Case Law Details

Case Name : Shri Prodip Kumar Bothra Vs Commissioner of Income Tax (Calcutta High Court)
Appeal Number : ITA No. 742 of 2004
Date of Judgement/Order : 15/07/2011
Related Assessment Year :
Courts : All High Courts (3656) Calcutta High Court (148)

Shri Prodip Kumar Bothra Vs Commissioner of Income Tax (Calcutta High Court)- A partnership firm cannot take advantage of the ownership of a property owned by its partner in his individual capacity for the purpose of getting benefit of taxation and in the same way, a partner also in his individual capacity cannot treat the right of possession exercised by the firm in any property as his own right of possession so as to get benefit of taxation.

In this connection we respectfully propose to follow the interpretation given by the Karnataka High Court in the case of CIT, Karnataka vs, K.N. Guruswamy (supra) relied upon by Mr. Banerjee and with great respect disagree with the views taken by Delhi, Madras, Gujrat, Kerala, Allahabad, Patna and Orissa High Court relied upon by Mr. Dutt (supra) where all those Courts have permitted a partner to utilise the possession of a firm in a property as the individual right of the partner for getting the benefit of taxation. Such view, we feel, is opposed to the principles of both partnership law and the law relating to taxation in India.

Thus, after taking into consideration the overall position of a partnership firm in the light of the Income tax Act, 1961 we are of the view that the exemption under Section 22 of the Act in respect of a property not owned by the partnership firm cannot be availed of by an individual co-owner merely because he happens to be a partner of a firm in occupation of a part of the property.

Shri Prodip Kumar Bothra vs Commissioner of Income-Tax

Calcutta High Court

I.T.A. No. 742 of 2004

Heard on. 07.07.2011.

Judgement on: July 15, 2011.

Bhaskar Bhattacharya, J.

This appeal under Section 260A of the Income-tax (“Act”), 1961 is at the instance of an assessee and is directed against an order dated 22nd June, 2004, passed by the Income-tax Appellate Tribunal, “A” Bench, Kolkata, in Income-tax Appeal being ITA No.1724 (Kol) of 2002 for the Assessment Years 1998-99 and 1999-2000 and thereby dismissing the appeal preferred by the assessee. Being dissatisfied, the assessee has come up with the present appeal. The only question that falls for determination in this appeal is whether the benefit under Section 22 of the Act, 1961 is available to a co-owner of a house property if part of the said house is occupied for the business of a partnership firm of which the said co-owner is one of the partners. The following facts are relevant for the purpose of disposal of the present appeal.

a) The assessee is one of the joint co-owners of property being IA and 1B, F, First floor, 101 Park Street, Kolkata. The premises were leased out to M/s. Jayshree Exports, a 100% export unit, in which he is a partner. The assessee has not charged any rent for the said lease from M/s. Jayshree Exports. According to the Assessing Officer, Section 22 of the Act was applicable and accordingly applied the deeming provision and treated the assessee to be in receipt of rental income amounting to Rs. 1,78,318/- by relying upon similar rental of the locality.

b) Being dissatisfied, the assessee preferred an appeal before the Commissioner of Income-tax (Appeal) and the said authority dismissed the said appeal.

c) Being dissatisfied, the assessee preferred further appeal before the Tribunal below and contended that the assessee being a co-owner of the property and the partnership business which is in occupation of a portion of the said property being one in which the assessee as one of the co-owners is a partner, such co-owner is entitled to the benefit of exclusion provided in Section 22.

As indicated earlier, the Tribunal has turned down such contention. Being dissatisfied, the assessee has come up with the present appeal. A Division Bench of this Court formulated the following substantial question of law for decision:

“Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law by not holding that the income from the property occupied by the firm of which the assessee owner was a partner for carrying on the business of the firm was not liable to be included in its total income under Section 22 of the Income Tax Act, 1961?”

Mr. Dutt, the learned Counsel appearing on behalf of the appellant, has contended that the assessee being the co-owner of the property and a portion of the same being in occupation of a partnership business of which he is a partner was entitled to the benefit to exemption provided in Section 22 of the Act and has relied upon the following decisions of various High Courts in support of the contention that the findings recorded by the authorities below were erroneous:

 1) Commissioner of Income-tax, Gujarat vs. Rasiklal Balabhai, reported in (1979) 119 ITR 303;

2) Commissioner of Income-tax vs. Podar Cement Pvt. Ltd. & Ors., reported in (1997) 226 ITR 625;

3) Commissioner of Income-tax vs. Mustaga Khan, reported in (2005) 276 ITR 601;

4) Commissioner of Income-tax vs. Syed Anwar Hussain, reported in (1990) 186 ITR 749;

5) Commissioner of Income-tax vs. K.M. Jagannathan, reported in (1989) 180 ITR 191;

6) Commissioner of Income-tax vs. P.M. Thomas, reported in (1990) 181 ITR 256;

7) Commissioner of Income-tax vs. Rabindranath Bhol, reported in (1995) 211 ITR 799.

