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TMI Blog1981 (5) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... estion in Income-tax Reference No.11 of 1974 reads : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-firm was entitled to the deduction permissible under section 23(2) of the Income-tax Act in the determination of the income from the house property owned by it when portion thereof was occupied by its partners for their residence ? " In Income-tax Reference No. 87 of 1972, the assessee, a registered firm, was carrying on business in the purchases and sale of herbs and walnuts. The relevant assessment year is 1964-65 and the corresponding previous year is the year ending 18th September, 1963. The assessee owned a property at Model Town, Delhi, and some of the partners of the firm occupied a portion of that property as their residence. The ITO determined the annual letting value of the property without providing for any statutory deduction under s. 23(2) of the 1961 Act, though some of the partners of the firm were residing in a portion of the property. The ITO hold the annual letting value of the house property to be Rs. 15,000, relying on the assessment for the year immediately preceding. In coming to this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as, unlike a limited company, a firm does not have a separate legal existence independent of the partners, the said decision was not relevant. The Tribunal accepted the contention and held that since some of the partners were residing in the portion of the building owned by the firm and this was extremely convenient for the business in walnuts, the assessee was entitled to the deduction permissible under s. 23(2) of the 1961 Act. It is not necessary to set out the facts in Income-tax Reference No.11 of 1974 in detail. In brief, the assessee carried on the business of hiring tents, furnitures and daries. It owned a property at Sunder Nagar, New Delhi. The ground floor was let out at Rs. 1,700 per month. The first floor was partly used by the assessee for its business and the rest was occupied by all its six partners, who were closely related and were residing therein. Both the ITO and the AAC held that the assessee was not entitled to the statutory deduction for self-occupied property as the property was not in the occupation, of the owner for the purpose of its own residence, the firm being distinct from the partners. However, the AAC felt that the case might have been diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration the scheme and other relevant provisions of the I.T. Act, 1961, and the Partnership Act, we feel that the expression " occupation of the owner for the purposes of his own residence " would only refer to a human owner and not a fictional entity. Though it is true that a firm does not have a legal entity distinct from its partners, yet under the I.T. Act a firm has been regarded as a separate assessable entity. A registered firm is regarded as an entity distinct from its partners, for the purposes of income-tax. Section 4 of the 1961 Act, which is the charging section, refers to every person. Person has been defined in s. 2(31) which enumerates the categories of assessees. Section 2(31)(iv) includes " a firm " in the definition of " person " as distinct from " an individual" (s. 2(31)(i) ), or a body of individuals (s. 2(31)(v)). " Firm ", " partner " and " partnership " have been defined in s. 2(23), to have the same meaning as assigned to them in the Indian Partnership Act, 1932. Sections 14 and 15 of the Indian Partnership Act, 1932, contemplate the owning of property by a firm. This includes the property originally brought in by the partners as also prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provision, which is available to an assessable entity only. In In re Calcutta Stock Exchange Association Ltd. [1935] 3 ITR 105, the Calcutta High Court opined that "residence", in its ordinary meaning, meant the place where an individual or his family ate, drank or slept and that there was no justification for giving this word an extended meaning in the context of s. 9 of the 1922 Act (a provision similar to s. 22 of the 1961 Act). Speaking for the court, Lort-Williams J. observed (p. 111) : "In this connection, it is to be noticed that the word 'own' has been inserted between the words 'his' and 'residence'. I, think that the object of inserting that Word was to indicate that the phrase applied only to human person or persons and not to a fictional person, such as a limited liability company. " Section 6 of the 1961 Act deals with the extended meaning given to the word " residence ". A firm is said to reside in India except where " the control and management of its affairs " is situated wholly outside India; an individual, however, is resident in India if he is in India for the specified number of days or maintains or causes to be maintained a dwelling place in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other cases show that the I.T. Act confers a personality on the firm distinct from the partners composing it. Under the scheme of the Act, a firm is conceived of as a person capable of having an income and there is no reason to hold that the firm cannot be taxed on the income from house property, just as it is taxed in respect of its business income. In the context of an assessment on it for the income from property owned by it, the requirement of s. 23(2) is incapable of being fulfilled. Certain decisions on s. 54 of the 1961 Act also throw some light on this matter. Section 54 provides for certain exemptions from capital gains on the sale of a house property which was being used " by the assessee or a parent of his mainly for the purposes of his own or the parents' own residence " and the purchase or construction thereafter during the specified period of "a house property for the purposes of his own residence ". In K. I. Viswambharan Brothers v. CIT [1973] 91 ITR 588, a Full Bench of the Kerala High Court, while dealing with the case of a firm that was comprised of two brothers as partners and had purchased a house in 1960 which it sold in 1966, opined (p. 592): "In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1966 SC 1300. Since we have already referred to and relied on Addanki Narayanappa's case, we need not pursue this matter further. There is also a practical difficulty in accepting the contention on behalf of the assessee. While the assessee's contention may appear plausible and tenable, where all the partners of the firm, particularly when they are all members of a family and related to each other, reside in the premises, it is not so in the situation where only some and not all the partners of the firm are using the property as their residence. It may perhaps be that, subsequently, when the share income of the partner is sought to be assessed in his hands the share of property income will be assessable in his hands under the same head, vide s. 67(2) and any one or all of them occupying the property may claim pro tanto relief ; but we are not concerned with that question here. We have, therefore, come to the conclusion that the context before us is one in which the dichotomy between the firm and its partners should be given effect to and that the nature of the relief under s. 23(2) is such that it is not available in the case of a firm just as it is not available in the case of a ..... 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