(1.) IN both these appeals filed by the assessee, the contention raised is that the authorities below erred in including the income from property belonging to the assessee, a HUF, used for the business of the firm in which the HUF is said to be a partner, for the assessment years 1978-79 and 1979-80.
(2.) The assessments for both the above assessment years were originally completed under Section 143(1) of the Income-tax Act, 1961 ('the Act'), on 19-2-1980, adopting the share-income from the firm of V. Veeraraghavulu & Co. in which the assessee-HUF was a partner. In those assessments the property income was estimated at Rs. 1,200 on the ground that the property was given to the above firm for carrying on business. The assessee objected to the assessments and stated that the house was used for earning share-income and that, therefore, the estimate made under the head "Property" cannot be taken as the income of the assessee-HUF. The ITO overruled the objection and included the sum of Rs. 1,200 as income from property for both the years. On appeal before the AAC, it was pointed out that both the karta and his wife were partners in the above firm, that they did not charge any rent for the occupation by the firm of their property to carry on the business and that, therefore, the addition of Rs. 1,200 should be deleted. The AAC observed that the property was utilised for the business by the firm in which the karta, his wife and a third party were partners, that up to 1977-78 rent was being charged and shown, that from 1978-79, however, no rent was charged, that the property was owned by the assessee-HUF, that the firm and HUF were separate entities and that in these circumstances the ITO was justified in estimating the property income at Rs. 1,200. Against the above consolidated order of the AAC for both the years, the assessee has come up on appeal before the Tribunal.
The learned representative of the assessee submitted that the authorities below have erred in including the income from the property used for the business of the firm, in which the assessee-HUF was a partner. He submitted that the business carried on by the partners and that inasmuch as the property in question was used for the business, no income should have been included in the assessment of the assessee. In support of his submission he relied upon the ruling of the Gujarat High Court in the case of CIT v. Rasiklal Balabhai  119 ITR 303. On behalf of the revenue, reliance was placed on the orders of the authorities below. The learned departmental representative also pointed out that there was also a stranger partner in the firm.
(3.) I have considered the rival submissions. It is common ground that the share-income from the firm of V. Veeraraghavulu & Co., Rajahmundry, belonged to the assessee-HUF. It is true that it is well-settled that the business carried on by a firm is the business carried on by its partners, that the share of a partner is business income and that, therefore, appropriate allowances that are permissible in computing the taxable income should be allowed in computing the taxable income of the partner vide CIT v. Ramniklal Kothari  74 ITR 57 (SC). The Supreme Court in that case was dealing with the case of an assessee who was an individual and who was a partner in four different firms. At page 59 of that report the Supreme Court observed that in the individual assessment of the partner his share from the firm's business was liable to be taken into account. In the instant case, we have to find out who is the partner in the firm of V. Veeraraghavulu & Co. It is no doubt true that the HUF of the assessee was deriving share-income from the above firm. But, the karta of the family represented the family in the firm. When an HUF is represented by the karta or a member as partner in a firm, he occupies dual capacity qua the partnership, he functions in his individual capacity and qua the third parties, in his representative capacity. This position is well-settled by the ruling of the Supreme Court in CIT v. Bagyalakshmi & Co.  55 ITR 660 (SC). Therefore, it is clear that so far as the firm is concerned, Shri V. Veeraraghavulu alone could be treated as a partner of the firm. But, the property in question did not belong to Shri V. Veeraraghavulu in his individual capacity but it belonged to his HUF which is a different entity. Since a HUF cannot be a partner in a partnership, it cannot be said that the assessee, which is a HUF in this case, carried on the business of the above firm for the purpose of holding that the business of the above firm can be considered as the business of the assessee. The ruling of the Gujarat High Court relied on by the learned representative of the assessee, was dealing with a case of an assessee who was an individual and who was a partner in a firm. Since that individual owned a godown which was used by the firm as business premises, the Hon'ble Gujarat High Court held that the annual letting value of the said property should not be included in the total income of the assessee, an individual, under Section 22 of the Act. The above decision would, therefore, not apply to the case of the assessee in this case, which is admittedly a HUF. I, therefore, confirm the consolidated order of the AAC for both the years.;