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Commissioner of Income-tax Vs. Smt. P. Janaki Bai (Legal Representative of Late P. Ananda Rao) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 17 of 1971
Judge
Reported in[1973]87ITR645(AP)
ActsIncome Tax Act, 1961 - Sections 30 to 37, 67 and 67(3)
AppellantCommissioner of Income-tax
RespondentSmt. P. Janaki Bai (Legal Representative of Late P. Ananda Rao)
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateM. Shankar Jain and ;S. Mohana Rao, Advs.
Excerpt:
direct taxation - deduction - sections 30 to 37, 67 and 67 (3) of income tax act, 1961 - whether in computing assessee's share of profit from firm, depreciation on building owned by her in which business of firm was run an admissible deduction - depreciation claimed under sections 32 and 37 - section 67 does not provide that any other deduction not permissible - deductions under sections 30 to 37 permissible - sections 30 to 37and particularly section 32 to be read together - held, depreciation on building is an admissible deduction. - .....the hotel is being run in the premises belonging to the assessee and her minor son. the total share income of the assessee in the partnership was determined at rs. 39,847 and a similar amount was determined in the case of the assessee'sminor son. the son being minor, the minor's share was included in the assessee's income and the total share income from the firm was assessed in the assessee's hands at rs. 79,694.2. the assessee claimed deduction of depreciation on the premises in which the, hotel is being run and further claimed deduction of the property tax, the two together being rs. 4,354. the income-tax officer disallowed the claim. an appeal to the appellate assistant commissioner was dismissed. on further appeal, the income-tax appellate tribunal held that the assessee was.....
Judgment:

Alladi Kuppuswami, J.

1. The assessee, Janaki Bai, and her minor son, Vaman Rao, together own a building in Hyderabad. They are also partners in the firm, M/s. New Taj Mahal Hotel, Sultan Bazar, 'Hyderabad, along with one Narayana Bhat. The assessee holds 371/2% share and the minor son holds another 371/2% share in the said business. The hotel is being run in the premises belonging to the assessee and her minor son. The total share income of the assessee in the partnership was determined at Rs. 39,847 and a similar amount was determined in the case of the assessee'sminor son. The son being minor, the minor's share was included in the assessee's income and the total share income from the firm was assessed in the assessee's hands at Rs. 79,694.

2. The assessee claimed deduction of depreciation on the premises in which the, hotel is being run and further claimed deduction of the property tax, the two together being Rs. 4,354. The Income-tax Officer disallowed the claim. An appeal to the Appellate Assistant Commissioner was dismissed. On further appeal, the Income-tax Appellate Tribunal held that the assessee was entitled to the allowance of depreciation on the building and also to the allowance of the property tax thereon and allowed the appeal. The Commissioner of Income-tax requested the Tribunal to refer to this court for decision the question of law regarding the depreciation in respect of the building. This request was accepted and the following question of law has been referred to us for decision :

' Whether, on the facts and in the circumstances of the case, in computing the assessed share of profit from the firm, M/s. New Taj Mahal Hotel, Hyderabad, depreciation on the building owned by the assessee, in which the business of the firm was run, was an admissible deduction ?'

The assessment year in question is 1966-67 for which the relevant accounting year was the year ending September 3, 1963, and, hence, the case is covered by the provisions of the Income-tax Act, 1961.

3. The depreciation is claimed under Section 32 of the Act, which provides for depreciation in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of the business or profession. Apart from this there is also a general provision under Section 37, under which any expenditure (not being the expenditure of the nature described in Sections 30 - 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ' Profits and gains of business or profession '. The corresponding provisions under the Indian Income-tax Act of 1922 were Sections 10(2)(vi) and 10(2)(xv), respectively.

4. In Commissioner of Income-tax v. Parvathaneni Chandrasekhara Rao, [1960] 40 I.T.R. 195 (A.P.)it was held that a partner of a registered firm is entitled to claim under Section 10(2)(iii) of the Income-tax Act deduction of interest paid by him on the capital borrowed for the purposes of the partnership from his share of the profits of the partnership. It was held that the Act contemplates computation of the income of an individual only after allowing the justifiable deduction, i.e., expenses incurred for the purpose of earning that income. In that case it was also held that in ofder to invest money inpartnership, if a partner has to borrow money, he has necessarily to pay interest thereon and hence the real taxable income of a partner is what he receives from the partnership and other sources minus what he has to expend in order to gain it. It was contended that the deductions admissible under, Section 10 are only in relation to the business carried on by him and has no reference to the business conducted by the firm of which he is partner. This contention was negatived and it was observed, 'the business of a firm is the business of each of the partners '. In Commissioner of Income-tax v. Ramniklal Kothari, [1964] 54 I.T.R. 232 (Pat.), it was held that the income earned by an individual from his share in a partnership business is income derived from business and if an expenditure was incurred by a partner for the purpose of earning profits, from the partnership business, the assessee would be entitled in his individual assessment to claim deduction of the amount under Section 10(2)(xv) of the Income-tax Act or under the general principles.

