1982 (11) TMI 76 - AT - Income Tax

Partner's Free Property Use Taxable as Business Income: Tribunal's Ruling

Noor Mohammad Alladin. Versus Income-Tax Officer.

The Tribunal partly allowed the appeal, ruling that the benefit arising from the free use of property by a partner is taxable under section 28(iv) of the ... Minor Child, Partnership Deed Issues:1. Taxability of benefit arising from the free use of property by a partner under section 28(iv) of the Income-tax Act, 1961.2. Applicability of section 67(2) in determining the taxability of income from property in partner's hands.3. Valuation of property income for taxation purposes.4. Interest charged under section 139 of the Act without considering relevant factors.Analysis:Issue 1: Taxability of benefit under section 28(iv)The appeal addressed the taxability of the benefit derived from the free use of a property by a partner under section 28(iv) of the Income-tax Act, 1961. The contention was whether the benefit could be considered as arising from the partner's business. The Tribunal rejected the argument that the benefit did not arise from the partner's business, emphasizing that as the share income from the firm is assessed as business income, any incidental benefit should also be included in the partner's hands. The Tribunal relied on judicial precedents like CIT v. Ramniklal Kothari and M. CT. Muthiah v. CIT to establish that such benefits are taxable if they meet the conditions of section 28(iv).Issue 2: Applicability of section 67(2)The Tribunal discussed the applicability of section 67(2) in determining the taxability of income from property in the partner's hands. It noted that the income should be assessed separately as property income, even though the Income Tax Officer had failed to do so. The Tribunal directed that one-fourth share of the income from the property included in the firm's assessment should be set off against the perquisite value to avoid double taxation.Issue 3: Valuation of property incomeRegarding the valuation of property income for taxation purposes, the Tribunal upheld the estimate of Rs. 12,000 per annum, rejecting the argument that it was excessive compared to the firm's assessment. The Tribunal found no justification for reducing the value and supported the valuation based on factors like the property's location and characteristics.Issue 4: Interest charged under section 139The appeal also raised concerns about the interest charged under section 139 of the Act, highlighting errors in calculation and the failure to consider factors like tax deducted at source and possible waiver of interest. The Tribunal decided to remit the question to the Income Tax Officer for further examination of the objections raised by the assessee before levying the interest.In conclusion, the appeal was partly allowed based on the Tribunal's findings on the taxability of the benefit, application of section 67(2) for income from property, valuation of property income, and the interest charged under section 139 of the Act.