COMMISSIONER OF INCOME TAX Vs. MANUAL

JUDGEMENT

(1.) At the instance of the Commissioner of Income Tax, Cochin, the Income Tax Appellate Tribunal Cochin Bench has referred the following question of law arising out of the common order of the Tribunal dated 2-3-1984 in I.T.A. Nos. 379, 380 & 381 (Coch)/82:

(2.) We heard counsel for the Revenue as well as for the assessee.

(3.) The Tribunal appreciated the facts that the assessee was the Managing Partner and the other partners were his sons. The licence issued by the Excise authorities for carrying on business in gold was in the name of the assessee. The licence had also mentioned the ground floor of the building as the premises where the business was carried on under the licence. Therefore the assessee as the Managing Partner is carrying on business in partnership using the licence issued in his name in the ground floor of the building belonging to him and occupied by him as partner. Under S.14 all income chargeable to income tax is classified. Income from house property is one of such head of income. Ss.22 to 27 relate to computation of income from house property. S.22 says that the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner is chargeable to income tax under the head "income from house property", unless otherwise provided. Such portion of such property as he may occupy for the purposes of any business carried on by him the profits of which are chargeable to income tax is exempted. If the owner occupied the property for the purpose of his business the profits of which are assessable to tax, no tax is payable in respect of that house property. The tax is on the owner and not on the occupant and levied not on actual income but on the annual value as determined under S.23. 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 S.22 conditions to be satisfied are (a) property should consist of buildings or lands appurtenant thereto; (b) 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, S.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 the business carried on by the assessee and (c) the profits of the business should be chargeable to tax. The admitted case is that the element of conditions "b & c" mentioned above have been satisfied in the case for the assessee is carrying on business as the Managing Partner of the firm and the profits of the business are chargeable to tax.