TMI Blog2014 (4) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the property - The expenditure for acquiring the advantage is an expenditure incurred purely for the individual partners - There is no justification and reason, why the assessee firm made the payment and on what terms/ basis payment was made - The expenditure cannot be treated as running business expenditure and cannot be claimed as a deduction u/s 37 of the Act by the assessee. Individual owners and the partnership firm are two distinct tax entities for the purpose of the Act and are liable to pay income tax on their income after reducing revenue expenditure - the nature of expenditure is clearly capital and incurred on account of the individual partners and is neither a capital nor revenue expenditure of the partnership firm respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.12,26,508/-, that had been disallowed by the Assessing Officer. 5. To understand the controversy, it would be necessary to refer to the facts briefly. 6. The petitioner is a partnership firm of two partners namely Smt. Krishna Leekha and her son Shri. Anuj Leekha. The partnership firm was set up with the objective of running and operative guest house services from the first and second floor of the building situated at H-2, Green Park Ext., New Delhi. 7. The building, from where the said guest house operates, was owned by the two partners in their individual names. Smt. Krishna Leekha is the owner of the first floor and Shri. Anuj Leekha is the owner of the second floor. 8. Since the partnership firm was using the portion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax partly allowed the revision petition. The annual property tax paid by the petitioner of Rs.63,117/- was allowed as an expenditure, however, Rs.11,63,391/- paid towards conversion charges was disallowed. It is this part of the order that the petitioner impugns in the present petition. 14. The property, from where the petitioner was operating, was a residential property. It is the admitted case of the petitioner that the property owned by the partners of the petitioner, was not contributed by the partners as capital in the firm and the building is also not shown in the books of accounts as an asset owned by the firm. The property continues to be owned by the partners in their individual capacity. 15. In M.C. Mehta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial/mixed land use. Once the property is converted, the benefit of the same will enure to the owners of the property. It enhances and adds to the value of the capital asset i.e. the property 18. In the present case, the owners of the property are the partners in their individual capacity and as such the enduring benefit of conversion from residential to commercial enures to the owners. In case the petitioner assessee were to discontinue its business, even then the partners i.e. the owners of the property in their individual capacity would still have the right to put the property to commercial/mixed land use. This advantage and benefit that the property has acquired by payment of conversion charges will continue to enure to the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... run the guest house. Therefore, while determining and deciding the question whether the expenditure was capital or revenue in nature, the fact and also the position that the expenditure should have been incurred by the owners cannot be ignored. 20. We are of the considered view that the nature of expenditure is clearly capital and incurred on account of the individual partners and is neither a capital nor revenue expenditure of the partnership firm respondent assessee. We find no infirmity in the order rejecting the application of the petitioner under Section 264 of the Act, refusing to interfere in the assessment order, whereby the said expenditure has been disallowed. 21. The present petition is accordingly dismissed. There shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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