Decided on November 27,1982



S. Rajaratnam, Accountant Member - (1.) THIS is an appeal filed by Shri Noor Mohammed Alladin of Secunderabad objecting to the order of the AAC for the assessment year 1978-89.
(2.) The assessee is an individual and has share income from two firms besides income from property and dividend. K. B. Ahmed Alladin and Co., in which the assessee is a partner, owns a property at Sarojini Devi Road, Secunderabad, and the firm has allowed the free use of the property by the assessee for his residential purpose. The ITO estimated the annual value of this property at Rs. 10,000 per month and brought the same to tax as a business perquisite under Section 28(iV) of the Income-tax Act, 1961 ('the Act'). The AAC confirmed the inclusion. In second appeal, it is contended on behalf of the assessee that the assessee is only a partner of the firm and, hence, there is no scope for application of Section 28(iv) in the assessee's case. Alternatively, it was contended that the income from the same property has been included by the ITO at an annual value of Rs. 5,000 in the firm's assessment and that the same income cannot obviously be considered in the assessee's hands. The estimate of annual value at Rs. 12,000 was also challenged on the ground that the estimate in the firm's case was only Rs. 5,000 per annum. The learned departmental representative, on the other hand, claimed that Section 28(iv) is very clear inasmuch as any benefit or perquisite arising from a business is taxable as profits and gains of business. He pointed out that the partnership share is assessed as business income and the statute even contemplates expenditure relatable thereto under Section 67 of the Act. Section 67(2) specifically stipulates the apportionment of income under various heads for the firm and to the partners also. Since in assessee's case the entire share income is from business, it was claimed, that it stands to reason that the benefit should also be included in the assessee's hands. It was claimed that the fact that it was omitted to be included in the past cannot offer any immunity to the assessee. He also supported the valuation on the ground that an independent property at Sarojini Devi Road, Secunderabad, could not possibly have an annual value at less than Rs. 12,000. We have carefully considered the facts as well as arguments. Section 28(iv) requires that 'the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession' is to be treated as profits and gains of business or profession. The free use of firm's property for assessee's residential purposes would certainly constitute a perquisite to him in his capacity as a partner of the firm. The only further question is whether such benefit could be taken to be 'arising from a business or the exercise of a profession'. Since the business is carried on in partnership, it is the contention on behalf of the assessee that it cannot be stated to be arising from the assessee's business. We find it difficult to accept the assessee's argument as the share income from the business of the firm is assessed as business income under Section 67(3). Though for income-tax purposes a firm is a distinct and separate entity from the persons who compose it, it cannot be stated that the partner is not carrying on the business but the firm only. The Supreme Court in CIT v. Ramniklal Kothari [1969] 74 ITR 57 had held even with reference to the Indian Income-tax Act, 1922, that the share income from a firm has to be computed as business income in the hands of the partner. The Madras High Court in M. CT. Muthiah v. CIT [1974] 97 ITR 516 had occasion to consider the character of the share of property income in partner's hand. The Madras High Court no doubt held that such property income will be treated as business income for purposes of set off of past losses on the ground that the partnership was primarily for the purpose of earning business income and that it will not be possible to identify the sources from different heads of income in partner's hands. In this decision, the Madras High Court had specifically pointed out that Section 67(2), after its insertion in the Act, directs apportionment of the partner's income under various heads of income in the same manner in which the firm's income has been determined under each head of income for purposes of assessment on the partner. The Madras High Court held that this provision cannot have any retrospective operation. At any rate, this provision applies in the assessee's case. It is, therefore, clear that the assessce who should be assessed on income from the firm as income from business will be liable on any benefit or perquisite incidental thereto if the conditions under Section 28(iv) are satisfied. Section 28(iv) requires that there should be a benefit and that should arise from the business. Rent free accommodation is certainly a benefit. Since the partner occupies the house in view of the fact that he is a partner in the firm and such partnership is for business, we have to hold that it arises to the assessee from business. As for the argument that there has been double taxation because the property income has been assessed in firm's hands, we are not in a position to hold that the assessee is not assessable merely on this ground. If the income is includible in assessee's hands by statutory provisions, it will have to be so included notwithstanding the fact that it might have been included elsewhere rightly or wrongly. However, we do notice that in view of Section 67(2), the share income from property will have to be assessed as separate property income though the ITO had failed to tax the partner on this income as property income separately. He has apparently aggregated the property income along with the other income. One-fourth share of the income from this. property falling to the assessee's share included in the firm's hands should be set off against the perquisite value. Double taxation, if any, can be avoided only to this extent. As for the valuation of the property income, there is no material to suggest that the estimate of Rs. 12,000 per annum in any manner is excessive. The only argument is that it was evaluated at Rs. 5,000 per annum in the firm's case. We do not know the circumstances under which this was done. The ITO has mentioned that he has increased the value to Rs. 1,000 per month after taking into account the location of the building, number of rooms, etc. It has been stated on behalf of the revenue that the property is located at Sarojini Devi Road, an important thoroughfare in Secunderabad. There is no material whatsoever placed before us to justify any reduction in the value. We have, therefore, to uphold the estimate of Rs. 12,000. The appeal on this point is partly allowed only to the limited extent of set off of assessee's one-fourth share from the income of this property included as partnership share income from the firm.
(3.) THE only other ground relates to the interest charged to the extent of Rs. 3,096 under Section 139 of the Act. It is pointed out on behalf of the assessee that the ITO had not reckoned the tax deducted at source. An error in counting the delay is also pointed out. Possible waiver of interest under the statute was also not considered. Some of these mistakes could have been avoided if the assessee had been given an opportunity before the interest was levied. We consider it proper to remit the question to the ITO for eliciting the assessee's objections to the levy.;

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