dissolution of the firm on April 12, 1974, is unacceptable. The firm can be taken to have been dissolved only on June 24, 1974. The petitioner (assessee) filed an application under s. 256(1) of the IT Act before the Tribunal, praying that certain questions of law, arising out of the appellate order of the Tribunal, may be referred to this Court. It was rejected by the Tribunal by order dated February 18, 1984. Thereafter, the assessee (petitioner-firm) has filed this petition under s. 256(2) of the IT Act praying that the two questions specified in paragraph 4 may be directed to be referred to this Court.

4. We heard counsel for the petitioner and also counsel for the Revenue. Prima facie, question No. (1) is a pure question of fact. On what day a firm stood dissolved is normally a question of fact. On the basis of unimpeachable evidence, the Tribunal rejected the plea of the petitioner that there was a dissolution of the firm on April 12, 1974. It was held, if at all, the dissolution could only be on the day when the deed of dissolution was executed on June 24, 1974. This is a pure finding of fact. No question of law arises as specified in question No. (1).

The answer to question No. (2) will depend upon as to whether the firm stood dissolved as pleaded by the assessee on April 12,1974, or only on or after June 24, 1974. We have already held that there is material to hold that there was no dissolution as pleaded by the petitioner on April 12, 1974. The transfer effected by one of the partners was on April 8, 1974. Thereafter the release deed was executed by the other partners on April 17, 1974, on the happening of which even title passed to the transferee. So, the transfer could only be by the firm and the capital gain was assessable in the hands of the firm and not in the hands of the individual partners.

As stated, Haridas transferred his share on April 8, 1974. The release deed by the other partners was on April 17, 1974. Title to the property could pass to the transferee only after the execution of the release deed. If so, the transfer effected could only be by the firm. The Tribunal by reference to various facts and, in particular, the deed of dissolution dated June 24, 1974, and other evidence and circumstances in the case found that the plea of the assessee, that the firm had been dissolved on April 12, 1974, is absolutely untenable. The detailed reasons given in paragraphs 8A and 9 of the appellate order demonstrate that the firm was not and could not have been dissolved on April 12, 1974.

In our opinion, no referable question of law, as specified in paragrah 4 of the original petition, arises in this case. We decline to direct the Tribunal to refer the question of law formulated to this Court.

The original petition is dismissed.

[Citation : 172 ITR 386]