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Judgment
Rajendra Babu, J.—In these two references, we are concerned with the interpretation and application of the provisions relating to additional wealth-tax on urban immovable properties which were in force between the years 1971-72 and 1976-77.
One late M. Kasturi Ranga Setty was a partner of a firm, Krishna Flour Mills, Bangalore, representing his Hindu undivided family. The said firm owned a factor, land buildings which had been leased out to a company. The assessee''s share of interest in the immovable properties of the firm in which the assessee was a partner was brought to additional wealth-tax. The assessee contested the levy of additional wealth-tax on these properties on the ground that these properties were used for the purpose of the business of the firm of which he was a partner and was, therefore, not liable. The Revenue took the stand that since the firm was using the said assets for its business and the assets were not used by the assessee, it was not entitled for exclusion from the operation of item (2) of Part I of Para A of the Schedule to the Wealth-tax Act, 1957 (hereinafter referred to as "the Act").
The said provisions of law which are applicable to the matter read :
"(2) In addition, in the case of every individual and Hindu undivided family where the net wealth of the individual or Hindu undivided family includes the value of any asset, being building or land (other than business premises) or any right in such building or lands situated in an urban area (such asset being hereafter in this Part referred to as urban asset)...
(i) ''business premises'' means any building or land or part of such building or land, or any right in building or land or part thereof owned by the assessee and used throughout the previous year for the purposes of his business or profession, and includes any building used for the purpose of residence of persons employed in the business or any building used for the welfare of such persons as a hospital, creche, school, canteen, library recreational centre, shelter, rest-room or lunch-room, but does not include any premises in the nature of a guest house;...
Rule 3 : Where the net wealth of the assessee includes the value of his interest as a partner in a firm or as a member of an association of persons and the assets of such firm or association include any urban assets, then, notwithstanding anything contained in the Indian Partnership Act, 1932 (9 of 1932), or in any other law for the time being in force, the interest of the assessee in such firm or association, to the extent specified in the Explanation below, shall be deemed to be an urban asset and the provisions of item (2) of Paragraph a shall apply accordingly.
Explanation. - The extent of the interest of the assessee in a firm or association deemed to be an urban asset as aforesaid shall be a sum which bears to the value of the whole of the interest of the assessee in the firm or association the same proportion which the net value of the urban assets of the firm or association (determined under rule 2 as if they were urban assets belonging to an individual or a Hindu undivided family) bears to the net wealth of the firm or, as the case may be, the association, computed as if such firm or association were an individual..."
On appeal to the Appellate Assistant Commissioner, the assessee''s contention was upheld on the ground that the business carried on by the firm is as well the business carried on by the assessee as a partner of the firm. On further appeal, the Tribunal upheld the order of the Appellate Assistant Commissioner. Aggrieved by the said order of the Tribunal, the Revenue sought for reference and the Tribunal has referred the following question u/s 27(3) of the Act :
"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the immovable properties that belonged to Krishna Flour Mills (where the assessee is a partner) and used in the business of another concern, Krishna Industries (P.) Ltd., should be excluded for the purpose of levying additional wealth-tax ?"
learned counsel for the Revenue relied on a decision of this court in Commissioner of Income Tax, Karnataka Vs. K.N. Guruswamy, . The said decision was rendered in the context of section 22 of the Income Tax Act. It was contended that, notwithstanding the difference in language between section 22 of the Income Tax Act and the provisions with which we are concerned, the said decision governs this case. It was submitted that it is only the owner of the property who is in actual occupation for the purpose of his business who could claim exemption under the said provisions, which have been set forth earlier in the course of this order. The argument is that in order to claim the benefit of the exemption clause, the use of the premises must be by its actual occupation. It was contended on behalf of the assessee that the language of section 22 of the Income Tax Act and the provisions with which we are concerned are entirely different.
u/s 22 of the Income Tax Act, income from house property is brought to tax in respect of the immovable property other than such portions in the property as the assessee may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to tax. Whereas the charge under item (2) of Part I of Para A of the Schedule to the Act is not attracted to "business premises" as defined therein, and the "business premises" means an immovable property owned by the assessee and used throughout for the purpose of his business or profession. There is thus a marked difference in the language used by section 22 of the Income Tax Act and the provisions with which we are concerned under the Act. However, Sri Srinivasan relied upon a passage in Commissioner of Income Tax, Karnataka Vs. K.N. Guruswamy, which is to the following effect (at page 37) :
"The wordings of the section are very significant and it can be seen therefrom that it is only the owner of the property who can claim deduction and that owner must be an assessee and the property concerned must have been used or occupied for the assesse''s business."
