TMI Blog1967 (3) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the case, may be stated briefly in order to appreciate the said question. The New Cotton and Wool Pressing Factory, Beawar, which will hereinafter be referred to as " the assessee ", is an unregistered partnership firm consisting of thirteen partners. It is running a wool and cotton pressing factory at Beawar in Ajmer District. The capital contributed and profit-sharing ratio of the said partners is as follows: Name of Partners Capital Share in a rupee 1. Deokarandas Ramkumar, 62,000 31 Nawalgarh 2. Kanhaiyalal Saraogi, 24,000 1 Telhara 3. Sheodathrai Sunderlal, 16,000 8 Nawalgarh 4. Balmukand Dwarkadas, 8,000 4 Calcutta. 5. Nathmal Jhunjhunjala, 2,000 2 Jaipur. 6. Smt Jankai Bai, Jaipur 1,000 1/2 7. Jagdish Prasad Balkishan, 4,000 2 Beawar. 8. Smt. Ratan Kanwar Choukhani, 2,000 1 Nawalgarh. 9. Smt. Kamala Bai Choukhani, 2,000 1 Kanpur 10. Mahavir, Prasad Choukhani, 2,000 1 Nawalgarh 11. Madhoprasad Choukhani 1,000 1/2 Nawalgarh. 12. Gajanand Choukhani, 2,000 1 Kanpur. 13. J. K. Sarkar, Allahabad 2,000 1 Among other assets of the firm, there are residential buildings and godowns within the premises of the factory a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded in his total income and then assessed to income-tax, if it was at all payable. Both the contentions have been stoutly opposed by learned counsel for the department. Now, it would be proper to take up the first contention first. It is very candidly conceded by the assessee's learned counsel that according to section 3 of the Act, firm is one of the classes of assessee mentioned therein and, therefore, it can be treated as an assessee in respect of its total income of the accounting year. What is contended by learned counsel is that no tax is payable by the firm as an assessee under the head " Income from property " in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto, because the firm as such is not the owner of the immovable property and the ownership of the property vests in the partners of the firm. In support of his argument, he has referred to section 19 of the Indian Partnership Act, 1932. It would be proper to reproduce here section 9(1) of the Act and section 19 of the Indian Partnership Act on whose interpretation the above argument is based. They run as follows : Income-tax Act " 9. (1) The tax shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is confirmed by this section, is called his implied authority. Sub-section (2) is provided to place certain restrictions on the implied authority of a partner unless there is any usage or custom of trade to the contrary. If in a particular case, it is found that on account of any usage or custom of trade, a partner enjoys implied authority to acquire immovable property on behalf of the firm or to transfer immovable property belonging to the firm, sub-section (2) would not come in his way. Moreover, the very perusal of clause (g) would show that it contemplates immovable property " belonging to the firm." It cannot, therefore, be urged on the basis of this clause that immovable property cannot belong to the firm in any case and the firm cannot be held liable as an assessee to pay income-tax under the head " Income from property " in respect of the bona fide annual value of such immovable property. On the contrary, it may be pointed out that sections 14 and 15 of the Indian Partnership Act make a clear distinction between the property of the firm as such, and property of its individual partners. Both the sections are reproduced here to appreciate this position of law properly. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm can be an assessee. It is true that in the ultimate analysis it is the partners of the firm taken as a whole who are owners of the property, but when these partners go by a firm name in their collective capacity and when a particular immovable property or properties come within the ambit of section 14 of the Partnership Act, the income from such property can, in our opinion, be assessed under section 9(1) of the Act. We may now turn to the next argument of the learned counsel for the petitioner. It is urged by him that the immovable property whose income was assessed belonged to thirteen partners, but since their respective shares were definite and ascertainable, they could not be assessed as an association of persons or in the firm name, but the share of each such person in the income from the property as computed in accordance with this section should have been included in his total income. Sub-section (3) of section 9 of the Act on which reliance has been placed may be reproduced here. It runs as follows : " 9. (3) Where property is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order : - (i) in paying the debts of the firm to third parties ; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital ; (iii) in paying to each partner rateably what is due to him on account of capital ; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. " Unless the accounts are settled in the mode indicated above, it is difficult to say at any particular period of time what would be the definite share of each partner in the property of the firm. It is well settled that a partner cannot claim partition in the immovable property of the firm so long as the firm is not dissolved. If and when a firm is dissolved, losses have to be paid first as indicated in clause (a). Thereafter, the assets of the firm including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of immovable property of the firm and separately enjoy the income accruing therefrom. In the next case referred by him, viz., Dulichand Laxminarayan v. Commissioner of Income-tax, it was held by their Lordships of the Supreme Court that " the word 'persons' in section 4 of the Indian Partnership Act, which has replaced section 239 of the Indian Contract Act, contemplates only natural or artificial, i.e., legal persons, and for the reasons stated above, a firm is not a 'person' and as such is not entitled to enter into a partnership with another firm or Hindu undivided family or individual ". This case has also no bearing on the point raised in the present case. Similarly, the observations made in the other three cases, which have been referred by him, namely, Commissioner of Income-tax v. M. A. Baporia, Commissioner of Income-tax v. Dewan Bahadur Dewan Krishna Kishore, and Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory, have no direct application to the present case. Learned counsel for the respondent also very frankly conceded before us that he could not lay his hands on any authority which has a direct bearing on the point referred in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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