Mr. Banerjee, the learned Advocate appearing on behalf of the Revenue, has, on the other hand, opposed the aforesaid contention of Mr. Dutt and has relied upon the decision of the Karnataka High Court in the case of Commissioner of Income-tax, Karnataka vs. K.N. Guruswamy, reported in 146 ITR Page 34 and also of the Division Bench decision of this Court in the case of Sarvamangala Properties Ltd. vs. Commissioner of Income-tax, W.B., reported in (1973) 90 ITR Page 267. By relying upon the aforesaid two decisions, Mr. Banerjee contends that in order to get the benefit of exemption provided in Section 22 of the Act, the property should have been owned by the partnership firm itself which was in possession of the property and in such a situation, the partnership firm as the owner of the property could get the benefit of exemption. According to Mr. Banerjee, the mere fact that the assessee is one of the partners of the partnership firm which is in possession of the property is immaterial for the purpose of availing oneself of the benefit of Section 22. According to Mr. Banerjee, in order to get the benefit of Section 22 of the Act the owner and the occupier must be same person. In other words, according to Mr. Banerjee, in the case before us, either if the Jayshree Export was the owner of the property it could get benefit or if the assessee was in possession of the property for carrying on his own business or profession in his personal capacity, in that case also, the benefit would have been available to the assessee. Mr. Banerjee, therefore, prays for dismissal of the appeal.

In order to appreciate the point involved in this appeal, it will be profitable to refer to the provisions contained in Section 22 of the Act which is quoted below:

“22. Income from house property.–The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income tax, shall be chargeable to income tax under the head “Income from house property”.

A plain reading of the aforesaid provision makes it amply clear that it is the owner of a house property who is liable to be charged under the head “Income from house property” which is one of the heads as indicated in Section 14 of the Act except such portion of such house property which is occupied by him for the purpose of any business or profession carried on by him, the profits of which are chargeable to income tax. Thus, the owner of the house property and the occupier of the portion of the same must be the same person and the profits of such owner from the business or profession must be chargeable to income tax in order to be excluded from the operation of Section 22 of the Act. In the case before us, the assessee is no doubt a co-owner of the property but the portion is not occupied by such co-owner for his business or profession which is chargeable to income tax; it is a partnership firm which is in the occupation of the portion and the profit from such business is chargeable to income tax and such partnership business is chargeable to income tax for which the firm is liable to tax. Therefore, the assessee cannot pray for exclusion of income of the portion in occupation of a partnership firm merely because he is a partner of such business.

In our opinion, in order to claim exemption under a taxing statute the provision of the exemption must be strictly construed (Oxford University Press vs. C.I.T reported in AIR 2001 SC 886). Mr. Dutt tried to impress upon us that if more than one view is possible in interpreting a taxing statute, the one favourable to the assessee should be adopted. We are, however, of the opinion that having regard to the plain language of Section 22, there is no scope of any argument that owner of a property can get the benefit of occupation of partnership firm in a part thereof simply because the owner is also a partner of the said firm. During the subsistence of a partnership, a partner has no individual right over any item of the properties owned by the firm; similarly, the firm has no right over the properties owned by its partners. In this connection, we refer to the following observations of the Supreme Court in the case of Addanki Narayanappa and another vs. Bhaskara Krishnappa, reported in AIR 1966 SC 1300 while discussing the position of a partner in relation to the property of the firm:

“The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges. It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by S. 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners.”

Thus, a partnership firm cannot take advantage of the ownership of a property owned by its partner in his individual capacity for the purpose of getting benefit of taxation and in the same way, a partner also in his individual capacity cannot treat the right of possession exercised by the firm in any property as his own right of possession so as to get benefit of taxation. In this connection we respectfully propose to follow the interpretation given by the Karnataka High Court in the case of CIT, Karnataka vs, K.N. Guruswamy (supra) relied upon by Mr. Banerjee and with great respect disagree with the views taken by Delhi, Madras, Gujrat, Kerala, Allahabad, Patna and Orissa High Court relied upon by Mr. Dutt (supra) where all those Courts have permitted a partner to utilize the possession of a firm in a property as the individual right of the partner for getting the benefit of taxation. Such view, we feel, is opposed to the principles of both partnership law and the law relating to taxation in India.

As pointed out by a Division Bench of this Court in the case of Sarvamangala Properties Ltd. vs. C.I.T., West Bengal, reported in (1973) 90 I.T.R 267, under the Indian Partnership Act, a firm is an entity known to law and is capable of acquiring and owning property, both movable and immovable, and under the law of income tax in India, a firm owning a property would be liable to taxation. It was further pointed out that under the Indian Income Tax Act, 1922, a firm is a person liable to tax as the owner of the property and under Section 9 thereof, in case of property owned by firm, the same is to be treated as the property of the firm and not of its partners. The same principles have been maintained in the Income Tax Act, 1961.

Thus, after taking into consideration the overall position of a partnership firm in the light of the Income tax Act, 1961 we are of the view that the exemption under Section 22 of the Act in respect of a property not owned by the partnership firm cannot be availed of by an individual co-owner merely because he happens to be a partner of a firm in occupation of a part of the property.

We, therefore, find no merit in this appeal. The order passed by the Tribunal is affirmed. The appeal is dismissed by answering the point formulated in the affirmative and against the assessee.

In the facts and circumstances, there will be, however, no order as to costs.

(Bhaskar Bhattacharya, J.)

I agree.

(Sambuddha Chakrabarti, J.)

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0 responses to “For deriving the benefit of section 22, the occupier and the owner must be the same person and hence the benefits are not available to partners if the occupant is firm”

  1. Israr Ahmed says:

    Definition of Co-ownwer in perview of section 22 of Income tax act

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