Madras High Court
Commissioner Of Income-Tax vs K. Gangiah Chetty And Sons on 2 January, 1995
Equivalent citations: [1995]214ITR548(MAD)
JUDGMENT Mishra, J.
1. The two questions referred to the court for its opinion are :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee-firm was entitled at allowances under section 23(2) of the Income-tax Act, 1961, in respect of the building owned by it, but used by its parents for their residence for the assessment years 1977-78 and 1978-79 ?
2. Whether, on the facts of the case, the Appellate Tribunal was justified in holding that the assessee-firm was entitled to exemption under section 54 of the Income-tax Act, 1961, in respect of the property owned by it, which was used by its partners for their residence prior to its sale, for the assessment year 1978-79 ?"
2. The two questions have to be answered in favour of the Revenue and against the assessee. The Tribunal, we shall presently see, has committed an error in accepting the case of the assessee-firm for allowance under section 23(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in respect of the building owned by it and said to be in the possession of the partners who constitute the firm and also in respect of the house which belonged to the firm but in which the partners claimed residence.
3. The facts as are available in the statement of the case in brief are as follows : The assessee, Messrs. Gangiah Chetty and Sons, a partnership firm, owned a property at No. 60, Varadha Muthiappan Street, Madras. A portion of the ground floor was let out by the firm and the rental income was assessed as property income. The remainder of the ground floor and the first floor of the building were occupied by the two partners for their residence. The property was sold on February 7, 1977, and in september, 1977, for the assessment years 1977-78 and 1978-79, the accounting years being 1976-77 and 1977-78, the assessee-firm claimed deduction oat 50 per cent. for the occupation by the partners of the property at No. 60, Varadha Muthiappan Street, under section 23 of the Act and for the year 1978-79 under section 54 thereof as capital gain. The Income-tax Officer held that the exemption under section 54 of the Act was not admissible to the assessee which was a registered firm, the such exemption being available only in respect of property used by an assessee or his parents mainly for the purpose of his or the parents' residence. The assessee's claim under section 23(2) of the Act was also not accepted because the partners, who claimed residence, were not the owners of the property. The Tribunal, however, has taken a contrary view.
4. Learned counsel for the the Revenue has drawn our attention to a judgment of the Delhi High Court in the case of CIT v. Dewan Chand Dholan Dass [1981] 132 ITR 790, which has taken notice of the general legal concept of a partnership-firm and the special provisions in this behalf of the Act and noted that, in so far as the requirement for deduction under section 23(2) of the Act is concerned, the words, "a house in the occupation of the owner for the purposes of his own residence", in sub-section (2)(i) and, "more than one house in the occupation of the owner for the purposes of his own residence" in sub-section (2)(ii) thereof, refer only to a human owner and not a fictional entity such as the firm or a company. The Delhi High Court's judgment has also taken notice of the decisions on section 54 of the Act and we see reason that it derived the said meaning for the purposes of section 23(2) of the Act from what is contemplated and indicated by a Full Bench judgment of the Kerala High Court in the case of K. I. Viswambharan and Bros. v. CIT [1973] 91 ITR 588 [FB]. Leila Seth J., as she then was, has made our task easier by expressing in the judgment what we think we should examine, in these words (at pages 794 and 798) :
"In the general legal concept, a firm has no separate legal personality, it being a compendious name for the partners carrying on the business of the firm. As such, at first blush, it appeared to us that the occupation of a building by the partners of a firm for their residence would be occupation by the owner-firm for its residence, especially if all the partners were residing therein. Therefore, we were inclined to accept the contention of learned counsel for the respondent that since a firm was nothing else but a combination of the human beings who composed it and had no separate existence distinct from them and the partners of the firm, or some of them were eating, drinking and sleeping in the premises, the occupation of the group would be deemed to be the occupation of the owner-firm," and "While the assessee's contention may appear plausible and tenable, where all the partners of the firm, particularly, when they are all members of a family and related to each other, reside in the premises, it is not so in the situation where only some and not all the partners of the firm are using the property as their residence. It may perhaps be that, subsequently, when the share income of the partner is sought to be assessed in his hands - the share of property in come will be assessable in his hands under the same head, vide section 67(2) - and any one or all of them occupying the property may claim pro tanto relief; but we are not concerned with that question here."
5. We have heard learned counsel for the assessee in detail, He has not been able to show to us any strong basis for us to make a different view. The consensus of judicial opinion is so well called out in the Delhi High Court's judgment (see [1981] 132 ITR 790) that we see no necessity either to examine the judgment of the different High Courts on the subject or to refer to any of the judgments of the Supreme Court to which learned counsel for the Revenue has drawn our attention. All relevant facts that are available until the judgment of the Delhi High Court are referred to and analysed to conclude, that for the purposes of both section 23(2) as well as section 54, the assessee must show that the house property was used by him as residence or the residence of his parents or was used mainly for the purposes of his own or his parents' own residence and the assessee must mean an individual and a human being and not a corporate entity which has a separate and distinct existence in the eye of law.
6. Since the facts and circumstances in the instant case are not in dispute, it is obvious that the Tribunal has erred in law. The two questions aforementioned have to be and are answered accordingly in favour of the Revenue and against the assessee. No costs.