and contended that there is hardly any difference in the matter of "occupation" and "use" and, therefore, both the expressions must be interpreted as one and the same and, as held in the said decision, this court should hold that the assessee was not entitled to the exemption. But, in our view, this observation was made in the context of the contention raised in that case on behalf of the assessee. On behalf of the assessee in that case, the contention raised was that the assessee was a partner of the firm during the relevant previous year and the premises in question was used by the said firm for its business during the year and the assessee, as a partner, should be held to have occupied the said premises for the purpose of the business carried on by him and, therefore, he would be entitled to the benefit of section 22 of the Income Tax Act. This court held that the said provision of the Income Tax Act must be examined in two facets : (i) Whether the property is occupied by the assessee for the purpose of his business; and (ii) whether the profits of such business are assessable to tax in his assessment. On the first aspect, this court held that the general law of partnership that a firm is nothing but a compendious expression for all the partners and, therefore, the business carried on by the firm is a business carried on by the partner. However, the court took the view that the occupation of the property in the context must mean "occupation as owner or his own occupation." The fact of occupation, therefore, must go with the owner of the building, which means actual occupation for the purpose of his business or profession. But, in the present context, the expression used in the exclusionary clause is "business premises which are used for the purpose of his business or profession", and it further states that any building used for the purpose of residence of the employees or used for the welfare of any such persons as a hospital, creche, school, canteen, library, recreational centre, rest-room or lunch-room are all included in the definition as being entitled to the exclusion from the tax. Therefore, the expression "occupation" used in section 22 of the Income Tax Act has a narrower meaning in that it must be occupied by an owner and, therefore, in that context, this High Court in Commissioner of Income Tax, Karnataka Vs. K.N. Guruswamy, , held that the premises were not occupied by the assessee and were not entitled to the benefit under the exclusionary portion in the said section with which their Lordships were concerned. The portion of the judgment on which strong reliance has been placed by Sri Srinivasan, an extract of which has been quoted above, therefore, cannot be of any assistance to him in this case. Thus the ratio of the decision in Commissioner of Income Tax, Karnataka Vs. K.N. Guruswamy, is distinguishable and is not applicable to the instant case.
It is settled law, as was noticed by this court and as held by the Supreme Court in the case of Commissioner of Income Tax, Bihar Vs. Ramniklal Kothari, , that the share of a partner in the taxable profit of a registered firm liable t be included in his total income is still received as income from business carried on by him and that the share of the assessee from the profits of the firms was income from business carried on by the partner. Business carried on by a firm is business carried on by all the partners. Profits of the firm are profits earned by all the partners in carrying on the business. In the individual assessment of the partner, his share from the business income is liable to be taken into account u/s 10(1). This is exactly what was held by this court in Commissioner of Income Tax, Karnataka Vs. K.N. Guruswamy, , when it agreed with the view of the Gujarat High Court in Commissioner of Income Tax, Gujarat Vs. Rasiklal Balabhai, , that under the general law of partnership, "firm" is a compendious expression for all the partners put together and, therefore, the business carried on by the firm is the business carried on by the partners. Therefore, the conclusion is irresistible that the premises was certainly used for the purpose of the business of the firm. This interpretation further gets strengthened by the fact that under rule 3 where the extent of a property is involved in the computation of the net wealth, the same should be his set up and, therefore, if really the interest of a partner of the firm in respect of the immovable property was not to be taken into account at all, as contended by the Revenue, then there is no necessity to exclude rule 3 and the Explanation to the rule. Learned counsel for the Revenue, however, wanted us to refer to the valuation rules under the Wealth-tax Act. When the Schedule to the Act itself prescribes a special mode of valuation in regard to the partners'' interest, reference to any other mode is not permissible and such rules cannot prevail over the provisions of law under the Act. Therefore, we are of the view that the same have no relevance for the present purpose. Hence, the argument of learned counsel for the Revenue has got to be rejected and the view of the Appellate Assistant Commissioner and the Tribunal has got to be upheld. Hence, we answer the question referred to us in the affirmative and against Revenue.