COMMISSIONER OF INCOME TAX Vs. THOMAS P M

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 March 2, 1984, in Income-tax Appeals Nos. 379, 380 and 381 (Coch) of 1982:

(2.) THE matter arises out of the income-tax assessment for the years 1969-70, 1970-71 and 1971-72 for which the accounting period ended on March 31, 1969, March 31, 1970, and 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 contention of the assessee and assessment was completed including the annual value of the ground floor of the building also as his income. On appeal, the Appellate Assistant Commissioner accepted the contention of the assessee. THE Department came up in appeal against the decision of the Appellate Assistant Commissioner for the three years. But the Tribunal confirmed the order of the Appellate Assistant Commissioner and in so doing the Tribunal followed the decision of the Gujarat High Court in CIT v. Rasiklal Balabhai [1979] 119 ITR 303, wherein it was held that when a partnership carries on a business, each partner thereof carries on that business and further held that when the partnership is in occupation, the assessee must also be deemed to be in occupation thereof. It is thereafter that the above question of law was formulated and referred to this court.

(3.) THE contention strongly pressed on behalf of the Revenue is that the assessee cannot be deemed to be in occupation of the premises as the occupation of the firm cannot be treated as occupation by the partner. For this purpose, counsel strongly relied on the decision of the Karnataka High Court in CIT v. K.N. Guruswamy [1984] 146 ITR 34 and submitted that exemption under Section 22 is available only to the owner of a house property who occupies it for the purpose of any business carried on by him. If the property or portion of it, owned by an assessee, is occupied by him for the purpose of his own business or profession, or a property owned by a firm is used for its business, such assessee is entitled to exemption. In that case, the question to be considered was similar like the one in question, viz., whether the notional income from house property owned by a partner of a firm, and used in the firm's business, can be included in the total income of the partner. THE Income-tax Officer rejected the assessee's claim and included the annual value in the assessee's income. But the Appellate Assistant Commissioner upheld the contention of the assesses and deleted the addition. THE Tribunal also agreed with the view taken by the Appellate Assistant Commissioner in that case. On a reference at the instance of the Revenue, the Division Bench of the High Court held that it is "only the owner of the property who can claim deduction and that owner must be an assessee and the property concerned must have been used or occupied for the assessee's business. THE "occupation" of the property, in the context, must mean "occupation as owner or his own occupation". THE fact of occupation, therefore, must go with the owner of the building which means actual occupation for the purpose of his business or profession. THErefore, the Division Bench stated that the conclusion of the law is as under (at p. 38) :