5. In the light of these decisions and other decisions which took a similar view, Sri Rama Rao, standing counsel for the department, conceded that the depreciation on the building of the assessee used for the purpose of business of the firm, of which she was a partner could be allowed as a permissible deduction under the Indian Income-tax Act, 1922, but he submitted that the position under the Act of 1961 is different. Though the latter Act contains provisions similar to Sections 10(2)(vi) and 10(2)(xv) of the Indian Income-tax Act, 1922, there is a special provision, namely, Section 67, which deals with the method of computing a partner's share in the income of the firm. Under Section 67(3) it is provided that any ' interest paid by a partner on capital borrowed by him for the purposes of investment in the firm shall, in computing his income chargeable under the head ' Profits and gains of business or profession in respect of his share in the income of the firm, be deducted from the share'. He argued that the sub-section is exhaustive of the permissible deductions in computing a partner's share in the income of the firm, and except the interest paid by the partner on the capital borrowed by him, no other deduction is permissible. He submitted that the provisions in Sections 30 to 37 which provide for various deductions have no application to the case of a partner's share in the income of the firm. He relied on decisions which lay down that if there is a special provision and a general provision in an enactment, the special provision shall prevail : vide South India Corporation (P.) Ltd. v. Secretary, Board of Revenue, : [1964]4SCR280 and Subhodchandra Popatlal v. Commissioner of Income-tax, [1953] 24 I.T.R. 566 (Bom.) and Excess Profits Tax. We do not consider that this principle has anyapplication to the circumstances of this case. We do not find anything in the Act of 1961 which either expressly or impliedly precludes the application of Sections 30 - 37 to the case of a partner's share in the income from the firm. It is true, Section 67 refers to the method of computing a partner's share and Section 67(3) provides for deduction of interest paid by a partner on capital. The section, however, does not provide that any other deduction is not permissible. We do not find anything in the Act which will also imply that deductions under Sections 30 - 37 are not permissible in, the case of a partner's share in the income of the firm.

6. On the other hand, a perusal of the legislative history of this section leads to a contrary conclusion. In the twelfth report of the Law Commission of India, which deals with revision of the Indian Income-tax Act of 1922, the, clause corresponding to Section 67(3) was Clause 69(3) which was as follows:

' Any interest paid by a partner on capital borrowed for the purposes of investment as his capital in the firm shall, in computing his income charge--able under the head ' Profits and gains of business, profession or vocation' in respect of his share in the income of the firm, be deducted from the share, but no other deduction shall be allowed in respect of the said share.'

Thus, it was provided expressly that no deduction other than what was mentioned in the sub-clause should be allowed. Even when the original Bill was introduced in Parliament on April 24, 1961, Clause 67(3) was in the same terms as Clause 69(3) of the Report, but when the Bill passed through the Select Committee stage the words 'no other deduction shall be allowed in respect of the said share ' were omitted. Thus, it is clear, that these words were deliberately omitted, obviously because Section 67(3) was not intended to be exhaustive and if deduction could be claimed under any other provision of the Act, that right was left untouched. We are, therefore, of the view that Section 67 and Sections 30 - 37 and in particular Section 32 have to be read together in this case. Hence, the Tribunal was right in holding that the deduction was permissible in respect of the building owned by the assessee. The same view has been, taken by the Patna High Court in Commissioner of Income-tax v. Atma Ram Modi, [1969] 71 I.T.R. 199 (Pat.). It was held that Section 67(3) was not exhaustive and a partner is entitled even under the new Act to claim the deduction permitted by Section 37(1) of the Act. The Rajasthan High Court also has taken the same view in Commissioner of Income-tax v. Jabarmal Dugar, . It was held that if a deduction could be claimed under any other provision of the Act, that right would not be taken away merely by the provisions of Section 67(3) of the Act. In that case it was held that the expenses incurred on account of salaries of the accountant and other employees of one of the partners were expanses incurred wholly and exclusively for the purpose of earning income from the business of the firm, of which he was a partner and can be allowed as a deduction.

7. In Matubai Chunilal Patel v. Commissioner of Income-tax, [1967] 66 I.T.R. 408 (Guj) it was held that motor expenses including depreciation could be deducted in computing the share income from a partnership as it was related to partners carrying on business of the firm. It was observed that Section 37 of the Act is in the same terms as the provisions contained in Section 10(2)(xv) of the Act of 1922 and the decisions on Section 10(2)(xv)of the Act of 1922 have a direct bearing on the interpretation of Section 37(1) of the Act. It is true, however, that there is no discussion on the question whether Section 67(3) of the new Act is exhaustive.

8. For the aforesaid reasons we answer the question referred to us for decision as follows :

On the facts and in the circumstances of the case, in computing the assessee's share of profit from the firm, New Taj Mahal Hotel, Hyderabad, the depreciation on the building owned by the assessee in which the business of the firm was run was an admissible deduction.

9. The Commissioner of Income-tax will pay costs of this reference to the assessee. Advocate's fee Rs. 250.


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