ADDITIONAL COMMISSIONER OF INCOME TAX Vs. N VAIDYANATHAN

JUDGEMENT

(1.) This is a reference under the. Income-tax Act, 1961. The assessee in this case is a practising chartered accountant exercising his profession both individually and in partnership with another. The assessee owns a house. One-half of the house is used by the assessee's auditing firm for its office The assessee had income under the head "Property" assessable on the basis of the annual value of his house. He had also Income under the head "Business" assessable in respect of his share of the auditing firm's professional earnings. The one-half portion of the assessee's house under the firm's occupation, however, raised two problems in the assessment. One was whether the assessee was entitled to exclude from assessment one-half of the annual value of his house property which appertains to the portion in the firm's occupation. This involved the application of the saving provision in section 22 of the Income-tax Act. The Tribunal, when the matter came before them in appeal, took the view that one-half of the annual value must be excluded in reckoning the assessee's income under the head "Property". The Tribunal differed from the Assessing Officer's determination in this regard. The question for our consideration is whether the assessee is entitled to relief from taxation in respect of one-half of the annual value of his house. The charge to income-tax under the head "House property", as laid by section 22, attaches to the annual value of any property owned by the assessee, "other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him"

(2.) In terms of this savings clause, the inquiry in the present case must be whether, as to one-half of the house used by the assessee's auditing firm for its office, the assessee can be said to be in occupation for the purposes of his businessThe assessee's share income from this partnership firm certainly falls to be assessed and has, in fact, been assessed, under the head "Profits and gains of business or profession". But can we say that the portion of the house under the firm's occupation is for the purposes of the assessee's profession " The Tribunal's answer was in the affirmative. They held that the assessee must be held to be carrying on the profession, even though it was only the partnership practice which he, along with his partner, exercised from that portion of the house.

(3.) The Department contests the validity of this legal determination. Learned counsel for the Department goes to the fundamentals of partnership jurisprudence and says that a firm has a limited personality of its own which distinguishes it from its partners, and in any case, a firm is dealt with under the income-tax law as a separate fiscal entity different from its partners. He accordingly urges that whatever is done by a firm is done by it for its own purposes and cannot be regarded, ipso jure, as done by the individual partners.