C.I.T. vs. H.S.SINGHAL & SONS

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ITR-371/1979HC Delhi2001:DHC:835731 July 20016 pages
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What did the High Court hold?

The High Court held that the Tribunal was justified in its conclusions. The Court agreed with the view expressed by the Gujarat and Madras High Courts in cases like C.I.T. v. Rasiklal Balabhai (1979) 119 ITR 303 (Guj.), C.I.T. v. K.M.Jagannathan (1989) 180 ITR 191 (Mad.), and C.I.T. v. Shri Champalal Jeevraj (1995) 215 ITR 289 (Mad.). The Court acknowledged that an HUF cannot be a partner in a firm, as it is a fluctuating body of individuals and cannot do indirectly what it cannot do directly. If the Karta or any member of the HUF joins a partnership, they do so as an individual. However, the Court reiterated the Supreme Court's position that a firm is not an entity or person in law but an association of individuals, and a firm's name is a collective name for those individuals. Section 22 of the Income-tax Act, 1961, provides that the annual value of property is chargeable to tax under the head 'Income from house property', unless portions of such property are occupied by the assessee for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax. The Court found that Section 22 is an exception to the charging provision, providing exemption when the property is used for business and the owner of the property and the owner of the business are the same persons. Therefore, the Tribunal was correct in holding that the notional income from the portion of the property used by the firm was not assessable in the hands of the HUF, as the HUF was a partner in the firm carrying on the business. The question referred was answered in the affirmative, in favour of the assessee.

What were the facts?

The assessee, a Hindu Undivided Family (HUF), owned a house property. A portion of this property was used by a firm in which the HUF itself was a partner. The assessee claimed that the income from this portion of the property should not be assessed in its hands because the business was carried on by the firm, which included the assessee. The Assessing Officer and the first appellate authority rejected this claim. The Income-tax Appellate Tribunal (Tribunal) held that the Department was not justified in assessing the notional income of the portion of the property used by the firm. The Revenue appealed this decision, and the High Court was asked to refer a question of law for its opinion. The dispute pertains to the assessment year 1974-75.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that no income from the portion of the house property used by the firm is assessable in the hands of the partner to whom the property belonged? (Question of law) Assessee's contentions: Not recorded. Revenue's contentions: An HUF cannot be a partner in a firm. Even if a family's nominee was a partner, it cannot be held that the business carried on by the firm was in reality a business carried on by the partner. Reliance was placed on the Supreme Court decision in Rashik Lal and Co. v. CIT (1998) 229 ITR 458, which held that an HUF cannot be a partner in a firm. Further reliance was placed on decisions in C.I.T. v. Shiv Mohan Lal (1993) 202 ITR 60 (All.), Rhai Sunder Draee & Cane v. ... 85 ITR 28, and C.I.T. v. K.N.Guruswamy (1984) 146 ITR 34 (Kar.).

Which sections of the Income-tax Act were involved?

Section 256(1),Section 22,Section 40(b)

AI-generated summary — verify with the full judgment below

2001:DHC:8357-DB

2001:DHC:8357-DB

2001:DHC:8357-DB

2001:DHC:8357-DB

2001:DHC:8357-DB

2001:DHC:8357-DB

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