Judgment of jurisdictional High Court not binding if there is a later contrary judgment of non-jurisdictional HC
One thing is apparent that divergent view have been expressed by the Hon'ble Courts what is to be charged u/s.22 of the IT Act is the annual value of the property, irrespective of the fact whether or not any income is either actually received or accrued to the assessee. Since, the Hon'ble High Courts have expressed different views, therefore, we have to apply a thumb rule in respect of the applicability of the precedents cited. A thumb rule is that a latest decision of the Hon'ble High Court is required to be followed to maintain the judicial discipline. We have noted the decision of Hon'ble Calcutta High Court pronounced in the case of Prodip Kumar Bothra, 244 CTR 366 (Calcutta) is dated 15th July, 2011 wherein the decision of the Hon'ble Gujarat High Court pronounced in the case of Rasiklal Balabhai (supra) was dissented from. The Hon'ble Calcutta High Court has followed the decision of Karnataka High Court and several other decisions and thereafter came to the conclusion that the assessee cannot pray for exclusion of the income of the property occupied by a partnership firm. The Hon'ble Court has expressed the view in favour of the Revenue and held that by operation of Section 22 of IT Act income from house property is chargeable in the hands of the assessee. Resultantly, the view expressed by the Revenue Authorities is hereby affirmed and this ground of the assessee is dismissed.
ITAT "C" BENCH, AHMEDABAD
BEFORE SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER AND
SHRI T. R. MEENA, ACCOUNTANT MEMBER
SHRI T. R. MEENA, ACCOUNTANT MEMBER
ITA No. 558/Ahd/2013- A.Ys. 2009-10
Shri Prakash Vasantbhai Golwala
Vs
The ACIT Circle-5, Surat
Date of Pronouncement : 11/10/2013
Date of Pronouncement : 11/10/2013
O R D E R
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal filed by the assessee arising from an order of learned CIT(A)-I, Surat, dated 17.12.2012 and the grounds raised are as under:
"That on facts and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs.42,000/- made as deemed income from house property on estimate basis only."
2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3), dated 21.11.2011 were that the assessee in individual capacity has shown salary income stated to be received from five partnership firms. The assessee has also disclosed income as a financial advisor for investment in mutual fund. The assessee has also received commission from NJ Invest Pvt. Ltd.
2.1 It is noted by the AO that the assessee has a residential flat at Shreenidhi Co-operative Housing Society Ltd, Atlhan Surat. As per AO, the assessee had not shown any "notional income" from the said residential flat. According to AO, the assessee was required to show rental income from the said flat in terms of Section 22 of IT Act which prescribes that the annual value of the property of which the assessee is an owner, then such portion of the property occupied for the purpose of any business or profession carried on by him; shall be chargeable to income tax under the head "income from house property". The AO has also mentioned that as per Section 23 of IT Act, it is prescribed that for the purposes of Section 22 the annual value of any property shall be deemed to such some for which the property might reasonably be expected to let from year to year. Hence, a show cause notice was issued asking the assessee as to why no notional income of the house property was shown by the assessee. In compliance of the show cause notice, the assessee has submitted his explanation as under:
"I am partner in five partnership firms and we have employed many employees. Out of them few employees are commuting to Surat from other cities of South Gujarat such as Bharuch, Navsari, Billimora etc. May times due to work load pressure or to complete time bound formalities, they are required to perform their duties till late night. In such circumstances when it is not practical for them to return to their home town and they have to stay in Surat, for their convenience and to avoid hotel expenses, I have purchased this residential flat. It is used as dwelling house for them.
Needless to say that section 22 specifically excludes from its charge, income from any property which is used by the owner for the purpose of any business. (2) That this flat is located in "B" Class locality of Surat City. The area of the said flat is about 695 sq fts. It is obvious that it was not meant for my residential purpose.
In view of what has been stated above, it is evident that there is no need for any addition in respect of the issue mentioned above."
3. The AO was not convinced and held that the assessee was unable to prove that flat was indeed used for the business purpose of the assessee. It was mentioned by the AO that local inquiry was conducted and it was found that nobody was staying in the said flat. The AO has adopted Rs.5,000/- letting value and the ALV was computed as under:"In view of the above facts, the Annual Letting Value of the flat for the whole year is worked out by adopting Rs.5,000/- per month as notional income as under:
| Rs.5,000/- per month (for 12 months) | Rs.60,000/- |
| Less : Deduction u/s 24(a) @ 30% | Rs.18,000/- |
| Annual Letting Value | Rs. 42,000/- |
After allowing deduction u/s 24(a), the Annual Letting Value of the flat which comes to Rs.42,000/- is added to the total income of the assessee as deemed income from House Property."
4. When the matter was carried before the First Appellate Authority, the assessee has placed reliance on CIT V/s. Rasiklal Balabhai, 119 ITR 303 (Guj). But learned CIT(A) has held that in the case of Prodip Kumar Bothra, 244 CTR 366 (Cal), it was held that the house property income is not taxable only if the property is used for one's own business and not exempt if used for the business of the Firm in which the assessee is a partner. It was concluded by learned CIT(A) that the assessee had not established that the property was used by the staff member, therefore, action of the AO was confirmed by rejecting the ground of the assessee.
