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Facts
The assessee's appeal pertains to AY 2018-19 and challenges the confirmation of addition towards notional rent income from letting out house property. The AO had calculated notional rent for certain properties claimed to be used for business purposes by a partnership firm in which the assessee is a partner.
Held
The Tribunal held that if immovable properties are used for business purposes by a partnership firm in which the assessee is a partner, then notional rent need not be calculated. The addition made by the AO and confirmed by the CIT(A) was deleted.
Key Issues
Whether notional rent income is assessable in respect of properties used for business purposes by a partnership firm in which the assessee is a partner.
Sections Cited
143(3), 144B, 142(1), 143(2), 22
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC”, PUNE
Before: DR.MANISH BORAD
Appellant by : Shri Nikhil S Pathak Respondent by : Shri R.Y. Balawade Date of hearing : 29.09.2025 Date of pronouncement : 04.11.2025 आदेश / ORDER The captioned appeal at the instance of assessee pertaining to Assessment Year 2018-19 is directed against the order dated 12.11.2024 of National Faceless Appeal Centre, Delhi emanating out of Assessment order dated 19.04.2021 passed u/s.143(3) r.w.s.144B of the Income Tax Act, 1961.
Registry has informed that that the instant appeal is barred by limitation as the assessee has filed this appeal with a delay of 166 days. Assessee in support of its plea for condonation of delay has filed an Affidavit given by Mr. Kishor Krishnarao Bhagwat who looked after the tax matters of the assessee. On perusal of the Affidavit, it is seen that Consultant who was looking after the tax matters of the assessee was ill and admitted into Hospital with Locomotor Disability with 90% disableness. Considering that assessee(s)
2 Manoj Suresh Tatooskar are mostly dependant on the Tax Consultants for such type of appellate work, I am satisfied that ‘reasonable cause’ prevented the assessee to file the appeal within the stipulated time. I therefore adopting justice oriented approach and taking guidance from the judgments of Hon’ble Apex Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. reported in (1987) 2 SCC 107 and in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382) I condone the delay of 166 days in filing of the instant appeal before this Tribunal and admit the appeal for adjudication.
The only issue raised by the assessee is that ld.CIT(A) erred in confirming the addition towards notional rent income at Rs.44,43,100/- from letting out house property.
Facts in brief are that the assessee is an individual and income of Rs.18,44,610/- declared in the e-return for A.Y. 2018-19 furnished on 26.09.2018. Case selected for Complete Scrutiny for the issue about ‘Income from House Property’. Assessee furnished the details called for by ld. Assessing Officer (AO) in the notices issued u/s.142(1) of the Act. Valid statutory notice also issued u/s.143(2) of the Act. Ld. AO observed that there are certain immovable properties which the assessee is claiming to have been used for the business purposes by the partnership firm in which the assessee is a partner. However, ld. AO was of the considered view that assessee should have shown the income from house property and accordingly calculated the notional rent at Rs.44,43,100/- assessing the income at Rs.62,87,710/-.
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5. Aggrieved assessee preferred appeal before ld.CIT(A) but partly succeeded on the said issue as ld.CIT(A) has referred and relied on the decision of Coordinate Bench, Ahmedabad in the case of Prakash Vasantbhai Golwala Vs. ACIT in dated 11.10.2013. Now the assessee is in appeal before this Tribunal against the order of ld.CIT(A).
6. Ld. Counsel for the assessee submitted that the properties on which notional has been calculated have been utilized by the assessee for business purposes. So far as the decision of Coordinate Bench, Ahmedabad in the case of Prakash Vasantbhai Golwala Vs. ACIT (supra) is concerned, he submitted that the said decision was recalled by the Tribunal since the ratio laid down by the Hon’ble Gujarat High Court in the case of Commissioner of Income-Tax vs. Rasiklal Balabhai reported in (1979) 119 ITR 303 (Guj.) was not followed and the order dated 11.10.2013 was recalled. Further, ld. Counsel for the assessee referred to the decision of Coordinate Bench, Mumbai in the case of Dhadda Diamonds Pvt. Ltd. Vs. ITO in order dated 16.08.2016 submitted that the Hon’ble Tribunal following the ratio laid down by the Hon’ble Jurisdictional High Court in the case of Shantikumar Narottam Morarji Vs. CIT reported in (1955) 27 ITR 69 (Bom.) has held that since the immovable property in question was utilized by the partnership firm in which the assessee is a partner, therefore, no notional rent is required to be calculated on such immovable property.
