Vildirect: IncomeTax-caselaws-1967-VIL-186-KER-DT

1967-VIL-186-KER-DT

Equivalent Citation: [1968] 68 ITR 791

KERALA HIGH COURT

Date: 23.11.1967

SN SYED MOHAMMED SAHEB AND BROTHERS

COMMISSIONER OF INCOME-TAX, KERALA.

BENCH

Judge(s) : M. U. ISAAC., T. C. RAGHAVAN.

JUDGMENT

The judgment of the court was delivered by

RAGHAVAN J.-The question referred to us by the Income-tax Appellate Tribunal is :

" Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the income from the properties had been properly assessed in the hands of the firm under section 22 of the Income-tax Act, 1961 ? "

The counsel of the revenue raises a preliminary objection that the question referred does not arise out of the order of the Tribunal. To appreciate this objection, a few facts may be noted. The assessee is a registered firm with 17 partners ; and the firm has both business income and house property income. The property income for the assessment year 1962-63 came to Rs. 40,515 ; and the assessee claimed that the amount should be assessed, under section 26 of the Indian Income-tax Act of 1961, in the hands of the partners and should not be included in the total income of the firm itself under section 22. On the other hand, the department claimed that the income should be included in the total income of the firm and assessed under section 22 of the Act. The matter ultimately came before the Tribunal ; and the Tribunal confirmed the claim of the department already accepted by the Appellate Assistant Commissioner. However, in the application for reference and in the question framed, the section referred to is section 28, which should really have been section 22. The counsel of the revenue contends that we should not correct this mistake and should not also answer the correct question. We no not think this objection has any force. What appears from the order of the Tribunal is that the question decided by the Tribunal was whether the assessment should have been under section 22 or under section 26. Obviously, the mention of section 28 in the question framed as well as in the application for reference is a mistake for section 22. Therefore, we make this small correction and proceed to consider the correct question on merits.

The contention of the counsel of the assessee is that the house property income should have been assessed under section 26 of the Act. In other words, the contention amounts to that the firm, the assessee before us, is an association of persons. Under section 4 of the Act, the charge of income-tax is on the total income of every person. " Person " is defined under section 2(31) to include an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals incorporated or not, a local authority and every artificial juridical person not falling within any of the preceding categories. In our opinion, section 22 deals with a case where the assessee is the owner of the house property, whereas section 26 applies to a case where the assessee is an association of persons and the members or the persons constituting such association own the house property in definite and ascertainable shares, in other words, as co-owners. To put it differently, section 26 applies to a case where the controversy is whether the income from the house property should be included in the total income of an association of persons or whether the income should be assessed in the hands of the persons who constitute such association. Putting the idea again differently, in a case where the controversy is whether the income of the house property should be included in the total income of a firm, a company or a joint Hindu family, or should be assessed in the hands of the members of the firm, company or joint Hindu family, section 26 does not come into operation : in all these cases, section 22 alone applies.

The counsel of the assessee has placed strong reliance on a decision of the Calcutta High Court by Deep Narayan Sinha J. in Biswa Ranjan Sarvadhikary v. Income-tax Officer. That was a case under section 9(3) of the Income-tax Act of 1922, corresponding practically to section 26 of the new Act. A person belonging to a Dayabhaga Hindu joint family died intestate in 1940 leaving his widow and only son. For several years, from 1940 to 1959, the widow and the son were separately assessed on the income from house properties. In 1959, the Income-tax Officer issued a notice to the son stating that the income from house properties should have been assessed as part of the income of the joint family. To quash that notice, the son filed a writ petition ; and in disposing of that petition Deep Narayan Sinha J. held that, since the members of a Dayabhaga Hindu joint family had definite and ascertainable shares in the joint family properties, the assessment of the income of such properties should be under section 9(3) in the hands of the several members ; and that the income should not be included in the total income of the joint family. The learned judge observes that the principle contained in section 9(3) applies not only to associations of persons but to joint Hindu families as well. The counsel of the assessee argues that, if the principle applies to joint Hindu families, by parity of reasoning, it must apply to firms as well. In the view we have already expressed regarding the application of section 26 (section 9(3) being the corresponding section in the earlier Act), we feel that section 26 does not apply to cases where joint Hindu families, firms or companies are assessees : it can apply only to cases where associations of persons are assessees. In a Dayabhaga Hindu joint family, the properties are not owned by its members ; the owner is the family itself, but the members have definite and ascertainable shares therein. Therefore, we regret we cannot agree with the view of Deep Narayan Sinha J. in the decision referred to above.

In this case, the assessee is the firm ; and admittedly, the firm is the owner of the house properties as well. Therefore, section 26 cannot be invoked, nor can any claim be made under that section that the income should be assessed in the hands of the several partners of the firm. The assessment by the department under section 22 of the Act including the income of the house properties in the total income of the firm appears to be correct.

In the result, we answer the question, whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the income from the properties had been properly assessed in the hands of the firm under section 22 of the Income-tax Act of 1961, in the affirmative. We pass no order regarding costs.

A copy of this judgment will be sent to the Tribunal as required by the Act.

Question answered in the affirmative.

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