D.K. Kapur, J.
1. The assessed in the present case is a partner in the firm, M/s. Industrial Textile Products, Delhi, which provided him with rent-free accommodation. The question was whether this was to be treated as a perquisite in the hands of the assessed. For the assessment years 1967-68 to 1970-71, the following question has been referred to us :
'Whether, on the facts and in the circumstances of the case, and having regard to the provisions contained in section 28(iv) and section 67 of the Income-tax Act, the rent and electricity charges paid by the firm in respect of the portion of the premises occupied by the assessed-partner as residence is liable to be taxed in the hands of the assessed as a perquisite ?'
2. It may be mentioned, that the rent as paid for the accommodation by the firm was Rs. 11,400 in 1967-68 and 1968-69, Rs. 16,850 in 1969-70 and Rs. 18,000 in 1970-71. In addition, electricity charges amounting to Rs. 1,200 were paid by the firm in each of the years. The Income-tax Officer treated it as a perquisite. The Income-tax Officer added the entire amount in each year to the assessed's income and rejected the contention that only part of the premises was occupied as residence. The assessed appealed to the Appellate Assistant Commissioner who agreed that the income was to be added as a perquisite, but held that as only one-half of the rent had been disallowed as a deduction in the hands of the firm, the perquisite value of the rent-free accommodation should be Rs. 5,700 in the earlier year to which was added the sum of Rs. 1,200 in the two earlier years. In 1969-70, the addition was Rs. 6,900 and in 1970-71, Rs. 10,200.
3. On appeal to the Tribunal, it was urged that there was no written agreement to provide rent-free accommodation and hence there was no perquisite on the basis of a rent-free written contract. Moreover, as the firm had also been taxed by virtue of the disallowance of half the amount and the partners had also suffered tax on allocation, it was urged that the assessed could only be liable to tax on a share income under section 67 of the Act. On the other hand, the Department contended that 50 per cent. of the accommodation was used for personal purposes and hence section 28(iv) was attracted. The Tribunal accepted the assessed's view-point and held that the amount could only be taxed in the hands of the assessed if it fell squarely within section 28(iv) read with section 67 of the Act. It was also held that as the amount had been disallowed in the hands of the firm, it could not be added back as a perquisite in the hands of the partner.
4. We have been taken though the various provisions applicable to this case and may refer to the various provisions first.
5. Under section 28(iv), the income chargeable in the hands of an assessed from profits and gains of business or profession includes 'the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.' If we consider the assessed as being a businessman, then it would at first sight appear that the rent-free accommodation given to him is taxable under this provision, but a closer examination of the facts shows a somewhat different result.
6. Section 67 sets out the manner in which a partner's share in the income of a firm is computed. The relevant portion reads as follows :
'67. (1) In computing the total income of an assessed who is a partner of a firm, whether the net result of the computation of total income of the firm is a profit or a loss, his share (whether a net profit or a net loss) shall be computed as follows :-
(a) any interest, salary, commission or other remuneration paid to any partner in respect of the previous year, and, where the firm is a registered firm or an unregistered firm assessed as a registered firm under clause (b) of section 183, the Income-tax, if any, payable by it in respect of the total income of the previous year, shall be deducted from the total income of the firm and the balance ascertained and apportioned among the partners;
(b) where the amount apportioned to the partner under clause (a) is a profit, any salary, interest, commission or other remuneration paid to the partner by the firm in respect of the previous year shall be added to that amount, and the result shall be treated as the partner's share in the income of the firm;
(c) whether the amount apportioned to the partner under clause (a) is a loss, any salary, interest, commission or other remuneration paid to the partner by the firm in respect of the previous year shall be adjusted against that amount, and the result shall be treated as the partner's share in the income of the firm.'
7. The provision gives the method by which a partner's share is to be computed for purposes of assessment. It provides that any interest, salary, commission or remuneration paid to the partner had to be deducted from the total income of the firm and the ascertainable balance has to be apportioned amongst the partners. Thus, the excluded portion under section 67(1)(a) goes into the personal assessment of the partners and only the balance is to be taxed in the hands of the firm and then apportioned again among the partners. It is the admitted case here that the value of the rent-free accommodation was not deducted from the firm's assessment and has, thereforee, suffered tax being included in the taxable profits of the partnership firm.
8. This would go to demonstrate that the amount of rent-free accommodation had already been taxed in the hands of the firm and also in the hands of the partners. If the amount had been deducted under section 67(1)(a), then it might be taxable in the hands of the assessed.
9. To illustrate the problem, it may be useful to give an example. If the value of the perquisite was treated as a salary, then it would have been deducted from the taxable profits of the firm and could be added to the assessed's personal income in his personal assessment. But, if it has not been deducted, then it would suffer tax twice. This may be illustrated. Let us assume that the value of the rent-free accommodation is Rs. 6,000 and the firm's income is, say, Rs. 1,00,000 without deducting the sum of Rs. 6,000. If the sum of Rs. 6,000 is deducted, then the taxable income of the firm would come down to Rs. 94,000 and this would be apportioned to each partner. Then, the sum of Rs. 6,000 might be taxable in the hands of the assessed. However, if the sum of Rs. 6,000 is included in the sum of Rs. 1,00,000, it suffers tax in the hands of the firm and on an apportionment between the partners, it suffers tax again as part of the apportioned share. Thus, the amount will be doubly taxed-firstly, it would be as a perquisite in the hands of the assessed and, secondly, as part of the proportioned profit. This is the contradiction which has to be avoided because the same sum cannot be taxed twice in the hands of the same assessed. Also, part of this sum would suffer tax in the hands of the other partners, which would not be so if it was deducted from the taxable profits of the firm. Thus, either the sum has to be deducted from the taxable profits under section 67(1)(a) and taxed in the hands of the assessed or it has to be taxed in the hands of the firm and not in the hands of the assessed. It cannot be taxed both in the hands of the assessed as well as the firm.
10. We have, thereforee, to answer the question referred to us on the basis that the amount which is taxed in the hands of the firm cannot be added again to the assessed's personal income. The share of the partner has to be ascertained under section 67 and we completely agree that the Tribunal has rightly viewed this question by holding that the amount is not taxable as a perquisite in the hands of the assessed if it has also suffered tax in the hands of the firm.
11. As the question appears to involve an arithmetical problem, it may be more useful to frame a slightly different example. Let us assume that there were two partners one of whom has a share of 90 per cent. and another a share of 10 per cent. and the profits of the firm are Rs. 1,00,000, which include a sum of Rs. 50,000 spent on providing rent-free accommodation to the partner with the larger share. Then, if the amount is deducted from Rs. 1,00,000, the share of the partner will become 90 per cent. of Rs. 50,000 i.e., Rs. 45,000 and he will also have to pay tax on the sum of Rs. 50,000 as a perquisite, i.e., he will be taxed on Rs. 95,000. On the other hand if the sum of Rs. 50,000 is not deducted from Rs. 1,00,000, be will be taxed on Rs. 90,000 his share from the firm plus Rs. 50,000 perquisite, i.e., he will be taxed on Rs. 1,40,000, which will be far more than the total income of the firm. This example shows that the amount cannot be added twice in this manner and has either to be allowed from the firm's total profit or if not allowed, it cannot be treated as a perquisite in the hands of the partner. The same applies to the electricity bills.
12. Accordingly, we answer the question referred to us in the affirmative, in favor of the assessed and against the Department. As there is no appearance for the assessed, there will be no order as to costs.