1971 (5) TMI 17 - HC - Income Tax

Income from house property of firm whether it is assessable in hands of firm or in hands of partners

Issues Involved:
1. Ownership of the property at 4/23-B, Asaf Ali Road, New Delhi.
2. Applicability of section 9 of the Income-tax Act, 1922.
3. Interpretation of the term "owner" under section 9 of the Income-tax Act, 1922.
4. Impact of the Partnership Act, 1932, on property ownership by a firm.
5. Relevance of the property not being listed in the firm's balance sheet.
6. Applicability of sub-section (3) of section 9 of the Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Ownership of the Property at 4/23-B, Asaf Ali Road, New Delhi:
The primary issue was whether the property at 4/23-B, Asaf Ali Road, New Delhi, was owned by the assessee-firm or by the individual partners. The Income-tax Officer and the Appellate Assistant Commissioner held that the property was owned by the firm and included its income in the firm's assessment. The Tribunal upheld this view, leading to the reference to the High Court.

2. Applicability of Section 9 of the Income-tax Act, 1922:
The court examined whether the income from the property should be assessed in the hands of the firm or the individual partners under section 9 of the Income-tax Act, 1922. The Tribunal had previously ruled that the property income should be included in the firm's income.

3. Interpretation of the Term "Owner" under Section 9 of the Income-tax Act, 1922:
The court considered the definition of "owner" for tax purposes. The revenue argued that the term "owner" in section 9 should be understood in the context of income-tax assessment, meaning the firm could be considered the owner even if the property was registered in the firm's name.

4. Impact of the Partnership Act, 1932, on Property Ownership by a Firm:
The court analyzed provisions of the Partnership Act, 1932, particularly sections 4, 10, and 14, to determine whether a firm could own property. It was argued that a firm is an association of individuals and cannot own property independently. However, the court found that under section 14, a firm could own property if it was brought into the firm's stock or acquired for the firm's business.

5. Relevance of the Property Not Being Listed in the Firm's Balance Sheet:
The assessee argued that the property was not listed in the firm's balance sheet and was constructed with funds from one partner, Bhai Sunder Dass. The court noted that the absence of the property in the balance sheet did not preclude it from being a firm asset, especially since the lease deed was in the firm's name and the firm had claimed income exemption for the property in earlier years.

6. Applicability of Sub-section (3) of Section 9 of the Income-tax Act, 1922:
The court examined whether sub-section (3) of section 9, which deals with property owned by two or more persons with definite and ascertainable shares, applied. The revenue contended that this sub-section did not apply as the property was owned by the firm, a single entity for tax purposes. The court agreed, stating that the firm, as a unit of assessment, could own property and be taxed accordingly.

Conclusion:
The court concluded that the property at 4/23-B, Asaf Ali Road, New Delhi, was owned by the assessee-firm and not by the individual partners. The firm's ownership was supported by the lease deed being in the firm's name and the firm's previous claims for income exemption on the property. The court held that the income from the property should be assessed in the hands of the firm under section 9 of the Income-tax Act, 1922, and answered the reference in the affirmative. The assessee was ordered to pay the costs of the proceedings.

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