1983 (12) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Ownership and entitlement to depreciation of the building by the partnership firm.
2. Assessment of rental income under s. 22 of the I.T. Act.
3. Leviability of penalty u/s 271(1)(c) of the I.T. Act for non-inclusion of rental income in revised returns.

Summary:

Issue 1: Ownership and Entitlement to Depreciation
The primary question was whether the building at 71/1, Najafgarh Road, New Delhi, became the property of the partnership firm and if the firm was entitled to depreciation on the building. The Tribunal initially disallowed depreciation for the assessment years 1963-64 and 1964-65, questioning the genuineness of an agreement dated November 9, 1962, which stated that the property was pooled with the partnership assets. However, for the assessment year 1965-66, the Tribunal allowed depreciation, noting that the firm treated the property as its own and incorporated its value in the books. The High Court held that the property was indeed transferred to the partnership firm from November 8, 1960, and allowed depreciation for the assessment year 1965-66 onwards.

Issue 2: Assessment of Rental Income
For the assessment year 1965-66, the question was whether Arjun Singh was liable to be assessed on the rental income u/s 22 of the I.T. Act. The Tribunal, following its decision that the property had been transferred to the firm, held that Arjun Singh was not liable for the rental income. The High Court affirmed this, stating that the property was owned by the firm, and thus, Arjun Singh was not assessable for the rental income.

Issue 3: Leviability of Penalty u/s 271(1)(c)
The issue was whether the penalty of Rs. 7,500 levied u/s 271(1)(c) on Arjun Singh for non-inclusion of rental income in the revised returns for the assessment year 1964-65 was justified. The Tribunal deleted the penalty, accepting Arjun Singh's plea of a bona fide belief that he was not entitled to rental income from the firm. The High Court upheld this decision, noting that the firm was found to be the owner of the property from November 8, 1960, and thus, Arjun Singh was not liable for the penalty.

Conclusion:
The High Court ruled in favor of the assessee on all issues, confirming that the partnership firm was the owner of the property and entitled to depreciation, Arjun Singh was not assessable for the rental income, and the penalty u/s 271(1)(c) was not leviable.