Partnership property and rental income: immovable assets held by a firm are taxed in the firm's hands, not as co-owned property.

Rental income from immovable properties forming part of a partnership firm's assets was assessable in the hands of the firm because the properties were acquired out of partnership funds and held as firm property for the business. The partners had no specific, ascertainable co-ownership shares in those assets; their interest extended only to the ultimate surplus on dissolution or settlement of accounts. Section 9(3) of the Indian Income-tax Act, 1922, applies to co-owners with definite shares, not to partnership property. The income was therefore assessable under section 9(1) in the firm's hands, not in the partners' hands.

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Issues: Whether rental income from immovable properties forming part of the assets of a partnership firm was assessable in the hands of the firm under section 9(1) of the Indian Income-tax Act, 1922, or in the hands of the partners under section 9(3) of that Act.

Analysis: Section 9(1) fastens tax on the owner of property in respect of the annual value of buildings and lands appurtenant thereto. Read with the scheme of the Indian Partnership Act, the property of the firm includes property brought into the common stock or acquired for the firm, and such property is to be held and used exclusively for the purposes of the business. The immovable properties in question were acquired out of partnership funds and formed part of the assets of the firm. In that situation, the partners did not hold specific shares in the properties as co-owners would; their interests were only in the ultimate surplus of the firm after settlement of accounts. Section 9(3) applies to co-owners with definite and ascertainable shares, not to partnership property.

Conclusion: The income from the immovable properties was rightly assessable in the hands of the firm under section 9(1) and not in the hands of the partners under section 9(3).

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