1976 (12) TMI 72 - AT - Income Tax

Summary

Issues:
1. Inclusion of income from house property in the assessment of the assessee firm.

Comprehensive Analysis:
The appeal was against the inclusion of income from house property in the assessment of the assessee firm for the assessment year 1973-74. The assessee firm, a registered firm, had excluded a sum of Rs. 11,512, being the rent from certain properties, based on an agreement among the partners to take out these properties out of the firm's books and own them jointly. The Income Tax Officer (ITO) added back the income from the properties to the total income of the firm, stating that there was no actual partition of the properties among the partners, and thus, the properties had not been genuinely taken out of the firm's books.

The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, stating that since there was no dissolution of the firm and no partition of the properties among the partners, the properties continued to belong to the firm. The assessee contended that the properties ceased to be that of the firm after the agreement among the partners, citing legal precedents and arguing that the income from the properties should not be taxed in the hands of the firm.

The tribunal analyzed the case, emphasizing that the partners had decided to treat the immovable properties as their own and not that of the firm through a written agreement and entries in the books of account. The tribunal highlighted the principles of partnership law, stating that the title to immovable properties remains with the partners, and the firm is not a juristic entity. It was concluded that the agreement among the partners did not constitute a transfer of immovable property requiring a registered instrument in writing. The tribunal found that the partners had effectively taken out the properties from the firm, and thus, the income from those properties could not be assessed as part of the total income of the firm.

In summary, the tribunal allowed the appeal, directing the deletion of the income from the properties in question and instructing the Income Tax Officer to recompute the income of the firm accordingly. The tribunal also authorized the ITO to amend the assessment of the partners as a consequence of the decision.