Legal ownership governs house property taxation when a partnership firm merely uses the asset for business purposes

Legal ownership remained decisive for taxing notional house property income. Where an assessee owned a house property but merely permitted a partnership firm to use it for business, there was no transfer or divestment of ownership rights. The exemption under section 22 for property occupied by the owner for his own business or profession did not apply because the firm's use could not be treated as the assessee's own occupation. Payment of municipal taxes and related expenses by the firm did not change the ownership position. The notional income was therefore assessable in the assessee's hands under section 23(1)(a), and the deletion of the addition was not sustainable.

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Issues: Whether the notional annual value of a house property owned by the assessee but used by a partnership firm in which he was a partner was assessable as income from house property under the Income-tax Act, 1961.

Analysis: The assessee remained the legal owner of the property and there was no transfer, sale, or divestment of ownership rights in favour of the firm. The agreement showed only that the property was permitted to be used for the partnership business, while ownership continued with the assessee. Exemption under section 22 applies only when the owner occupies the property for his own business or profession, and that requirement was not satisfied merely because the property was used by the firm. The reasoning accepted by the first appellate authority on the basis of partnership business being treated as the assessee's own business was held inapplicable on the facts. The fact that the firm paid municipal taxes and other expenses did not alter the legal position of ownership.

Conclusion: The notional income from the house property was rightly assessable in the assessee's hands under section 23(1)(a), and the deletion of the addition was not sustainable.

Final Conclusion: The addition made on account of notional house property income was restored, and the Revenue's challenge succeeded.

Ratio Decidendi: For purposes of taxing house property income, the decisive factor is legal ownership, and a mere permissive user of the property by a partnership firm does not bring the case within the exemption for property occupied by the owner for his own business or profession.

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