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Judgment
N.V. Balasubramanian, J.—The Chief Controlling Revenue Authority (Stamp Act) has made a reference u/s 57(1) of the Indian Stamp Act,
1899 and sought a clarification regarding classification of the document in question and chargeability to stamp duty.
There is a firm, by name, M/s. Lakshmi Spinners constituted under the Indian Partnership Act, 1932 and M/s. Sampurna Spinning Mills Ltd.
was admitted as a partner on 22.10.1986 and the profit sharing ration as well as capital investment was arrived at as under:-
Tmt. Sarojini Muthusamy 25% Rs. 1,81,250.00
Tmt. Vasantha Valayutham 25% Rs. 1,8 1,250.00
Tmt. Mallammal 20% Rs. 1,45,000.00
Tmt. Amirtham 10% Rs. 72,500.00
M/s. Sampurna Spinning Mills 20% Rs. 1,45,000.00
The partners have decided to dissolve the firm on 12.11.1986 and the properties were shared as under:
Sampurna Spinning Mills Rs. 15,59,600
Tmt. Sarojini Muthusamy Rs. 18,800
Tmt. Vasantha Valayutham Rs. 18,800
Tmt. Mallammal Rs. 15,400
Tmt. Amirtham Rs. 7,800
The Registering Authority was of the opinion that the assets were not divided at the agreed ration as per section 48 of the Indian Partnership Act
and the deed of dissolution should be treated as a deed of conveyance. The respondents have not accepted the view of the Revenue Authority and
hence, the reference has come before us.
We have perused the deed of dissolution dated 12.11.1986 and in the deed, it is stated that the partnership existed between the parties and it
was dissolved with effect from 12.11.1986 and the assets and liabilities of the dissolved firm were divided among the five partners as detailed in
the deed. In so far as M/s. Sampurna Spinning Mills Ltd. is concerned; the said concern was allotted certain properties and other partners were
also allotted certain other properties. The Registering Authority was of the view that the value of the property allotted in favour of M/s. Sampurna
Spinning Mills Ltd. was much more the the value of the properties allotted to other partners and the allotment was not in accordance with the
provision of Section 48 of the Indian Partnership Act, and hence the deed in question should be treated as a deed of conveyance. It is relevant to
mention here that in so far as liabilities of the firm are concerned, the entire liability of the firm was fastened on M/s. Sampurna Spinning Mills Ltd.
as under the deed it is required to discharge all pending liabilities including Income Tax, sales- tax, property-tax, excise duty, etc. whether existing
at present or that may arise in future. In other words, in the document, it is made clear that M/s. Sampurna Spinning Mills Ltd. is solely responsible
for the discharge of all liabilities of the erstwhile firm and all other partners were absolved from all the liabilities. The Registering Authority has
focused its attention only on the value of the assets allotted in favour of M/s. Sampurna Spinning Mills Ltd. overlooking the fact that M/s.
Sampurna Spinning Mills Ltd. is also required to discharge all liabilities of the erstwhile firm existing on the date of dissolution or that may arise in
future and other partners were absolved of all liabilities of the firm. It is, in this factual situation, the question that has to be considered is whether
the deed in question is a deed of conveyance or a deed of release. It is also relevant to mention here that the parties have paid stamp duty on the
basis that is a deed of partition.
