DISTRIBUTION OF PROPERTY ON DISSOLUTION OF PARTNERSHIP FIRM

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Tel Star (Querist)
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12 August 2024 The firms property was transferred in the name of partners on dissolution of partnership deed. And no stamp duty was paid .Now we are being demanded to pay the same. When we contested that
it is exempted the Authorities are not listening.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 August 2024 Stamp duty payment and registration not required.
This question has been addressed by the Supreme Court and relevant High Courts, in its various judgments[1] as stated below:

(a) a firm has no legal existence under the Partnership Act and the partnership property will, therefore, be deemed to be held by the partners for the business of the partnership. The whole concept of a partnership is to embark upon a joint venture and for that purpose to bring in money or even property (including immovable property) as capital. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in and would be the trading asset of the partnership in which all partners would have interest in proportion to their share in the joint venture of the business of the partnership.

(b) on dissolution of the partnership firm, accounts are settled among partners and the assets of the partnership are distributed among partners as per their respective share in the firm and such distribution does not amount to a sale as ‘sale’ according to its ordinary meaning is a transfer of property for a price, and adjustment of the rights of partners in a dissolved firm is not a transfer, nor is it for a price.

(c) in case of distribution of assets by way of an arbitration award, such award does not require registration under Section 17 of the Registration Act since it does not transfer or assign interest in any asset.

Thus, (i) the consequence of distribution or division of allotment of assets after dissolution is nothing but a mutual adjustment of rights between the partners i.e. the assets, which before the dissolution of the firm belonged to each partner, and will after dissolution of the firm stand allotted to the partners individually and (ii) there is no transfer of assets involved even in the sense of extinguishment of the firm’s rights in the assets when distribution takes place upon dissolution of the firm.

Conclusion:
Based on the various judicial precedents, we can conclude that distribution of immovable property among individual partners as per their respective share in the firm upon dissolution of a partnership firm, does not tantamount to a ‘transfer’ and nor does it entail creation of right, title and interest in the immovable property and accordingly the instrument recording such distribution will not require registration under Section 17 of Registration Act.

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