1983 (1) TMI 1 - HC - Income Tax

Summary

Issues:
1. Whether the assessee is entitled to exclude one-half of the annual value of his house property from assessment?
2. Whether the assessee is entitled to claim depreciation allowance on a portion of his house used by his partnership firm?

Analysis:

Issue 1:
The first issue revolves around whether the assessee can exclude one-half of the annual value of his house property from assessment due to it being used by his auditing firm. The Tribunal held that the portion used by the firm can be excluded from assessment under the saving provision in section 22 of the Income-tax Act. The Tribunal considered whether the portion in the firm's occupation can be deemed as used for the assessee's business. The court analyzed the concept of partnership and the legal personality of a firm. It was established that under section 67(2) of the Income-tax Act, a partner's share income from a firm is treated as business income or professional income for individual assessment purposes. The court agreed with the Tribunal's conclusion that the portion of the house occupied by the firm is used for the business carried on by the assessee.

Issue 2:
The second issue pertains to the claim for depreciation allowance on a portion of the house used by the partnership firm. The court referred to previous decisions where a firm claimed depreciation on machinery owned by a partner but used for the firm's business. In this case, the claim for depreciation was made by the individual partner in his personal assessment. The court found that since the portion of the house was used for the assessee's business, he was entitled to depreciation allowance on its written down value. The court's decision was influenced by the understanding that the business of the firm is essentially the business of the individual partner.

In conclusion, the court answered both questions of law in favor of the assessee, ruling that no notional income should be assessed for the property occupied by the firm, and depreciation is allowable for the portion of the property used by the firm and belonging to the assessee. The Department was directed to bear the assessee's costs.