In our opinion, the document in question is not a deed of conveyance. The Supreme Court in S.V.Chandra Pandian and others v. S.V. Sivalinga
Nadar and others, 1993 (1) LW 612 considered the question whether allotment of properties to the partners on the dissolution of the firm would
amount to transfer and after referring to its earlier decisions in Commissioner of Income Tax, West Bengal, Calcutta Vs. Juggilal Kamalapat, ,
Commissioner of Income Tax, U.P. Vs. Sh. Bankey Lal Vaidya (Dead) by Lawyers, and Malabar Fisheries Co. Vs. Commissioner of Income
Tax, Kerala, laid down the law as under: -
... 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 interestable it 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 a share in the residue, if any, on settlement of accounts. The mode of settlement of accounts set out in section 48 clearly indicates that
the partnership assets in its entirety must he converted into money and from the pool the disbursement has to be made as set out in clause (a) and
sub-clauses (i) (ii) and (iii) of clause (b) and thereafter if there is any residue that has to be divided among the partners in the proportions in which
they were entitled to a share in the profits of the firm. So viewed, it becomes obvious that the residue would in the eye of law be movable property
i.e. cash, and hence distribution of the residue among the partners in proportion to their shares in the profits would not attract section 17 of the
Registration Act. Viewed from another angle it must he realised that since a partnership is not a legal entity but is only a. compendious name each
and every partner has a beneficial interest in the property of the firm even though he cannot lay a claim on any earmarked portion thereof as the
same cannot be predicated. Therefore, when any property is allocated to him from the residue it cannot be said that he had only a definite limited
interest in that property and that there is a transfer of the remaining interest in his favour within the meaning of section 17 of the Registration Act.
Each and every partner of a firm has an undefined interest In each and every property of the firm and it is not possible to say unless the accounts
are settled and the residue or surplus determined what would be the extent of the interest of each partner in the property, it is, however, clear that
since no partner can claim a definite or earmarked interest in one or all of the properties of the firm because the interest is a fluctuating one
depending on various factors, such as, the losses incurred by firm, the advances made by the partners as distinguished from the capital brought in
the firm, etc. It cannot be said unless the accounts are settled in the manner indicated by section 48 of the Partnership Act. What would be the
residue which would ultimately be allocable to the partners. In that residue, which becomes divisible among the partners, every partner has an
interest, and when a particular property is allocated to a partner in proportion to his share in the profits of the firm, there is no partition or transfer
taking place nor is there any extinguishment of interest of other partners in the allocated property in the sense of a transfer or extinguishment of
interest u/s 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.
The Supreme Court in the earlier decision in Sunil Siddharthbhai Vs. Commissioner of Income Tax, Ahmedabad, Gujarat, held that upon
dissolution of a partnership, every erstwhile partner is entitled to a share in the money representing the value of the property and the distribution of
assets does not amount to transfer amount the erstwhile partners. This Court in Board of Revenue and Another Vs. V.M. Murugesa Mudaliar of
Gudiyatham, , T.K. Subramaniam Vs. Chief Controlling Revenue Authority (Stamps) and Inspector General of Registration, Madras, and T.T.
Meenakshi Achi and others Vs. The District Registrar, Coimbatore and another, also held that the view taken by the Revenue Authorities that the
deed of dissolution of partnership should be treated as a deed of conveyance was not correct and held that the deed of dissolution of partnership
should be treated as a deed of release.
The submission of the learned Government Advocate is that the value of the property allotted in favour of M/s. Sampurna Spinning Mills was
much more than the value of the properties allotted to other partners and therefore it is a colourable transaction. However, we are unable to accept
the submission of the learned Government Advocate, as M/s. Sampurna Spinning Mills Ltd. was not only allotted assets at the time of dissolution
of the firm, but the said company was also made solely responsible to discharge all the liabilities of the erstwhile firm existing on the date of
dissolution or future liability if any that may arise in future. Hence, on the facts of the case, the document cannot be considered to be a device to
convert the personal properties of the other erstwhile partners in favour of M/s. Sampurna Spinning Mills Ltd. It is a case where the existing
partners decided to dissolve the firm and divided the properties by way of a deed of dissolution. When the partnership firm was dissolved, the
partners are entitled to the benefits that flow from it. Hence, the deed cannot be regarded as a deed to convey or transfer their interest in the
properties in favour of M/s. Sampurna Spinning Mills Ltd. The deed in question, in our opinion, should be classified only as a deed of release.
Since the respondents have paid the duty on the basis that the document in question is a deed of partition. It is not necessary to refund the excess
amount collected, if any. Our answer to the question is that the document in question should be classified and treated as a released deed.