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Sarvamangala Properties Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 187 of 1967
Judge
Reported in[1973]90ITR267(Cal)
ActsIndian Income Tax Act, 1922 - Section 9(3); ;Partnership Act; ;General Clauses Act, 1897 - Section 3(42)
AppellantSarvamangala Properties Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateR.N. Bajoria, Adv.
Respondent AdvocateB.L. Pal, Adv.
Cases ReferredAddanki Narayanappa v. Bhaskara Krishnappa
Excerpt:
- .....the owner of premises no. 5, clive row, calcutta, and that the provisions of section 9(3) of the indian income-tax act, 1922, had no application in this case ?'2. the assessment years concerned in this reference are 1958-59, 1959-60 and 1960-61 and the corresponding accounting years being the financial years 1957-58, 1958-59 and 1959-60. the assessee is a registered firm consisting of two partners, sri cbhaganlal burman and sri baijnath paras-rampuria, with equal shares. the firm was constituted under a deed of partnership dated 6th december, 1956, the partnership having been deemed to have come into existence on and from i9th september, 1958. it is provided in the partnership deed that the partners would carry on the business of buying, selling, developing lands, building and/or.....
Judgment:

Sabyasachi Mukharji, J.

1. By this reference under Section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred to this court:

' Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee-firm was the owner of premises No. 5, Clive Row, Calcutta, and that the provisions of Section 9(3) of the Indian Income-tax Act, 1922, had no application in this case ?'

2. The assessment years concerned in this reference are 1958-59, 1959-60 and 1960-61 and the corresponding accounting years being the financial years 1957-58, 1958-59 and 1959-60. The assessee is a registered firm consisting of two partners, Sri Cbhaganlal Burman and Sri Baijnath Paras-rampuria, with equal shares. The firm was constituted under a deed of partnership dated 6th December, 1956, the partnership having been deemed to have come into existence on and from I9th September, 1958. It is provided in the partnership deed that the partners would carry on the business of buying, selling, developing lands, building and/or letting out lands, building and also deal in shares, securities, bullion, jute and jute products, textile and other commodities from time to time under the name and style of Sarva-mangala Properties. Premises No. 5, Clive Row, Calcutta, was put up for sale by the Certificate Officer, 24 Parganas in certain certificate proceedings. On the 19th September, 1956, the assessee, M/s. Sarvamangala Properties of 67B. Netaji Subbas Road, Calcutta, was declared the highest bidder and purchaser for the price of Rs. 2,27,250 of the aforesaid premises and the certificate of sale to that effect was granted by the said Certificate Officer on the 19th December, 1956. For the assessment years 1958-59, 1959-60 and 1960-61, the income from the property was not included in the returns filed by the firm and as recorded by the Commissioner in his order under Section 33B, the contention of the assessee that the property and its income belonged to the partners in equal shares was accepted by the Income-tax Officer and the rental income from the property was excluded from the total income of the firm for the aforesaid three years. Thereafter on calling for and examining the records of the proceedings for the aforesaid assessment years, the Commissioner of Income-tax, West Bengal, considered the assessment orders to be erroneous and prejudicial to the interests of revenue and he issued a show-cause notice under Section 33B of the Indian Income-tax Act, 1922, on 23rd March, 1964, as to why action should not be taken under the said section. The assessee showed cause. The Commissioner considered the cause shown. It was contended before the Commissioner on behalf of the assessee that a firm was not a legal entity and as such it could not be the legal owner of the immovable property. If any immovable property was acquired in the name of the firm, the partners of the firm were the legal owners thereof and as the respective shares of the partners in the aforesaid property were definite and ascertain-able, the rental income could only be assessed in the hands of the partners in respect of their respective shares under Section 9 of the Indian Income-tax Act, 1922. It was further contended that as the assessment of the partners had already been completed earlier and the respective shares of the partners in the rental income of the aforesaid property had been included in such assessments, the firm's assessment should not be reopened.

3. The Commissioner, however, rejected all the contentions raised on behalf of the assessee and passed an order tinder Section 33B, setting aside the said assessments and directing the Income-tax Officer to make fresh assessments according to law by including the income from the aforesaid house property in the total income of the firm. The Commissioner further found that the purchase consideration for the property had been paid out of capital invested by the partners in the firm and that the house property had been shown as an asset in the balance-sheet as on 31st March, 1958, 31st March, 1959, and 31st March, 1960, and that the rental income from this property had all along been credited to the partnership profit and loss account and the corresponding expenses had also been debited in the accounts and at the end of each year the net income from the property along with the income from other business activities carried on by the firm had been divided between the two partners and credited into their respective personal accounts. The Commissioner, therefore, held that, as the property had been purchased in the name of the firm, the purchase consideration had been paid by the firm out of the capital invested by the partners in the firm and the house property had been shown as an asset of the firm in the balance-sheets of the three accounting years, the property belonged to the firm. According to the Commissioner, there was nothing in the Partnership Act which precluded a firm from acquiring or owning a property. The Commissioner further held that Section 9(3) was not applicable as there was nothing to show that the partners were holding an equal share in all the assets and property held by the firm. Thirdly, that the fact that the income from the house property had already been assessed in the hands of the partners, in his opinion, wrongly, would not stand in the way of assessment of the income in the hands of the firm.

