TMI Blog1971 (5) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... a registered firm carrying on the business of running petrol pumps and dealing in accessories. Towards the end of March, 1956, a house property at 4/23-B, Asaf Ali Road, New Delhi, was constructed. For the first two years, the income from the property being exempt under the law, the matter for the assessment of that income arose for the first time in the assessment year 1958-59. The Income-tax Officer called upon the assessee to explain why the income from that property should not be assessed in its hands. The assessee replied that the income was not taxable in its hands, but should be taxed directly in the hands of the partners constituting the firm. The Income-tax Officer rejected the assessee's contention and treated the house property as being owned by the assessee. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On appeal before the Income-tax Appellate Tribunal, it was contended that a firm had no existence apart from its partners and consequently it could only be the partners who were the owners of the property even though in the records of rights the property stood in the name of the firm. Under section 9 of the Income-tax Act, 1922 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property was contributed by Bhai Sunder Dass and did not come out of the offers of the assessee-firm. The property was also not shown in the balance-sheet of the assessee-firm and was, therefore, not an asset of the firm. It was further argued that under section 4 of the Partnership Act, a partnership is a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Section 10 requires every partner to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. The object of constituting a firm, therefore, is to carry on business and it is the profits of the business which have to be shared by the partners. The business of the assessee-firm admittedly was to run petrol pumps and to deal in accessories and not to own any properties. Under section 14, the property of the firm includes all property and rights and interest in it which was originally brought into the stock of the firm or was acquired by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm. It also includes the goodwill of the business. The scheme of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that they had any right, title or interest in the property. The question all along has been whether the property was owned by the assessee-firm or by the partners constituting that firm. The other two sons are, therefore, completely out of the picture and the case has to be dealt with only on the basis whether the property was owned by the assessee-firm or its partners. The question itself suggests that no attempt to widen that question can therefore be entertained at this stage. There is substance in this argument of the learned counsel for the revenue and the case has to be viewed only from one particular angle, namely, whether the assessee-firm is the owner of the property in question. Mr. Sharma, learned counsel for the revenue, also contended that before the income-tax authorities as well as the Appellate Tribunal the contention urged on behalf of the assessee was whether sub-section (3) of section 9 had application to the facts of the present case and not in the form in which the question has been placed before this court by the learned counsel for the assessee. Sub-section (3) of section 9 reads as under : "(3) Where property is owned by two or more pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of a business. Since taxability of the property owned by a firm is under the provisions of section 9 of the Income-tax Act, 1922, in an appropriate case, the income from that property may be treated under that section apart from the business of the firm which is taxable under section 10 of the Act. That circumstance by no means supports the view of the learned counsel for the assessee that a firm cannot own property and that it has to be taxed in the hands of its partners. The principle laid down by the Supreme Court in Dulichand's case dealt altogether with a different situation. The question raised in that case was whether a partnership as such could enter into partnership with another firm and it was said in that context that a firm was not an entity or a person in law, but was merely an association of individuals. The question there was whether a natural or a juristic person alone could become a partner and it was said that since the partnership firm did not have a legal personality it could not become a partner as such. In the case of Commissioner of Income-tax v. A. W. Figgies Co., S.R. Das C.J., who had written the judgment in Dulichand's case, was himself a party to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing repugnant in the definition of "person" in the General Clauses Act. It will thus be seen that the word "person" as considered in Dulichand's case had only a limited application, and that the technical view of the nature of partnership could not be taken in applying the law of income-tax so far as exigibility of the property owned by a firm was concerned. It has to be treated as the property of the firm and not of its partners. In Rex v. General Commissioners of Income Tax for the City of London and Latilla v. Commissioners of Inland Revenue, it was said by the House of Lords that the technical nature of a partnership under the general law cannot always be taken in applying the law of income-tax. For some of the purposes of the Act a firm "is treated as an entity distinct from the persons who constitute the firm". In Y. Narayana Chetty v. Income-tax Officer, Nellore, it was said by Gajendragadkar J., who wrote the judgment of the court, that the word "person" used by sub-section (2) of section 2 of the Income-tax Act, 1922, while defining the assessee, would obviously include a firm under section 3(42) of the General Clauses Act since it provides that a person includes "a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exemption was claimed on that account is itself a circumstance that militates against the assertion of the assessee when it was called to explain why the income should not be included in the succeeding years. The Tribunal also referred to the account maintained in the name of Bhai Sunder Dass and has observed that that account does not show that the other partners were also contributing for the construction in proportion to their shares. A perusal of the trial balance of the assessee for the assessment year 1960-61 relating to the accounting period April 13, 1959, to April 12, 1960, also showed that it was the assessee who met the expenditure of Rs. 30,860 noted in the account on April 12, 1956. This clearly indicated that the separate account on construction did not by itself show that the construction was being undertaken by one of the co-owners who is a partner of the assessee-firm. The property admittedly stands in the name of the assessee in the municipal records. Learned counsel for the assessee stated that under section 125 of the Delhi Municipal Corporation Act, 1957, a mere entry in the assessment list maintained by the Municipal Corporation is acceptable as concl ..... 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