1986 (9) TMI 31 - HC - Income Tax

Summary

Issues:
1. Whether the property belonged to the firm or the individual partners.
2. Whether the income from the property should be assessed in the hands of the firm or the individual partners.

Analysis:

Issue 1:
The case involved a partnership firm owning a plot and constructing a building comprising seven flats. The partners claimed the flats as their individual properties, while the Income-tax Officer asserted that the property belonged to the firm due to ownership, construction funding, and lack of transfer deed. The Appellate Assistant Commissioner and the Appellate Tribunal agreed with the partners, emphasizing the partners' intention, construction funding, and individual occupation of the flats. They held that the flats were always the partners' properties and not of the firm. The court examined the facts, including ownership, construction funding, and individual occupation, concluding that the partners' view was justified. The court highlighted the partners' use of their own funds for construction and subsequent individual occupation and tax payments, affirming that the flats were the partners' individual properties.

Issue 2:
The second issue revolved around the assessment of income from the property. The Revenue argued that if the property belonged to the firm at any point, it could not be transferred to partners through accounting entries. However, the court emphasized that the crucial question was whether the building ever became the firm's property. The partners used their own funds for construction, maintained a separate construction account, and individually occupied the flats post-construction. The court found that the partners' conduct and intentions indicated that the flats were always intended as their individual properties. The court distinguished a previous case where the property was treated as the firm's for a significant period, unlike in the present case where the flats were never considered firm property. Consequently, the court held in favor of the partners, stating that the principle from the previous case did not apply to the current scenario. The court answered both questions in favor of the assessee and against the Revenue, highlighting the partners' individual ownership of the flats from the outset.