V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated April 23, 1981, in respect of the assessment year 1976-77 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 9,000 made on account of advantage derived from the premises 'Bairathi Bhawan' ?"
(2.) THE relevant facts of the case are that the assessee is a partner of a firm, Messrs. Gem Palace, Jaipur. THE firm had taken on lease Bairathi Bhawan at M. I. Road, Jaipur. THE premises were remodelled at the cost of Rs. 1,98,890 up to Diwali, 1976. One-third of the premises is occupied by the assessee which is free of rent. THE assessee offered to the Income-tax Officer an amount of Rs. 4,000 to be assessed in his hands on this account. THE Income-tax Officer did not accept this amount offered and included the benefit in the hands of the assessee at Rs. 9,000. THE reason was that in the previous year, though the figure of Rs. 4,000 was taken because of renovations and investment of around Rs. 2 lakhs, which were spent by the firm, this amount was increased to Rs. 9,000. In the appeal before the Appellate Assistant Commissioner, it was held that the Income-tax Officer ought to have assessed the firm in respect of the notional income from property and thereafter should have allocated such income to the share of the respective partners. According to the Appellate Assistant Commissioner, since the Income-tax Officer has not mentioned any section of the Act under which he has brought to tax the advantage derived by the assessee from the firm, the entire addition of Rs. 9,000 was deleted. The matter was carried by the Income-tax Officer before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, and it was held by the Tribunal that the Bairathi Bhawan is a leasehold property and the firm is not the owner of the property and, therefore, the question of any income accruing to the firm in respect of the property does not arise at all. If a partner has occupied a part of the premises, the firm can either charge some rent from the partner or allow him to occupy the premises without rent. The Income-tax Appellate Tribunal came to the conclusion that it is difficult to see as to under what section the advantage gained by the assessee can be brought to tax. The order of the Appellate Assistant Commissioner was upheld. Section 28(iv) of the Income-tax Act, 1961, reads as under : "The following income shall be chargeable to income-tax under the head 'profits and gains of business or profession',--. . . . (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession." From the above provision of law, it would be evident that the value of any benefit or perquisite whether converted into money or not, if it arises out of business or profession, is chargeable to tax and the only thing which has to be seen is that there must be direct nexus between the business and the benefit which has been derived. P. Warrier v. CIT [1990] 181 ITR 303 (MP), relying upon the decisions of the apex court in CIT v. P. M. Muthuraman Chettiar [1962] 44 ITR 710 and CIT v. Ramniklal Kothari [1969] 74 ITR 57, it was held that if the firm has allowed use of the residential premises to its partner, the Income-tax Officer can include the value of the perquisite in the income of the assessee under Section 28(iv) of the Act. In CIT v. Rajinder Kumar Rajgarhia [1985] 156 ITR 556, it was held by the Delhi High Court that, where a partner of a firm is provided with rent-free accommodation by the firm and the electricity charges were also paid by the firm, the Income-tax Officer would not disallow the same in the hands of the partner since the amount had been disallowed in the hands of the firm. From a perusal of this judgment of the Delhi High Court, it would be evident that the amount was already disallowed in the hands of the firm, which is not the case here.
(3.) THE only condition which is required to be fulfilled for charging the income under the section is that it should arise from business or profession. In the present case, it is arising from the business carried on by the firm. It cannot be denied that it was not a benefit or perquisite and, therefore, bad to be converted into money. THE Income-tax Officer has to assess the value. THE assessee himself has offered the amount of Rs. 4,000 and he was assessed previously on the said figxire. It was increased by the Income-tax Officer to a sum of Rs. 9,000 on the ground that it was a substantial amount by way of remodelling. Approximately, the amount of Rs. 2 lakhs was invested by the firm. THE value of the perquisite was increased to Rs. 9,000 from Rs. 4,000. THE Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal have seriously erred in saying that the provisions of law under which it could be taxed has not been mentioned. THE authorities are expected to know the law and .even if, for any reason, the provision has not been mentioned in the assessment order, it was their duty to consider the provisions of the Act, more particularly when, in the assessment order, it was mentioned that it is an advantage derived by the assessee from the firm, Messrs. Gem Palace, which was estimated at a figure of Rs. 9,000 and for which the reason was also given in the assessment order. It is also to be noted that, in the previous years, the amount of Rs. 4,000 was included in the income of the assessee on this account and in the relevant assessment year, the said figure was offered by the assessee himself in writing. The amount was increased by the Income-tax Officer on the ground that a substantial part was invested by the firm in remodelling the premises. The premises are on rent and one-third part of it is occupied by the assessee which is not in dispute. Since the property was on lease, the entire amount must have been claimed as deduction in respect of the lease rent and it was on account of the benefit which has been derived by the assessee from the premises which have been leased to the firm, that the provisions of Section 28(iv) of the Act are applicable. We are, therefore, of the view that the Income-tax Appellate Tribunal was not justified in coming to the conclusion in deleting the addition of Rs. 9,000 made on account of advantage derived from the premises, Bairathi Bhawan. ;