ADDL COMMISSIONER OF INCOME TAX DELHI III NEW DELHI Vs. MANJEET ENGINEERING INDUSTRIES NEW DELHI
HIGH COURT OF DELHI
ADDITIONAL COMMISSIONER OF INCOME TAX,DELHI III,NEW DELHI
MANJEET ENGINEERING INDUSTRIES, NEW DELHI
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(1.)These are ten Reference in all. Seven of these References relates to the asessee-M/s. Manjeet Engineering Industries, New Delhi, partnership firm (hereinafter called as the assessee firm) in which Arjun Singh was one of the partners in the relevant assessment years 1965-66 to 1971-72 respectively. Three of the References relate to Arjun Singh, assesses as a partner of the firm. Two of them, namely, 1. T. R. 121 of 1974 and I.T.R. 59 of 1975 relate to quantum cases for the assessment years 1965-66 and 1966-67 respectively. The third Reference No. 66 of 1975 relates to the penalty matter for the assessment year 1964-65.
(2.)The question for consideration in the Seven References relating to the firm is as to whether the building in question had become the property .of the partnership firm and firm was entitled to depreciation on the building. In two of the three cases relating to Arjun Singh, partner for the assessment year 1965-66 and 1966-67 the questions respectively are as to whether Arjun Singh was liable to be assessed for the rental income of the property in question under S. 22 of the Income- Tax Act, 1961 (hereinafter called as the Act) and whether he was entitled to deduction of depreciation in respect of the property which was used by the firm. The last Reference, i.e. I. T. R. 66 of 1977 relates to the question of leviability of penalty under S. 271(l)(c) of the Act on Arjun Singh, partner, for the non-inclusion of his rental income from the property receivable from the firm in the two revised returns as fied by him for the assessment year 1964-65.
(3.)The undisputed facts are that Arjun Singh had constructed a building bearing municipal No. 71/1 Najafgarh Road, New Delhi. He carried on the business in a portion of this building under the name and style of M/s Manjeet Engineering Industries as a sole proprietory concern upto 7-11-1960. The balance-sheet as on 7-11-1960 of the proprietory business of Arjun Singh showed the building in question at the value of Rs. 3,40,070.00 . With effect from 8-11-1960 the business was carried on by the partnership firm consisting of Arjun Singh and his two sons Baldav Singh and Gian Singh. Arjun Singh was entitled to 112 share and each of his two sons were entitled to 1/4 share in the profits of the firm. Upto the assessment year 1961-62 Arjun Singh was assessed on the income from M/s. Manjit Engineering Industries as its sole proprietor. Subsequently the firm was assessed in that capacity. A deed of partnership was executed between the three partners on 8-11-1960. Arjun Singh had been carrying on the business of manufacture of Air Compressors and other engineering works in the building and the same business was converted into that of a partnership firm. According to the terms of the partnership as contained m the partnership deed the business of the firm was to be carried on in the same premises, 71/1 Najafgarth Road, New Delhi or such other place or places as the partners may thereafter from time to time determine. Clauses 4 and 6 are the most material clauses' Cfor deciding the question referred to and Additional Commissioner of Income-tax Delhi III New Delhi Vs. M/s. Manjeet Bngineering Industries A they e reproduced below :
"4. That the capital will be introduced by the First Party (Arjun Singh) from time to time in such a manner as may be mutually agreed according to the needs of the business, but the Second and Third Parties also can contribute capital as they deem proper from time to time by mutual consent. The Capital of the business contributed by the First Party shall, however, include the existing machinery worth about Rs. 25,000.
6. That the first party shall place at the disposal of the Partnership the existing superstructures on 7111, Najafgarh Road, New Delhi viz; building, sheds or other superstructures on the said factory premises for the use of the Partnership for which he will be entitled to a rent of Rs. 500 p.m. from the Partnership. This user of Partnership will not, however) entitle the Second and Third Parties to any right of tenancy in respect of the said premises within the meaning of the Rent Control Act as applicable to the State of Delhi. The amounts so received by the First Party shall be debited to the Partnership as expenses of the business."
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