4. The assessee appealed to the Income-tax Appellate Tribunal against the aforesaid order of the Commissioner under Section 33B. Same contentions were raised before the Tribunal regarding the ownership of this property by the firm. The Tribunal upheld the Commissioner's finding that the property belonged to the firm and the provisions of Section 9(3) were not applicable to this case. Thereafter, the Tribunal has referred the question mentioned hereinbefore.

5. The short question with which we are concerned in this case is whether a firm was capable of owning an immovable property. In this connection, it is necessary to refer to the relevant provisions of the Indian Partnership Act. Section 4 defines partnership, partner and firm name. It is provided that the partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. It is further provided that the persons who have entered into partnership with one another will be called individually partners and collectively a firm and the name under which their business is carried on is called the firm name. Under Section 14 it is provided that subject to the contract between the partners, the property of the firm includes all property rights and interest in property originally brought into the stock of the firm, or acquired by purchase or otherwise, by or for the firm or for the purposes and in the course of the business of the firm and includes also the goodwill of the business. It is also provided that unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm. Section 19 deals with the implied authority of the partner to act as an agent of the firm and it is provided in Sub-clauses (f) and (g) of Sub-section (2) of Section 19 that a partner does not possess implied authority to acquire immovable property on behalf of the firm or to transfer immovable property belonging to the firm. These sections, in our opinion, clearly establish the position that the firm was an entity known to law under the Indian Partnership Act and by the said Act the firm was such an entity which was capable of acquiring property, and owning property, movable and immovable. Under the Indian Income-tax Act it has been provided that the firm has the same definition as it is provided under the Indian Partnership Act.

6. Counsel for the assessee contended that the firm was not a separate legal entity which was capable of owning property. According to him, a firm was only a collective name of the partners themselves. That is true. But a firm is an entity which is recognised by law. The law which recognises and deals with the firm under the Indian Partnership Act, also recognises the fact that such an entity named as firm can have property both movable and immovable. The reference to the aforesaid sections, namely, sections 4, 14 and 19 will make the position clear. If that is the correct view of the law and there is nothing in law which debars a firm from owning immovable property, it should be liable to taxation. It is further necessary to refer that under the Indian Income-tax Act a person will be liable to tax and can own property. The definition of person in Section 3(42) of the General Clauses Act includes unincorporated associations or body of persons like a firm. Therefore, a firm would also be a person according to the definition of the Indian Income-tax Act and would be liable to tax as the owner of the property. This view was taken by the Delhi High Court in the case of Bhai Sunder Das & Sons v. Commissioner of Income-tax, : [1972]85ITR28(Delhi) , wherein it was further observed that the technical view of the nature of partnership could not be taken in applying the law of income-tax so far as eligibility of tax of the income from property owned by a firm was concerned. For the purpose of Section 9 of the Indian Income-tax Act, 1922, property owned by a firm had to be treated as the property of the firm and not of its partners. A firm could, it was hold, therefore, be taxed as owner under Section 9 in respect of the income from property owned by it. It was further held that Sub-section (3) of Section 9 would not apply to the case of property owned by a firm. The view we are taking in this case is in consonance with the view taken by the Rajasthan High Court in the case of New Cotton and Wool Pressing Factory v. Commissioner of Income-tax, [1967] 65 I.T.R. 662 (Raj.) and the view of the Kerala High Court in the case of S.N. Syed Mohammed Saheb & Bros. v. Commissioner of Income-tax, [1969] 68 I.T.R. 791 (Ker.) and the Allahabad High Court in the case of Ram Narain and Brothers V Commissioner of Income-tax, : [1969]73ITR423(All) . Counsel for the assessee drew our attention to a decision of the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa, : [1966]3SCR400 . That case, however, dealt with the problem of inter sc relationship between the partners so far as the owning of property was concerned. In our opinion, the said decision cannot be relied on by the assessee in support of the proposition that a firm was not an entity known in law which was capable of owning property.

7. In the aforesaid view we have taken, the answer to the question referred to us is in the affirmative.

8. Each party to bear and pay their own costs.

Sakkar Prasad Mitra, C.J.

9. I agree.


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