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TMI Blog1978 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessment years with which we are concerned in this reference are 1967-68 to 1971-72. The respondent-assessee--an individual--was a partner in the firm of M/s. Narendrakumar Maneklal. The assessee owned a godown which was used by the firm as business premises. The ITO concerned estimated the annual letting value of the same and included it in the total income of the assessee. An appeal was, therefore, preferred before the AAC objecting to the inclusion of the annual letting value of the godown in the total income of the assessee on the ground that the premises were being used not as a place of residence but for the purposes of business carried on by the assessee as a partner of the firm. The AAC was favourably impressed with this contention with the result that he deleted the inclusion of the annual letting value of the godown-premises from the total income of the assessee for all these years. He, therefore, by his common order of August 14, 1974, allowed five appeals preferred by the assessee. The revenue, therefore, went in appeal before the Tribunal before which it was contended on behalf of the revenue that though the point was covered by the earlier decision of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e strictly complied with so as to entitle oneself to the benefit of the exemption. The important question to which we have, therefore, to address ourselves in the first instance is, what are the conditions which the Legislature has prescribed in s. 22 for claiming exemption of exclusion of income from house property under s. 22 ? The two conditions, which must be satisfied before an assessee can claim exemption in respect of the income from his house property under s. 22 are, " if the property or a portion of it (i) is occupied by the assessee for the purposes of his own business, profession or vocation, and (ii) the profits of such business, profession or vocation are assessable to tax. " . If these two conditions are satisfied, the assessee is entitled to claim before the taxing authorities that the income from his house property should not be subjected to tax. In other words, income from house property of an assessee would not be subjected to tax if he is occupying the same for the purposes of his business, profession or vocation, the profits of which are assessable to tax. Broadly, two points would arise for answering the question referred to us, namely, (i) is the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ens to be a partnership business, and, therefore, if any profits and gains are derived by the assessee from the business carried on by him, those profits and gains must be brought to tax only under the head, viz., the head falling under section 10(1) which is the head of business. " Before a Division Bench of this court, consisting of K. T. Desai C.J. and P. N. Bhagwati J. (as they then were), a question arose in Sitaram Motiram Jain v. CIT [1961] 43 ITR 405 (Guj), whether an assessee is entitled to set off his loss in the individual business against the share of the profits of a firm in which he was a partner taking over business as a running concern. The Division Bench, answering the question in favour of the assessee, posed a crucial question, whether a business which has been carried on by a partnership can be regarded as business carried on by a partner, and held : " A ' partnership' is defined by section 4 of the Indian Partnership Act as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. When a firm carries on business, it is a business carried on by the partners of that firm. One partner is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking. The Division Bench quoted with approval the passage extracted above from Sitaram Motiram Jain's case [1961] 43 ITR 405 (Guj) and held as under : " There is, therefore, nothing in sub-section (6) which should compel us to hold that in the case of a registered firm, the assessee contemplated by sub-section (1) can only be the registered firm and not a partner of the registered firm. Where a registered firm manufactures or produces articles in the industrial undertaking, every partner of the registered firm does so and he would, therefore, be an assessee within the meaning of section 15C, sub-section (1), and would be entitled to claim that no tax is payable by him in respect of his share of the exempted profits in his individual assessment." We, therefore, feel no hesitation in agreeing with the learned advocate for the assessee that the assessee must be held to be carrying on business when that business is a business of a partnership firm since the firm as a partnership firm has no legal entity and, as held by courts, that it is a compendious expression for all the partners. In R. M. Chidambaram Pillai's case [1977] 106 ITR 292,299 the Supreme Court, speaking through K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al set up and should not be deterred by its apprehended absurdity though we will deal with a few absurdities which have been pointed out by the learned Government pleader later on. In his submission, occupation must be the occupation by the assessee-owner in his capacity as the owner, and not in any other capacity since the entire basis of the liability of tax for the income from house property is that of ownership and not occupation or possession of the house property. If the basis of the liability is the ownership, it would follow by necessary implication that the basis of the exemption must be also the occupation by the assessee as the owner and not in any other capacity. Though this contention of the learned Government pleader appears to be attractive, on close scrutiny, we do not think that it would stand to reason, obviously for the short and simple reason that if an assessee-partner is in law carrying on business, though the business may be the business of a firm, it is beyond comprehension as well as common sense that he could not be said to be carrying on business in the premises in respect of the income of which the exemption is claimed since he is occupying the same as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person. There is no warrant for adding the words 'and no other person ' having regard to the language used in this sub-section." The submission of the learned Government Pleader would require to add some words or to rewrite the exemption clause. In that view of the matter, therefore, we do not think that his submission is well founded when he urged that the occupation by the assessee-owner must be in the capacity of owner and not in any other capacity. The learned Government Pleader invited our attention to the decision of the Supreme Court in Addanki Narayanappa's case, AIR 1966 SC 1300, where the Supreme Court was required to consider what was the interest of a partner in a partnership property during the subsistence of the partnership and after its dissolution. The learned Government Pleader has invited our attention to the view of the court on the provisions contained in ss. 14, 15, 29, 32, 37, 38 and 48 of the Partnership Act, that when a property is brought by partners to the partnership business, it becomes the property of the firm, and that the partner is entitled to his share of profits, if any, accruing to the partnership from the realisation of this property, and upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in its hands. The assessee contended that it was liable to be taxed in the hands of the partners constituting the firm, which contention was not accepted by the ITO. This order was confirmed by the AAC. The contention of the assessee met with the same fate before the Tribunal. In that context, the Delhi High Court referred to the case of the Supreme Court in Narayana Chetti v. ITO [1959] 35 ITR 388 and held that the technical view of the nature of partnership cannot be taken in applying the law of income-tax so far as exigibility to tax of the income from property owned by a firm is concerned. We have not been able to appreciate how this decision of the Delhi High Court can be of any assistance in the matter before us since admittedly the property was a property of the firm which was liable to pay tax on its income and it was held to be so liable. The next decision to which the learned Government Pleader referred to was of the Calcutta High Court in Sarvamangala Properties Ltd. v. CIT [1973] 90 ITR 267, where a question arose as it arose before the Delhi High Court, whether income from the property would be taxable in the hands of the firm or the partners. In that case, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Viscount Finlay in Governors of the Rotunda Hospital, Dublin v. Coman [1920] 7 TC 517; [1921] AC 1 (HL), 'the subject which is hired out is a complex one' and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure or concern in the nature of trade. " It was urged on the basis of this ruling that the occupation must be the occupation of the assessee in order that exemption can be claimed under s. 22. We do not find any question of exemption being involved in this case before the Supreme Court in National Storage Pvt. Ltd.'s case [1967] 66 ITR 596. In any case, the question before us is, as tried to be urged on behalf of the revenue by the learned Government pleader, whether the occupation of the premises in respect of the income of which exemption is claimed should be the occupation as owner only or can be in any other capacity. The attempt of the learned Government pleader to impress upon us that it can be only in the capacity of owner and no other capacity cannot be accepted because, as stated above, it would amount to rewriting the section or, in any case, reading more than what ..... X X X X Extracts X X X X X X X X Extracts X X X X
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