TMI Blog1989 (7) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... nd March 31, 1971, respectively. The assessee was a partner in a firm "Fashion Jewellery". The original assessments for the aforesaid three years were completed on the assessee as an individual on November 20, 1970, February 24, 1971, and March 7, 1974. During the relevant accounting period, the assessee had allowed the firm to use the ground floor of the building belonging to him for the purpose of the business of the firm. He had neither let out the ground floor nor collected any rent for the same and, therefore, the assessee had not returned any income from the ground floor. But the assessment was reopened on the ground that the assessee failed to disclose the particulars of income relating to the ground floor. The assessee objected to the reopening on the ground that the annual value relating to the ground floor is not income chargeable to tax as the same is exempt under section 22 of the Income-tax Act. Under section 22, the annual value of a building of which the assessee is the owner and which he is occupying for the purpose of a business carried on by him, the profits of which are chargeable to income-tax, is exempted from taxation. But, the Income-tax Officer rejected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The charge is not on rent but on the inherent capacity of the property to yield profit. Even if the owner receives no income, the charge will be there on the artificial or notional income statutorily fixed. In order to be taxed under section 22, the conditions to be satisfied are (a) the property should consist of buildings or lands appurtenant thereto ; (b) the assessee should be the owner ; (c) the property should not be used by: the owner for the purpose of any business carried on by him the profits of which are chargeable to income-tax. We are concerned here with the third condition. If it is not satisfied, section 22 will not be attracted. If a person occupies his house property for the purpose of his business, the annual value thereof will not be chargeable provided the profits thereof are taxable. In other words, when an owner occupies any portion of house property for the purpose of his business carried on by him the profits of which are chargeable to income-tax, the annual value will not be chargeable. In order to claim exemption also, three conditions should be satisfied, viz., (a) the assessee should be in occupation of the property ; (b) the occupation must be for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property owned by a firm is used for its business, such assessee is entitled to exemption under section 22." Counsel on behalf of the respondent-assessee relied on the decision of the Gujarat High Court in CIT v. Rasiklal Balabhai [1979] 119 ITR 303. In that case also, a similar question arose for consideration wherein it was held that an individual assessee owning a godown used by the partners in which he is partner was assessed, including the annual value of the godown in the total income for the assessee. The Appellate Assistant Commissioner deleted the inclusion and the deletion was upheld by the Tribunal. The question that arose before the Gujarat High Court was whether the Tribunal was justified in holding that the annual letting value of the godown owned by the assessee and used for the business carried on by him in partnership was not liable to be included in his total income under section 22 of the Income-tax Act, 1961. In answering the question in favour of the assessee, the Division Bench held that when a partnership carries on a business, each partner thereof carries on that business and the exemption in section 22 will apply in such cases. A partner of the firm can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guruswamy's case [1984] 146 ITR 34, we find that the position has not been considered in the light of the partnership law in that case. The reasoning of the Gujarat High Court is more acceptable to us. We also find that the decision of the Gujarat High Court in Rasiklal Balabhai's case [1979] 119 ITR 303, has been accepted by the Madras High Court in CIT v. K. M. Jagannathan [1989] 180 ITR 191, where also a similar question arose for consideration. It was held in that case that when a partnership carries on business, each partner also carries on that business and, in the eye of law, a firm is compendious expression used to indicate the several persons constituting the firm. When the firm is carrying on business, it can be said that the business is being carried on by all the partners. This aspect has been lost sight of in the decision reported in CIT v. K. N. Guruswamy [1984] 146 ITR 34 (Kar), and, therefore, their Lordships of the Madras High Court were not able to subscribe to the view expressed therein. In that case, an assessee-partner owned the house property which was occupied by the firm for its money-lending business. The Income-tax Officer included the annual value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1989] 180 ITR 198 (Mad), the question arose whether a practising chartered accountant exercising his profession in partnership with another and in occupation of one-half of the house owned by him could claim the benefit under section 22 of the Act. It was held, that the portion of the assessee's house, occupied by the assessee's auditor firm can be held to be user by the assessee and, therefore, the assessee would be entitled to the benefit of section 22 of the Act. The assessee in this case was the managing partner of the firm. Counsel for the Revenue also brought to our notice the decision reported in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) which deals with the question as to who can be considered the owner of the property. In this case, there is no dispute relating to the ownership and, therefore, we are not referring to that decision in detail. There is no dispute that the assessee is the owner of the ground floor of the building. The assessee is carrying on business in partnership the profits of which are chargeable to income-tax. It cannot be stated that the assessee is not occupying the building for the purpose of his business. The business is done in partn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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