INCOME TAX OFFICER v. NAROL HIGHWAY COMMERCIAL CENTRE
[Citation -1984-LL-1109-4]

Citation 1984-LL-1109-4
Appellant Name INCOME TAX OFFICER
Respondent Name NAROL HIGHWAY COMMERCIAL CENTRE
Court ITAT
Relevant Act Income-tax
Date of Order 09/11/1984
Assessment Year 1977-78 ,1978-79
Judgment View Judgment
Keyword Tags income from house property • business activity • unregistered firm • partnership act • letting out
Bot Summary: Proceeded to assess the said income under the head income from house property, for both the years under appeal and also declined to grant registration to the assessee firm. Now before the CIT it was contended that as the ITO had assessed the said income under the head income from house property the provisions of s. 26 of the IT Act would come into play and the income was not chargeable in the hands of t h e co-owners whose shares were determinate and ascertainable. 1977-78 the AAC upheld the assessee's claim that income from house property should be assessed directly in the hands of there co-owners and not in the hands of the assessee. Departmental Representative pointed out that in the instant case the property was owned by the firm and not by the partners and the income therefore was assessable in the hands of the firm and not in the hands of the firm and not in the hands of the co-owners as held by the CIT/AAC. Relying on the decision in case of Sarvamangala Properties Ltd. vs. CIT 90 ITR 267 9CAl) the ld. Departmental representative submitted that when a firm owned a house property income therefrom was assessable in the hands of the firm and not in the hands of the partner individual. Counsel for the assessee on the order hand pointed out that the decision reached by the CIT/AAC did not call for any interference because in the instant case the ITO had negatived the contention of the assessee that the income from letting out of godown was a business activity. As a consequence the income earned by each co-owner would have to be assessed separately in their respective hands and not in the hands of the AOP. This is so because s. 26 of the IT Act would operate qua income chargeable under the head income from house property.


This set of two appeals relate to asst. yrs. 1977-78 and 1978-79. common grounds raised in both appeals read as follows: ld. AAC erred in law and on facts of case in allowing claim of assessee to apply s. 26 of IT Act. ld. AAC failed to appreciate fact that shares of co-owners are not determinable and not as certainable. shares specified in deed are only to divide profits and loss of firm not property income as such. assessee which treated as Unregistered Firm (URF) derives income from letting out of godowns. ITO observed that assessee's activity of letting out of godowns did not constitute business activity. He, therefore, called upon assessee as to why said income should not be assessed as income from house property. assessee initially contended that his activity should be treated as business activity following decision which were placed before ITO as set out in para 2 of his order. ITO held that facts of said cases were different and, therefore, those decisions have no application. He therefore, proceeded to assess said income under head income from house property, for both years under appeal and also declined to grant registration to assessee firm. While rejecting registration ITO observed that there was not business activity as set out in deed of partnership and as such there was no income except from letting out of godowns which did not constitute business activity. Being aggrieved that assessee carried matter in appeal before CIT (A) for asst. yr. 1977-78 and before AAC for asst. yr. 1978-79. It may be stated that for asst. yr. 1978-79 ITO followed his decision for asst. yr. 1977- 78 and taxed income from godown as income from house property. Now before CIT (A) it was contended that as ITO had assessed said income under head income from house property provisions of s. 26 of IT Act would come into play and income was not chargeable in hands of t h e co-owners whose shares were determinate and ascertainable. This contention found favour with CIT (A) who directed ITO to determine income to co-owners and being to tax same directly in their respective hands in accordance with provisions of s. 26 of Act. Similarly for asst. yr. 1977-78 AAC upheld assessee's claim that income from house property should be assessed directly in hands of there co-owners and not in hands of assessee. He also applied provisions of s. 26 of Act. Being aggrieved Revenue has come up in appeal before us. ld. Departmental Representative pointed out that in instant case property was owned by firm and not by partners and income, therefore, therefore was assessable in hands of firm and not in hands of firm and not in hands of co-owners as held by CIT (A)/AAC. Relying on decision in case of Sarvamangala Properties Ltd. vs. CIT (1973) 90 ITR 267 9CAl) ld. departmental representative submitted that when firm owned house property income therefrom was assessable in hands of firm and not in hands of partner individual. He thus supported order of ITO for respective years. Shri Kaji ld. counsel for assessee on order hand pointed out that decision reached by CIT (A)/AAC did not call for any interference because in instant case ITO had negatived contention of assessee that income from letting out of godown was business activity. Therefore, once it is held that firm has not carried on any business essential requisite of partnership disappears and income has to be asked as of co-owners. Consequently provisions of s. 26 would come into play. It was in accordance with said provisions that CIT (A) and AAC have held that income should be assessed in hands of co-owners in accordance with their respective shares which were definite and ascertainable. decision relied upon by ld. departmental representative had no application because in that case firm was carrying on business and property was acquired by firm from its funds. We have considered rival submission. There is no challenge to finding reached by ITO that assessee is not carrying on any business. Now s. 4 of Partnership Act defines partnership, partner and firm name. It is provided that partnership is relation between persons who have agreed to share profits of business carried on by all or any of them acting for all. Therefore, very basis of partnership is that there must be business activity carried on by all partners or any of them acting for all. As pointed out activity carried on by all partners or any of them acting for all. As pointed out earlier there is no business activity carried on by assessee and on that footing registration applied for by firm has been refused. Now when basic element or essential requisite of partnership viz. carrying on business is not satisfied then there is not question of firm coming into existence. In this view of matter ITO was not justified at all in treating assessee as URF but correct status is AOP which comprised of various co-owners who had agreed to share income realised by letting out of godowns. shares of co-owners would be same as set out in deed of partnership. In other words deed of partnership in absence of business activity carried on by firm would merely operate as agreement under which co- owners would share income in specified portions as stated therein. Thus in instant case shares of co-owners are definite and ascertainable. As consequence income earned by each co-owner would have to be assessed separately in their respective hands and not in hands of AOP. This is so because s. 26 of IT Act would operate qua income chargeable under head income from house property. This section lays down that when property consisting of building etc., is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as AOP but shares each of such person in income from property as computed in accordance with ss. 22 to 25 shall be included in his total income. Therefore, for reasons stated herein before we decline to interfere with decisions of CIT (A)/AAC for respective years under appeal. appeals are dismissed. *** INCOME TAX OFFICER v. NAROL HIGHWAY COMMERCIAL CENTRE
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