SARVAMANGALA PROPERTIES LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) By this reference under Section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred to this court:

(2.) The assessment years concerned in this reference are 1958-59, 1959-60 and 1960-61 and the corresponding accounting years being the financial years 1957-58, 1958-59 and 1959-60. The assessee is a registered firm consisting of two partners, Sri Cbhaganlal Burman and Sri Baijnath Paras-rampuria, with equal shares. The firm was constituted under a deed of partnership dated 6th December, 1956, the partnership having been deemed to have come into existence on and from I9th September, 1958. It is provided in the partnership deed that the partners would carry on the business of buying, selling, developing lands, building and/or letting out lands, building and also deal in shares, securities, bullion, jute and jute products, textile and other commodities from time to time under the name and style of Sarva-mangala Properties. Premises No. 5, Clive Row, Calcutta, was put up for sale by the Certificate Officer, 24 Parganas in certain certificate proceedings. On the 19th September, 1956, the assessee, M/s. Sarvamangala Properties of 67B. Netaji Subbas Road, Calcutta, was declared the highest bidder and purchaser for the price of Rs. 2,27,250 of the aforesaid premises and the certificate of sale to that effect was granted by the said Certificate Officer on the 19th December, 1956. For the assessment years 1958-59, 1959-60 and 1960-61, the income from the property was not included in the returns filed by the firm and as recorded by the Commissioner in his order under Section 33B, the contention of the assessee that the property and its income belonged to the partners in equal shares was accepted by the Income-tax Officer and the rental income from the property was excluded from the total income of the firm for the aforesaid three years. Thereafter on calling for and examining the records of the proceedings for the aforesaid assessment years, the Commissioner of Income-tax, West Bengal, considered the assessment orders to be erroneous and prejudicial to the interests of revenue and he issued a show-cause notice under Section 33B of the Indian Income-tax Act, 1922, on 23rd March, 1964, as to why action should not be taken under the said section. The assessee showed cause. The Commissioner considered the cause shown. It was contended before the Commissioner on behalf of the assessee that a firm was not a legal entity and as such it could not be the legal owner of the immovable property. If any immovable property was acquired in the name of the firm, the partners of the firm were the legal owners thereof and as the respective shares of the partners in the aforesaid property were definite and ascertain-able, the rental income could only be assessed in the hands of the partners in respect of their respective shares under Section 9 of the Indian Income-tax Act, 1922. It was further contended that as the assessment of the partners had already been completed earlier and the respective shares of the partners in the rental income of the aforesaid property had been included in such assessments, the firm's assessment should not be reopened.

(3.) The Commissioner, however, rejected all the contentions raised on behalf of the assessee and passed an order tinder Section 33B, setting aside the said assessments and directing the Income-tax Officer to make fresh assessments according to law by including the income from the aforesaid house property in the total income of the firm. The Commissioner further found that the purchase consideration for the property had been paid out of capital invested by the partners in the firm and that the house property had been shown as an asset in the balance-sheet as on 31st March, 1958, 31st March, 1959, and 31st March, 1960, and that the rental income from this property had all along been credited to the partnership profit and loss account and the corresponding expenses had also been debited in the accounts and at the end of each year the net income from the property along with the income from other business activities carried on by the firm had been divided between the two partners and credited into their respective personal accounts. The Commissioner, therefore, held that, as the property had been purchased in the name of the firm, the purchase consideration had been paid by the firm out of the capital invested by the partners in the firm and the house property had been shown as an asset of the firm in the balance-sheets of the three accounting years, the property belonged to the firm. According to the Commissioner, there was nothing in the Partnership Act which precluded a firm from acquiring or owning a property. The Commissioner further held that Section 9(3) was not applicable as there was nothing to show that the partners were holding an equal share in all the assets and property held by the firm. Thirdly, that the fact that the income from the house property had already been assessed in the hands of the partners, in his opinion, wrongly, would not stand in the way of assessment of the income in the hands of the firm.