Rajasekhara Murthy, J.
1. The following question of law has been referred to this court u/s. 256(1) of the I.T. Act, by the Income-tax Appellate Tribunal, Bangalore Bench :
'On the facts of the case, whether the notional income from house property owned by a partner of a firm, and used in the firm's business, can be included in the total income of the partner ?'
2. The assessee is the owner of house property bearing No. 174, Subbarama Chetty Road, Bangalore. During the previous year relevant to the assessment year 1971-72 this property was used by the firm of M/s. Guruswamy & Co. for its business, free of rent. The assessee was one of the partners in the said firm.
3. The ITO reopened the assessment for the assessment year 1971-72 to include the annual letting value of the premises in his individual assessment. The assessee objected to the said proposal on the ground that the said premises was used by the firm of M/s. Guruswamy & Co. for its business during the previous year and that the assessee being a partner of the firm, was entitled to claim exemption of the annual value of the property in this individual assessment. The ITO rejected the assessee's claim and included the annual value of Rs. 2,750 in his assessment u/s. 22 of the Act. In the appeal filed by the assessee against the assessment order, the AAC upheld the contention of the assessee and deleted the addition of the annual value. Aggrieved by the said deletion, the Department preferred an appeal to the Tribunal. The Tribunal agreed with the view taken by the AAC and held that the assessee was entitled to the exemption.
Hence this reference at the instance of the Revenue.
4. The point that is required to be examined is :
'Whether the user of the premises by a firm for its business enures to the benefit of the owner who is also a partner of the firm, so as to claim exemption under section 22 of the Act ?'
5. As a preliminary to the consideration of the point, it is necessary to analyse the relevant provisions of the I.T. Act, 1961, vis-a-vis the provisions of s. 22.
6. Chapter IV of the I.T. Act contains the various provisions for computation of total income under several heads of income classified u/s. 14 of the Act, viz. : -
B. Interest on securities.
C. Income from house property.
D. Profits and gains of business or profession.
E. Capital gains.
F. Income from other sources.
Sections 22 to 27 deal with the income from house property. Section 22, which is relevant for our purpose, reads :
'22. The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'.'
Section 23 defines 'annual value' and indicates how the annual value is to be arrived at. That annual value is taxed subject to certain allowances and s. 24 enumerates such allowances. Section 25 specifies the amounts not deductible from the income from house property. Section 26 provides for the mode of taxing the income from the property owned by co-owners.
It will be seen from the above provisions that one of the heads of income enumerated in s. 14 of the Act is the head 'Income from house property'. From a plain reading of s. 22, it will be clear that it is the owner of a house property who becomes liable to be charged under the head 'Income from house property' unless the house property is used by him for the purposes of his own business or profession. If a building is let out, the income from such letting out is to be computed under this head. But if the owner himself occupies it for his own business, no income falls to be computed. If the property is used for the owner's residence, the I.T. Act, by a fiction, requires the computation of a notional income in respect of an assessee's own residential property and the assessment thereof must be in his own hands.
7. The contention of the assessee (represented) by Sri Sarangan in this case, however, is that the assessee was a partner of the firm, M/s. Guruswamy & Co., during the relevant previous year and the premises in question was used by the said firm for its business during the year and the assessee as a partner should be held to have occupied the said premises for the purpose of the business carried on by him and, therefore, he would be entitled to the benefit of s. 22.
8. Sri Sarangan relied upon the decision of the Gujarat High Court in CIT v. Rasiklal Balabhai : 119ITR303(Guj) in support of his contention. Therein, the assessee owned a godown which was used by the firm of Narendrakumar Maneklal for its business. The assessee, Rasiklal Balabhai, was a partner in the said firm. The ITO estimated the annual letting value of the godown and included it in the total income of the assessee in his assessment. In the appeal preferred before the AAC, the assessee objected to the said inclusion on the ground that the premises was being used by him for the business carried on by him as a partner of the firm. The AAC upheld the assessee's contention and deleted the annual letting value from the total income of the assessee. The Revenue took up the matter in appeal before the Tribunal and contended that the firm is an entity separate and distinct from its partners and, therefore, the business carried on by the firm cannot be construed as a business carried on by the partners. On the dismissal of the appeal by the Tribunal, a question of law identical with the question involved in this reference, was referred for the opinion of the Gujarat High Court. The High Court, while examining the question, went on to state that two conditions must be satisfied before an assessee could claim exemption in respect of the income from his house property u/s. 22, i.e. :
(i) whether the property or a portion of it is occupied by the assessee for the purpose of his business, profession or vocation; and
(ii) whether the profits of such business, profession or vocation are assessable to tax in his assessment.
As regards condition No. (i), it was observed that the assesses partner must be held to be carrying on the business of the partnership along with other partners. This conclusion was based on the general law of partnership that a firm is nothing but a compendious expression for all the partners and, therefore, the business carried on by the firm is a business carried on by the partners. There cannot be any dispute on this proposition.
On the second condition, it was observed that the occupation for purposes of s. 22 need not be an occupation by the assesses owner in his capacity as owner and if the firm is carrying on the business in the premises, it must be held, by necessary implication, that the partner in his business is occupying the premises and would be eligible for exemption. It was also observed that to contend to the contrary would be something de hors common sense.
With respect, we are unable to agree with the soundness of the reasoning given by the Gujarat High Court. Section 22 which provides for exemption should be strictly construed. The wordings of the section are very significant and it can be seen therefrom that it is only the owner of the property who can claim deduction and that owner must be an assessee and the property concerned must have been used or occupied for the assessee's business. 'The occupation' of the property in the context must mean 'occupation as owner or his own occupation'. The fact of occupation, therefore, must go with the owner of the building which means actual occupation for the purpose of his business or profession.
9. The above view finds support from the following decisions :
In Bhai Sunder Dass & Sons v. CIT : 85ITR28(Delhi) , while examining s. 9 of the Indian I.T. Act, 1922, the Delhi High court observed that the property owned by a firm has to be treated as the property of the firm for purposes of s. 9 of the Act and, therefore, liable to be taxed in respect of the income from property in its assessment and not in the assessment of its partners.
In Sarvamangala Properties Ltd. v. CIT : 90ITR267(Cal) , the Calcutta High Court agreed with the view taken by the Delhi High Court on a similar question.
10. These two decisions, no doubt, relate to the property belonging to the firm, but the principles enunciated therein are, in our opinion, clearly applicable even to a case where a property owned by an assessee is used for the business of a firm in which he is a partner.
11. The conclusion of law that follows from the above discussion is :
'If the property or a portion of it, owned by an assessee, is occupied by him for the purpose of his own business or profession, or a property owned by a firm is used for its business, such assessee is entitled to exemption under section 22.'
In the view that we have taken, the contention urged for the Revenue should prevail, and the Tribunal's finding that the assessee is entitled to exemption under s. 22 should be rejected.
12. The question of law is, therefore, answered in the affirmative and against the assessee, and the answer is that the annual letting value of the property in question is liable to be included in the assessement of the assessee for the year 1971-72.