Book entries are not sufficient to transfer the interest in immovable property from a firm to individual partners. A transfer of interest in immovable property of the value of Rs. 100 and upwards requires registration under the Indian Registration Act, 1908. The division of the properties by the partners amounted to an instrument of partition, which is defined in the Indian Stamp Act, 1899, as any instrument whereby co-owners of any property divide or agree to divide such property in severalty. The instrument of partition must be duly stamped and registered.

Ramanujam, J.

1. The assessee herein is a registered firm carrying on business in pharmaceuticals, chemicals, drugs and money-lending. For the assessment year 1971-72, corresponding to the previous year ended October 30, 1970, it filed a return showing an income of Rs. 1,22,180. While going through the accounts of the assessee, the ITO found that the capital account of the partners showed a credit of 1/3rd share of sale proceeds of the house property Nos. 161 and 162, Nyniappa Naicken Street, Madras. The said two properties had been purchased on June 14, 1948, and February 1, 1950, by the firm and the income from these properties were being assessed in the hands of the firm until the assessment years 1964-65. During the accounting year ended November 4, 1964, entries had been made in the books of the firm removing these properties from the partnership assets and showing them as the individual properties of the partners and for the income from the property there has also been a return filed by the partners as individuals and that has been accepted by the Revenue for some years. On October 15, 1970, these properties were sold to a third party for Rs. 2,00,000. The said sale deed had been executed by two of the partners of the firm and the legal representative of the deceased partner by name Lalchand Dadha. The purchase price as well as the interest received from the purchaser were credited to the accounts of the two partners and legal representative of the deceased partner. On these facts the ITO came to the conclusion that though the sale deed was executed by the individuals, it should be treated as a sale on behalf of the firm and if so treated the capital gains arising out of the transaction as well as the income from the property and the interest on unpaid purchase price were all to be assessed in the hands of the firm. He also computed the capital gains to be Rs. 1,80,500 and added the same along with the income of Rs. 9,500 and the interest of Rs. 4,390 to the profit under s. 41(2) and ultimately determined the total income of the year at Rs. 1,97,260.

2. Aggrieved by the said decision of the ITO, the assessee went before the AAC who accepted the contention of the assessee that these properties have been taken out of the assets of the firm by the entries in the firm's account in the assessment year 1964-65 which has been accepted by the Department and, therefore, the assessment of the said sums in the hands of the firm was untenable. He, therefore, deleted the additions made by the ITO.

3. Aggrieved against the order of the AAC, the Revenue took the matter in appeal to the Income-tax Appellate Tribunal contending that the properties in question were the immovable properties purchased by the firm and, therefore, they could not cease to be that of the firm without an instrument in writing and relied on a decision of the Allahabad High Court in Ram Narain and Brothers v. CIT [1969] 73 ITR 423. The Tribunal, after considering the rival contentions of the parties, held that though the two properties were purchased on June 14, 1948, and February 1, 1950, in the name of the firm, in view of the entries made in the account books on November 16, 1963, transferring the 1/3rd interest of each of the three partners in the two properties, it should be taken that these properties have become their personal properties held is common as co-owners and, therefore, these properties have ceased to be the properties of the firm after the relevant book entries in the firm. The Tribunal also held that after the relevant book entries the income from these properties had been assessed in the hands of the individual partners from the assessment years 1964-65 to 1969-70 and, therefore, these properties should be taken to have become the separate properties of the partners. Aggrieved against the order of the Tribunal, the Revenue has sought and obtained a reference to this court on the following three question of law :

"(i) Whether, on the facts