7. On the other hand, ld. Departmental Representative supported the order of ld.CIT(A).
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I have heard the rival contentions and perused the record placed before me. The sole issue agitated in the instant appeal is against taxing of 50% deemed rental income in the respect of certain immovable properties. We find ld.CIT(A) has affirmed the action of the AO of calculating notional rent for the following four properties owned by the assessee :
Land and Construction at 1221,B/1, Wrangler, Paranjape Road, Pune, Maharashtra. 2. 6, Vertex Arcade, 1281, Sadashiv Peth, Pune, Maharashtra 3. Shop No.A8, Shree Venkatesh Puram, Ambegaon, Pune 4. Office at Sr.No.1205/1/10, Shivaji nagar, Pune
9. Before me, ld. Counsel for the assessee submitted that since these properties have been used by the partnership firm for business purposes in which the assessee is a partner, therefore, in view of decision of Coordinate Bench, Mumbai in the case of Dhadda Diamonds Pvt. Ltd. Vs. ITO (supra) the addition on notional rent deserves to be deleted. I find that in the decision referred by ld. Counsel for the assessee in the case of Dhadda Diamonds Pvt. Ltd. Vs. ITO (supra) similar issue was raised and the decision was rendered in favour of the assessee by observing as under :
“5. I have heard the rival contentions and gone through the facts and circumstances of the case. Before me, the learned Counsel for the assessee first of all drew my attention to the assessee‟s paper book page 95 wherein a copy of a letter was filed before the Tribunal withdrawing the appeal on the ground that the past unabsorbed losses are sufficient to set off income even after estimation of notional income and as such practically, there is no tax effect suffered by the assessee. Therefore, the assessee withdrew the appeal for these two assessment years. The learned Counsel also drew my attention to pages 96 and 97 whereby the Tribunal in and 5173/Mum/2011 vide order dated 04-10-2012 5 Manoj Suresh Tatooskar permitted the withdrawal. The learned Counsel for the assessee further stated that the Assessee Company being a partner in the firm, it is carrying on the business and also carrying on business from the same premises owned by the Assessee Company, there is no need to estimate notional rent. For this argument he took me through the case law of the Hon‟ble Gujarat High Court in the case of CIT Vs Rasiklal Balabhai (1979) 119 ITR 303 (Guj.), wherein the decision of the Hon‟ble Bombay High Court in the case of Shantikumar Narottam Morarji Vs CIT (1955) 27 ITR 69 (Bom) was considered and the same was answered as under:-
“7. Broadly, two points would arise for answering the question referred to us, namely, (i) is the assessee carrying on business? and, (ii) is he occupying the house property for purposes of such business? It is implicit that profits of such business, profession or vocation must be assessable to tax. There cannot be much controversy so far as the first point is concerned. The position is fortunately concluded by the two decisions, one of the High Court of Bombay and another of this court. In Shantikumar Narottam Morarji v. CIT [1955] 27 ITR 69 (Bom), a question arose whether a partner in a registered firm is entitled to claim deduction against the share of the profits included in his total income when the share has been ascertained on the assessment of the firm with regard to its profits. The Division Bench consisting of Chagla C.J. and Tendolkar J., while answering the question in favour of the assessee, addressed itself to the question as to what exactly the rights of a partner in a registered firm are with regard to deductions under s. 10(2) of the Indian I. T. Act, 1922. The revenue contended before the Division Bench of the Bombay High Court that s. 10 had no application at all since it dealt with the profits of a business carried on by the assessee exclusively and solely. Rejecting this contention, Chagla C.J., speaking for the Division Bench, held as under (p. 76):
Mr. Joshi says that a firm under the Indian Income-tax Act is an assessable entity and, therefore, a distinction must be made between a business carried on by a firm and a business carried on by an individual. Although a firm is an assessable entity under the Indian Income-tax Act a firm is not a legal entity. In the eye of the law, a firm is a compendious expression used to indicate that several persons constituting that firm are carrying on a business. But that compendious expression cannot give to the firm a legal entity or a legal existence. In law it is only the partners who exist and who carry on the business. It is equally true that looking to the definition of 'partnership' in section 4 of the Partnership Act, when you have a partnership business, the business is carried on by each of the partners, and the definition of a partnership in the Partnership Act has been incorporated in the Indian Income-tax Act, in section 2(6B). Therefore, the contention that section 10(1) cannot apply to a partner in a 6 Manoj Suresh Tatooskar registered firm is untenable because he does carry on the business although that business happens to be a partnership business, and, therefore, if any profits and gains are derived by the assessee from the business carried on by him, those profits and gains must be brought to tax only under the head, viz., the head falling under section 10(1) which is the head of business.
