During the subsistence of a partnership, no partner can deal with any portion of the partnership property as his own or assign his interest in a specific item of the partnership property to anyone.

JUDGMENT :

A. Pasayat, J. - At the instance of the Revenue, the following questions have been referred to this court u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack (hereinafter referred to as "the Tribunal"), for adjudication :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that individually the partners could gift the property of the firm to their respective wives during the subsistence of the partnership firm ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee-firm could not be assessed to tax on rental income from property at Madras from July, 1982?"

2. The dispute relates to one T. Omer and Company, a partnership firm (hereinafter referred to as "the assessee"). The factual position so far as is relevant for the purpose of determination of the questions is that a building was purchased in the name of the assessee on March 12, 1982. During the assessment year 1983-84, with which we are presently concerned, each of the partners of the firm made a gift of a portion of the property to his wife on July 20, 1982. In essence, the entire property was gifted. In the return filed by the firm, the rental income in respect of the building for a period of three months, i.e., from April to June, 1982, was reflected. It was claimed by the assessee that, after the gifts on July 20, 1982, the income, if any, cannot be included in the taxable income of the partnership. This plea was not accepted by the Assessing Officer on the ground that the partners could not have gifted the property which belonged to the partnership. In appeal, the Appellate Assistant Commissioner, Cuttack Range, Cuttack, affirmed the view of the Assessing Officer. According to him, the property which was an asset of the firm could not have been gifted in the manner done because, during the subsistence of the partnership, the partners were not entitled to claim any portion of the property as exclusively belonging to them. Consequently, the purported gifts made by the partners to their wives did not divest the assessee of its ownership in the property. In that sense, the income from the property was to be assessed in the hands of the partnership. This conclusion was assailed in appeal by the assessee before the Tribunal. Allowing the appeal, the Tribunal held that the firm is not a legal entity and it cannot acquire or dispose of any property. Though the sale deed was executed in favour of the firm, all the partners became owners of the property in question because firm is the collective name of all the partners, and the partners had the right to transfer the property. Valid gift deeds were executed by the partners in favour of their respective wives and, in that view of the matter, the rental income from the property was to be included only for the period from April to June, 1982. At the instance of the Revenue, the aforesaid questions have been referred for our adjudication.

3. In spite of notice, the assessee has not entered appearance.

4. Mr. A. K. Ray, learned standing counsel, -has urged that, during the subsistence of the partnership, no partner had any definite share in the partnership property even though the partnership firm is not a legal entity and has no existence in the strict sense of the term. During the subsistence of the partnership, no partner can deal with any portion of the property as his own and, therefore, the question of assignment of any part in the specified item of the property did not arise. The contention of learned standing counsel appears to be legally sound.

5. A partnership-firm under the Indian Partnership Act, 1932 (hereinafter referred to as "the Partnership Act"), is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership