Firm's House Property Income Assessed under Section 22, Not 26

The court affirmed that the house property income of a firm should be assessed under section 22 of the Income-tax Act, 1961, rather than section 26. It clarified that section 26 applies to associations of persons with co-ownership, not to firms as owners of properties. The firm's income from the properties was correctly assessed by the department under section 22. The court corrected a reference error and ruled in favor of the department, with no costs awarded.

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Issues:
1. Interpretation of sections 22 and 26 of the Income-tax Act, 1961 regarding the assessment of house property income in the hands of a firm or its partners.

Detailed Analysis:

The case involved a registered firm with both business income and house property income. The dispute arose regarding the assessment of the property income for the assessment year 1962-63. The firm claimed that the income should be assessed in the hands of the partners under section 26 of the Income-tax Act, while the department contended that it should be included in the total income of the firm under section 22. The Tribunal upheld the department's claim, leading to the reference to the High Court. However, a mistake was noted in the reference application and question framed, referring to section 28 instead of the correct section 22. The court corrected this error and proceeded to consider the correct question on its merits.

The primary contention of the assessee was that the house property income should have been assessed under section 26, implying that the firm is an association of persons. The court analyzed the definitions of "person" under section 2(31) and highlighted that section 22 applies when the assessee is the owner of the house property, while section 26 applies when the assessee is an association of persons with co-ownership of the property. It was clarified that section 26 pertains to cases where the income should be included in the total income of an association of persons or assessed in the hands of its members.

The counsel for the assessee relied on a Calcutta High Court decision, arguing that the principle applied to joint Hindu families should also be extended to firms. However, the court disagreed, emphasizing that section 26 does not apply to joint Hindu families, firms, or companies as owners of properties. In the present case, as the firm was the owner of the house properties, section 26 could not be invoked, and the assessment under section 22 by the department was deemed correct.

Ultimately, the court answered the question in the affirmative, affirming that the income from the properties had been properly assessed in the hands of the firm under section 22 of the Income-tax Act, 1961. No costs were awarded, and a copy of the judgment was to be sent to the Tribunal as required by the Act.

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