5. With this factual background, we heard both the sides. The undisputed fact is that the assessee is a partner in certain firms as is evident from the computation of total income, wherein the assessee has shown the interest earned on the capital involved and the remuneration received from the firm. It is also not in dispute that the assessee is the owner of five properties out of which one property was declared as self occupied. In respect of other properties, the assessee has also claimed that those were self-occupied properties. However, in respect of the property in question, the AO has invoked the provisions of IT Act as stated (supra) and determined the annual value of the property. Now, the question is that in a situation when the assessee is claiming that the flat in question was used by the employees of a firm, in which the assessee is a partner, hence, no rental income was charged, then whether it was justifiable on the part of the AO to assess deemed property income in the hands of the assessee. This question was raised in the past and also addressed by several High Courts. As far as the decision of respected jurisdictional High Court is concerned, pronounced in the case of Rasiklal Balabhai, 119 ITR 303, it was held that the annual letting value of the godown owned by the assessee and used for the business carried on by him in partnership was not liable to be included in his total income u/s. 22 of IT Act. At this juncture, it is worth to mention that a litigant, especially the learned counsel, who is an expert, is expected to place before the Court all the decisions either in favour or against him. We are constrained to note that this fair approach was not adopted in this case. On the other hand, a decision of Hon'ble Calcutta High Court has been cited by learned CIT(A) in the case of Prodip Kumar Bothra (supra), wherein it was held that the exemption in respect of house property cannot be allowed to assessee if the property is used by the partnership firm because in the opinion of the Hon'ble High Court the owner of the house property and the occupier of the property must be the same person. The Court has held that having regard to the language of Section 22, there is no scope of any argument that owner of a property can get the benefit of occupation of partnership in a particular thereof simply because the owner is also a partner of the said firm. A partner has no individual right over the properties owned by the firm, similarly the firm has no right over the properties owned by the partners. The decision of the Gujarat High Court was, therefore, dissented. There is another decision of Hon'ble Karnataka High Court pronounced in the case of CIT V/s. K.N. Guruswamy, 146 ITR 34, wherein the property was owned by the assessee which was used by a firm in which the assessee was a partner for the purpose of the firm's business. The Court has held that the notional income from the house property was to be included in the total income of the partner. The decision of Gujarat High Court was dissented. There is a decision of Hon'ble Allahabad High Court, viz., CIT Vs. Shiv Mohan Lal 202 ITR 60 (All.), wherein HUE was the owner of the property and the property was used for the business purpose by partnership firm in which the assessee as a karta was partner. The property was used by the partnership firm. No rent was charged by the assessee HUE. According to Hon'ble Court, the assessee HUE was not the user of the property for its own business. The annual letting value was, therefore, held as assessable in the hands of the assessee HUE. Interestingly again an order was pronounced by Hon'ble Allahabad High Court in the case of CIT V/s. Mustafa Khan, 276 ITR 602, wherein it was held as under:
"The income from hose property owned by an assessee and used in business carried on by the firm in which the assessee is a partner would qualify for exemption as provided in Section 22 of the Income Tax Act, 1961. There is no relationship of master and servant between a partner who carries on the firm's business and the firm. The firm is not the employer of the partners and similarly the partners are not employees of the firm. The partners are the co-owners in the firm's property. Occupation in terms of section 22 will also include "occupation" by the owner along with the other persons. Hence a partner owning house property used by the firm for business purposes, in which he is also a partner is entitled to exemption in respect of the property occupied by the firm in view of Section 22."
6. In the light of the above cited precedents, one thing is apparent that divergent view have been expressed by the Hon'ble Courts what is to be charged u/s.22 of the IT Act is the annual value of the property, irrespective of the fact whether or not any income is either actually received or accrued to the assessee. Since, the Hon'ble High Courts have expressed different views, therefore, we have to apply a thumb rule in respect of the applicability of the precedents cited. A thumb rule is that a latest decision of the Hon'ble High Court is required to be followed to maintain the judicial discipline. We have noted the decision of Hon'ble Calcutta High Court pronounced in the case of Prodip Kumar Bothra, 244 CTR 366 (Calcutta) is dated 15th July, 2011 wherein the decision of the Hon'ble Gujarat High Court pronounced in the case of Rasiklal Balabhai (supra) was dissented from. The Hon'ble Calcutta High Court has followed the decision of Karnataka High Court and several other decisions and thereafter came to the conclusion that the assessee cannot pray for exclusion of the income of the property occupied by a partnership firm. The Hon'ble Court has expressed the view in favour of the Revenue and held that by operation of Section 22 of IT Act income from house property is chargeable in the hands of the assessee. Resultantly, the view expressed by the Revenue Authorities is hereby affirmed and this ground of the assessee is dismissed.
7. Ground No.2 is reproduced below:"That on facts and in law, the learned CIT(A) has grievously erred in confirming the disallowance of Rs.1,98,435/- out of expenses incurred wholly and exclusively for earning taxable income."
8. The assessee has claimed commission expenditure of Rs.2,83,479/- The nature of income of the assessee is "financial advisor in the field of mutual fund". The assessee has earned commission income in respect of investments made by the parties. The assessee has also claimed salary to two employees and the AO has inquired the nature of work from those employees. The AO has concluded that most of the expenditure was not related to the business of the assessee, therefore, only 30% of the expenditure was allowed and 70% of the expenditure was disallowed. In the result, an addition of Rs. 1,98,435/- was made which was confirmed by learned CIT(A).9. Having heard the submissions of both the sides and after considering history of the case, we have noted that merely an estimate was applied by the AO. It appears that 70% of the expenditure was disallowed by the AO which appeared to be towards higher side in a situation when one estimate is to be pitted against another estimate; than it is reasonable to adopt a fair estimate. Considering the nature of the business of a tax payer, we therefore direct that 50% of the expenditure is to be allowed and, therefore, the balance 50% shall be disallowed. In this manner, the assessee shall get part relief in respect of disallowance made by the AO. Resultantly, this ground of the assessee is partly allowed.
10. In the result, the assessee's appeal is partly allowed.
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