8. Before a Division Bench of this court, consisting of K. T. Desai C.J. and P. N. Bhagwati J. (as they then were), a question arose in Sitaram Motiram Jain v. CIT [1961] 43 ITR 405 (Guj), whether an assessee is entitled to set off his loss in the individual business against the share of the profits of a firm in which he was a partner taking over business as a running concern. The Division Bench, answering the question in favour of the assessee, posed a crucial question, whether a business which has been carried on by a partnership can be regarded as business carried on by a partner, and held (p. 412):
A 'partnership' is defined by section 4 of the Indian Partnership Act as the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all. When a firm carries on business, it is a business carried on by the partners of that firm. One partner is the agent of the other in carrying on that business. When a partnership carries on a business each partner thereof carried on that business. The language used in section 24(2) requires that the business should be continued to be carried on by the individual concerned. The requirements of that section are satisfied when a partner carries on the same business which was carried on previously by him on his sole account. What was urged before us was that the words 'continued to be carried on by him' meant that it was continued to be carried on by him and no other person. There is no warrant for adding the words 'and no other person' having regard to the language used in this sub-section.
In view of these two decisions, the first point does not appear to be doubtful at all as to whether a partner of a firm can be said to be carrying on his business when he carries on that business through partnership. The answer is obviously in the affirmative as has been held by the two decisions above. The learned Government Pleader for the revenue wanted to distinguish these two decisions on the ground that they are pertaining to those assessment years before 1956-57 when a registered firm was not a different entity in the sense that it was not liable to pay firm tax since it was in 1956 that the Indian I. T. Act, 1922, was amended so as to make the firm liable to pay firm tax. We must frankly admit that we are not impressed by this distinction which is without any difference. The question is : can it be said that the partner is carrying on 7 Manoj Suresh Tatooskar his business when the business is that of a firm in which he is a partner ? The same question came up for decision before this court again in CIT v. Arun Industries [1966] 61 ITR 241 (Guj) in a slightly different context. It involved a question of interpretation of s. 15C of the Indian I. T. Act, 1922, in its application to a registered firm and arose out of the assessment of a registered firm for the assessment year 1961- 62. The question was whether exemption under s. 15C was available both to the registered firm and to the partners. In that perspective the Division Bench of this court, consisting of J. M. Shelat C.J. and P. N. Bhagwati J. (as they then were), was faced with a problem whether the benefit under s. 15C(1) is also available to a partner in a firm which engages itself in manufacturing or producing articles in the industrial undertaking. The Division Bench quoted with approval the passage extracted above from Sitaram Motiram Jain's case [1961] 43 ITR 405 (Guj) and held as under (p. 250):
There is, therefore, nothing in sub-section (6) which should compel us to hold that in the case of a registered firm, the assessee contemplated by sub-section (1) can only be the registered firm and not a partner of the registered firm. Where a registered firm manufactures or produces articles in the industrial undertaking, every partner of the registered firm does so and he would, therefore, be an assessee within the meaning of section 15C, sub-section (1), and would be entitled to claim that no tax is payable by him in respect of his share of the exempted profits in his individual assessment.
We, therefore, feel no hesitation in agreeing with the learned advocate for the assessee that the assessee must be held to be carrying on business when that business is a business of a partnership firm since the firm as a partnership firm has no legal entity and, as held by courts, that it is a compendious expression for all the partners”.
Finally, the learned Counsel for the assessee also drew my attention to the decision of Co-ordinate Bench of the Tribunal in the case of Indira Jain Vs ITO (Bom) (2012) 52 SOT 270 (Bom.) wherein it has been held that while computing income from house property, the portion of the property used by the Assessee Company in which the assessee is a partner, income cannot be assessed u/s 22 of the Act on notional basis. The learned Counsel for the assessee drew my attention to Para 5.1 of the Tribunal Order which reads as under:-
The Hon’ble High Court of Allahabad in case of Mustafa Khan (supra) and Hon’ble High Court of Gujarat in the case of Rasiklal Balabhai (supra) have taken the view that the property used by the partnership firm in which the assessee is a partner has to be treated as the user for purpose of business of the assessee. The Hon’ble High Courts had followed the view earlier taken by the Hon’ble High Courts of Bombay in the case of Shantikumar Narottam Morarji v. CIT [1955] 27 ITR 8 Manoj Suresh Tatooskar 69 in which it was held that when partnership carried on business, each partner thereof carried on that business. Following the judgments, we hold that portion of the property used by the partnership firm in which assessee is a partner has to be excluded from the total income. As regard the portion used by the company in which the assessee was share holder and director, the same in our view cannot be considered for exclusion as company has separate and distinct identity and business carried on by the company cannot be considered as business done by share holder or director. Therefore, the portion occupied by the company for its business has to be considered while computing house property
I have considered the issue and noticed the fact that the assessee is a Private Limited Company and is a partner in a Partnership Firm which carries on business from the same premises which is owned by the assessee. In such circumstances, whether rent from house property is to be assessed u/s 22 of the Act as notional rent or not, the issue has been answered by the Hon‟ble Bombay High Court in the case of Shantikumar Narottam Morarji v. CIT [1955] 27 ITR 69. Subsequently, the same has been followed by the Co-ordinate Bench of the Tribunal in the case of Smt. Indira Jain (supra). Respectfully, following the same principle, I am of the view that notional rent u/s 22 of the Act cannot be charged in the given facts and circumstances of the case. Accordingly, I delete the addition and allow the appeal of the assessee.”
