1983 (3) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of Rs. 18,000 as income from property in the assessee's total income for the assessment years 1977-78 and 1978-79.

Detailed Analysis:

1. Inclusion of Rs. 18,000 as Income from Property:
The key issue in this case pertains to the inclusion of Rs. 18,000 as income from property in the assessee's total income for the assessment years 1977-78 and 1978-79. The relevant facts are as follows:

(a) The Basant Cinema building was received by the assessee's father, Moti G. Thadani, under a deed of partial partition dated 10th June 1953.

(b) On 1st September 1959, Moti G. Thadani sold a one-fourth share in the building to his sister, Smt. Padmi Thadani.

(c) On 2nd June 1961, Moti G. Thadani and Smt. Padma Thadani entered into a partnership to exhibit films in Basant Cinema, with the building and other assets becoming the firm's property.

(d) By his Will dated 5th July 1973, Moti G. Thadani bequeathed 2/3rd of his 75% share to Smt. Padma Thadani and 1/3rd to his brother, the assessee.

(e) Following Moti G. Thadani's death on 17th September 1973, a new partnership was formed on 19th September 1973, with the building and assets continuing to be firm property.

(f) The assessee retired from the partnership on 26th November 1974 and became an adviser to the firm with an annual remuneration of Rs. 18,000.

The IAC (Assessment) included Rs. 18,000 in the assessee's total income, reasoning that the assessee remained the owner of 25% of the Basant Cinema building due to the lack of a registered transfer deed. This inclusion was upheld by the CIT(A), who stated that the property passed to the assessee as capital and had not been legally disposed of.

In the appeal before the Tribunal, the assessee argued that the income-tax authorities failed to appreciate that the property belonged to the partnership and that no registered document was necessary when partners bring immovable properties into the partnership business. The assessee relied on the decision of the Hon'ble Allahabad High Court in K.D. Pandey vs. CWT (1977) 108 ITR 214 (All) and the Supreme Court decision in Narayanappa vs. Bhaskara Krishnappa AIR 1966 SC 1300. The Tribunal agreed with the assessee, stating that once a partner brings in immovable property into the partnership, he no longer has a separate right, title, or interest in the property. The Tribunal emphasized that the Basant Cinema building was an asset of the partnership business and that the assessee, having retired from the partnership, ceased to have any right, title, or interest in the building.

The Tribunal concluded that the income-tax authorities were not justified in including Rs. 18,000 in the assessee's total income, as the property belonged to the partnership and the assessee had no individual ownership. Consequently, the Tribunal deleted the inclusion of Rs. 18,000 in each of the years under appeal.

Conclusion:
The appeal was partly allowed, with the Tribunal ruling that the inclusion of Rs. 18,000 as income from property in the assessee's total income for the assessment years 1977-78 and 1978-79 was not justified, as the property belonged to the partnership and the assessee had no individual ownership after retiring from the partnership.