1983 (3) TMI 68 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of Rs. 18,000 as income from property.
2. Ownership and registration of Basant Cinema building.
3. Treatment of partnership assets and income tax implications.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 18,000 as income from property:
The primary issue revolves around whether Rs. 18,000, attributed as rental income from the Basant Cinema building, should be included in the assessee's total income. The IAC (Assessment) included this amount based on the will of Late Moti G. Thadani, which bequeathed a portion of his share in the partnership to the assessee. The IAC argued that since no registered deed of transfer was presented, the assessee continued to be the owner of 25% of the building, thus liable for the rental income. The Commissioner (Appeals) upheld this inclusion, emphasizing that the property had not been legally transferred out of the assessee's ownership.

2. Ownership and registration of Basant Cinema building:
The ownership and registration of Basant Cinema building were contested. The Commissioner (Appeals) noted that the building was still registered in the name of Late Shri Moti G. Thadani, and despite requests, the Nagar Mahapalika had not mutated the building to the current owners. The assessee argued that the building, being a partnership asset, did not require individual ownership registration once brought into the partnership.

3. Treatment of partnership assets and income tax implications:
The assessee contended that once a partner brings in immovable property into the partnership, it becomes the property of the firm, and the partner no longer has individual rights over it. This argument was supported by the decision in K.D. Pandey v. CWT [1977] 108 ITR 214 and the Supreme Court's ruling in Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300. The Tribunal found merit in this argument, stating that during the existence of a partnership, a partner only has a right to the share of profits and not to specific partnership assets. The Tribunal noted that the Basant Cinema building was treated as a partnership asset in various deeds and that depreciation was allowed on these assets in the firm's assessment orders.

Conclusion:
The Tribunal concluded that the income-tax authorities failed to appreciate the legal principles regarding partnership property. Since the Basant Cinema building was a partnership asset, the assessee had no individual ownership rights to it, and thus, Rs. 18,000 could not be included in his total income. The Tribunal deleted the inclusion of Rs. 18,000 in each of the assessment years under appeal.

Judgment:
The Tribunal ruled in favor of the assessee, deleting the inclusion of Rs. 18,000 as income from property for the assessment years 1977-78 and 1978-79.