ORDER
Vimal Gandhi, Vice-President
1. This appeal by the Revenue for the assessment year 1993-94 is directed against the order of the Commissioner of Income-tax (Appeals) deleting addition of Rs. 28,800 assessed as house property income in the hands of the assessee.
2. The facts of the case are that the assessee in the relevant period, was partner in firm M/s. Prakash Chemicals, Sampatrao Colony, Alkapuri, Baroda. He received rent of Rs. 36,000 for letting out his godown to the firm but claimed it to be exempt as per note attached with the return. The claim was based on decision of Hon’ble Gujarat High Court in the case of CIT v. Rasiklal Balabhai [1979] 119 ITR 303.
2.1 The Assessing Officer held that the aforesaid decision in the case of Rasiklal Balabhai (supra) was not applicable to this case as in the decided Case, no rent was received by the partner from the firm for use of partner’s property, but in this case the property was let out and rent of Rs. 36,000 was actually received. The decision in the case of Rasiklal Balabhai (supra) was applicable where notional house property income was sought to be assessed. Accordingly, the Assessing Officer brought to tax the rent received by the assessee after allowing l/5th of the rent towards repairs. This way, addition of Rs. 28,800 was made in the income of the firm.
3. The assessee impugned the above addition in appeal before the ld. CIT(A) who after considering the facts and circumstances of the case and decision of Hon’ble Gujarat High Court referred to above, held that addition made was not sustainable. The addition was, accordingly, deleted.
4. The Revenue has come up in appeal. The case was earlier fixed before the ‘SMC’ Bench on 2-11-2000. It was adjourned at the request of counsel for the assessee Shri Patel to 13-11-2000. On the adjourned date, Shri Patel again appeared for the assessed and the matter was discussed. Shri Patel was fully aware that a similar matter had already been decided by the Bench and where it was held that the case of Rasiklal Balabhai (supra) was not applicable where rent was actually received by the partner from the firm for the property let out to the firm. The decision of the Bench was challenged before the Hon’ble Gujarat High Court under Section 260A of the I.T. Act. The Hon’ble Gujarat High Court held that no substantial question of law arose from the order of the Tribunal. Accordingly, the appeal of the assessee was rejected. Shri Patel was fully aware of the above development as also of the decision of the High Court.
However, Shri Patel wanted to distinguish the case decided by the Bench on facts and law and sought time for making his submissions. The Bench, accordingly, adjourned the case for two months. It has again been fixed and this is how it has come up for hearing before us on 22-3-2001. Shri Patel put in appearance before the Bench and argued other cases, but did not appear in this case; nor there is any request for adjournment. Accordingly, we proceeded exparte against the assessee and give our reasons for deciding the issue against the assessee.
4.1 In the case of Rasiklal Balabhai (supra), their Lordships of Hon’ble Gujarat High Court held that notional income of godown owned by the assessee and used by partnership, in which the assessee was a partner was exempt and annual letting value (ALV) of the godown could not be included in the total income of the assessee. Section 22 of the I.T. Act under which “income from house property” is charged to tax is to the following effect:-
22. Income from house property.-The annual value of property consisting of any buildings 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’ [Emphasis supplied].” (The minor changes in the section in the relevant year are not material for our purpose).
4.2 After considering the aforesaid provision in the light of decisions of Bombay High Court in the case of Shantikumar Narottam Morarji v. CIT [1955] 27 ITR 69 and of Hon’ble Gujarat High Court in the case of Sitaram Motiram Jain v. CIT [1961] 43 ITR 405 as also of Hon’ble Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300, the Bench observed as under :-
There cannot be any dispute as to this principle. But this principle applies to the property which is of the firm. The question with which we are concerned in this reference is, whether an assessee-owner who allows his property to be used by a partnership firm in which he is a partner is liable to pay tax on the notional rateable value of such property. We, therefore, do not think that the ruling on which reliance has been placed can be of any assistance to the cause of the revenue.
4.3 It is quite clear from the above that in the case of Rasiklal Balabhai (supra), the assessee was the owner of the godown which was being used by the partnership for business and question was whether notional rateable value of the godown was liable to be taxed. No actual rent was being received. Their Lordships in the light of provision of Section 22 held that property was being occupied by the assessee for purposes of his business. The firm was a compendium name of partners and use of the property by the firm was use of the property by the partners. Therefore, the case fell within the exception laid down in Section 22 of the I.T. Act. The notional value of the house property (godown) could not be added in the total income of the assessee.
4.4 We respectfully bow to the aforesaid authority and cannot and do not entertain any doubt on the laid down by their Lordships. However, with utmost respect, we hold that the aforesaid decision is not applicable to a case where property is let out by the partner to the firm for a consideration which is actually received. The distinction between two set of cases is quite obvious. It is well accepted that “ownership” of a property is a bundle of rights and one of them is “right to occupy”. Thus, owner may himself occupy and use the property or let it out and give this right to somebody else for a consideration. The owner may let out the property to a firm in which he is a partner for purposes of firm’s business. There is no legal bar to such an arrangement. In such a situation, all the conditions of Section 22 are satisfied and the rent received/receivable is to be charged to tax as “House Property Income”. Once property is let out by the owner, it cannot be occupied by the owner; it is occupied by the tenant. Similarly, after the property is let out by a partner (owner) to the firm, for purposes of business, the said partner cannot occupy the property and, therefore, exception in Section 22 would have no application. It is no doubt true that use of property by the firms can be taken as use by any or by all the partners of the firm; but such use or occupation of property is as a ‘tenant’ and not as ‘owner’ thereof. The tenant is using the property, for the rent paid or agreed to be paid to the owner. It is not possible to content that the owner after letting out the property for a consideration can continue to occupy and use the property as owner. Such a proposition is not tenable under the law. The fact, that the tenant is a firm in which the owner is a partner does not make any material difference. Such situation is fully and squarely covered by main provision of Section 22 and not by the exception provided in the section.
4.5 The case where no rent is actually charged stands on a very different footing. In that case, right to occupy the property is contributed by a partner towards his share in the partnership by permitting the firm to use the property for its business. This contribution is like other capital contribution. There is no difference whether the owner himself uses the property for purposes of his business or it is used by the firm in which such owner is a partner. The property is not let out and continue to be used or occupied by the owner. There cannot be a tenancy without rent paid or agreed to be paid. The case would be that of a property occupied by the owner for purposes of his business or profession. In such a situation, there is no question of assessment of any letting value (ALV). The case would fall under exception to Section 22 of the I.T. Act. The notional letting value cannot be assessed under any provision under the Income-tax Act. This is the distinction between a case where rent is actually taken by a partner from the firm and the case where no rent is taken for use of the property by the firm.
4.6 In the light of above discussion and undisputed facts, we hold that Assessing Officer was fully justified in charging rent received by the assessee to tax. Accordingly, the order of ld. CIT(A) is set aside and that of the Assessing Officer is restored. ‘
5. In the result, Revenue’s appeal is allowed.