10. Now in the above decision, it has been held that if the immovable properties are used for business purposes then notional rent need not be calculated. To examine whether the properties in question referred (supra) have been used for business purposes, I have gone through the record and find that the details of use of the property mentioned by the assessee in his submissions made before ld.CIT(A) reads as under :
“3. Note No.1:-
This is a property owned by assessee jointly with Arch Vikas Achalkar & is having 50% ownership. Copy of index Il is already submitted which shows that assessee is having 50% ownership. Assessee is carrying out a profession in partnership under the name and style M/S. A & T Consultants from this place and income of the same firm is shown as business income of the assessee in his IT Return which is earned from this place only. Copy of IT Return of the 9 Manoj Suresh Tatooskar said firm is attached separately as a supporting proof that this property is being used for business purpose. Section 22 excludes from its charge income from any house property or any portion thereof which is occupied by the owner for the purposes of his business or profession.
Note No.3:-
Office at 6, Vertex Arcade 1281, Sadashiv Peth, Pune 411030 is the small office which assessee use as store room for his professional activities related instruments, records etc. of M/S. A & T Consultants. This is also a property owned by assessee jointly with Arch Vikas Achalkar & is having 50% ownership Copy of index II is already submitted which shows that assessee is having 50% ownership. Provisions of section 22 are applicable for this property also. The amount of notional income is shown as Rs. 3000/- only (Net-Rs.2100/-) because the software program does not have facility to show property as well as claim U/S 22 of the IT Act 1961. The estimate of monthly rent of Rs. 85000/- is totally incorrect as well as bad in law.
Note No.5:-
Shop No-A8 Shree Venkateshpuram, Ambegaon, Pune is also a shop used as store room for his professional activities related instruments, records etc. of M/S. A & T Consultants. This is also a property owned by assessee jointly with Arch Vikas Achalkar & is having 50% ownership. Copy of index II is already submitted which shows that assessee is having 50% ownership. Provisions of section 22 are applicable for this property also. The amount of notional income is shown as Rs. 3000/- only (Net-Rs.2100/-) because the softwareprogram does not have facility to show property as well as claim U/S 22 of the IT Act 1961. The estimate of monthly rent of Rs.85000/- is totally incorrect as well as bad in law.
9) Note No.7:-
Office At Sr. No. 1205/1/10, Shivajinagar, Pune is a property owned by assessee jointly with Arch Vikas Achalkar & is having 50% ownership. Copy of index II is already submitted which shows that assessee is having 50% ownership. Assessee is carrying out a profession in partnership under the name and style M/S. A & T Consultants from this place and income of the same firm is shown as business income of the assessee in his IT Return which is earned from this place only. Copy of IT Return of the said firm is attached separately as a supporting proof that this property is being used for business purpose. Section 22 excludes from its charge income from any house property or any portion thereof which is occupied by the owner for the purposes of his business or profession. Also 10 Manoj Suresh Tatooskar estimating monthly rent of Rs.200000/- is totally unrealistic and also bad in law.”
On going through the above submissions, I notice that the immovable properties in question have been used by the partnership firm from M/s. A & T Consultants for carrying out business and professional activities which includes running them for office purposes, using some properties as a store room for instruments, records etc. and other professional activities. The facts narrated for the use of immovable properties remains uncontroverted by ld. DR. Under these given facts and circumstances I find that since the properties in question have been used for business purposes by the partnership firm M/s. A & T Consultants in which the assessee is a partner, therefore, in light of the decision of Coordinate Bench, Mumbai in the case of Dhadda Diamonds
(P) Ltd. (supra), no addition for notional rent deserves to be made in the hands of assessee. Finding of ld.CIT(A) is set aside and the impugned addition stands deleted. Effective grounds of appeal are allowed.
In the result, the appeal filed by the assessee is allowed.