B.K. Mehta, J.
1. A neat point of law, which, as described by Krishna Iyer J. in CIT v. R. M. Chidambaram Pillai : [1977]10ITR292(SC) , 'lends itself to subtle spinning of gossamer webs of argument' arises for decision in this case. The point which could have been disposed of on the plane of commonsense has given rise to a legal debate where a number of authorities is cited by the rival sides. The question which has been referred to us in this reference for our opinion is as under :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding 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 under section 22 of the I. T. Act, 196 ?'
2. The question arises in the following circumstances :
3. The relevant assessment years with which we are concerned in this reference are 1967-68 to 1971-72. The respondent-assessee-an individual-was a partner in the firm of M/s. Narendrakumar Maneklal. The assessee owned a godown which was used by the firm as business premises. The ITO concerned estimated the annual letting value of the same and included it in the total income of the assessee. An appeal was, therefore, preferred before the AAC objecting to the inclusion of the annual letting value of the godown in the total income of the assessee on the ground that the premises were being used not as a place of residence but for the purposes of business carried on by the assessee as a partner of the firm. The AAC was favourably impressed with this contention with the result that he deleted the inclusion of the annual letting value of the godown-premises from the total income of the assessee for all these years. He, therefore, by his common order of August 14, 1974, allowed five appeals preferred by the assessee.
4. The revenue, therefore, went in appeal before the Tribunal before which it was contended on behalf of the revenue that though the point was covered by the earlier decision of the Tribunal in favour of the assessee in the appeal preferred by him in respect of the assessment year 1965-66, the revenue wanted the point to be reagitated. It was urged before the Tribunal on behalf of the revenue that the firm is a separate and distinct entity from the partners and, therefore, the business carried on by the firm, of which the assessee may be a partner, cannot be said to be a business carried on by the assessee himself. The Tribunal was not impressed by this submission, and following the decision of the Supreme Court in CIT v. Ramniklal Kothari : [1969]74ITR57(SC) , upheld the order of the AAC. At the instance of the CIT, Gujarat, the question set out above has been referred to us for our opinion.
5. Before we deal with the contentions urged on behalf of the revenue by the learned Government Pleader, we will read the provision contained in s. 22 of the I. T. Act, 1961, which subjects to tax the income from house property since it is on the construction of this section that the answer to the question referred to us rests. Section 22 reads as under :
'22. Income from house property. -The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'.'
6. The neat question of law, which has been argued with great sterlity (sic) by the learned Government Pleader, shortly stated, is, whether an individual assessee owner whose premises are being used by a partnership firm, in which he is a partner, for purposes of business, can claim benefit of the exemption provided in s. 22, in the sense, that the notional or actual income arising from the said premises is not liable to be included in the total income of the said assessee. It should be emphasised at the outset that the assessee would be entitled to succeed in his contention that such income is not liable to be included in his total income provided the conditions prescribed in the section are satisfied. It is a well recognized principle of interpretation of statutes that the conditions which are prescribed by the Legislature for purposes of granting or earning exemption should be strictly complied with so as to entitle oneself to the benefit of the exemption. The important question to which we have, therefore, to address ourselves in the first instance is, what are the conditions which the Legislature has prescribed in s. 22 for claiming exemption of exclusion of income from house property under s. 2 The two conditions, which must be satisfied before an assessee can claim exemption in respect of the income from his house property under s. 22 are, 'if the property or a portion of it (i) is occupied by the assessee for the purposes of his own business, profession or vocation, and (ii) the profits of such business, profession or vocation are assessable to tax. ' (vide Kanga and Palkhivala's The Law and Practice of Income-Tax, 7th edn., Vol. I, p. 322). If these two conditions are satisfied, the assessee is entitled to claim before the taxing authorities that the income from his house property should not be subjected to tax. In other words, income from house property of an assessee would not be subjected to tax if he is occupying the same for the purposes of his business, profession or vocation, the profits of which are assessable to tax.
7. Broadly, two points would arise for answering the question referred to us, namely, (i) is the assessee carrying on busines and, (ii) is he occupying the house property for purposes of such busines It is implicit that profits of such business, profession or vocation must be assessable to tax. There cannot be much controversy so far as the first point is concerned. The position is fortunately concluded by the two decisions, one of the High Court of Bombay and another of this court. In Shantikumar Narottam Morarji v. CIT : [1955]27ITR69(Bom) , a question arose whether a partner in a registered firm is entitled to claim deduction against the share of the profits included in his total income when the share has been ascertained on the assessment of the firm with regard to its profits. The Division Bench consisting of Chagla C.J. and Tendolkar J., while answering the question in favour of the assessee, addressed itself to the question as to what exactly the rights of a partner in a registered firm are with regard to deductions under s. 10(2) of the Indian I. T. Act, 1922. The revenue contended before the Division Bench of the Bombay High Court that s. 10 had no application at all since it dealt with the profits of a business carried on by the assessee exclusively and solely. Rejecting this contention, Chagla C.J., speaking for the Division Bench, held as under (p. 76) :
'Mr. Joshi says that a firm under the Indian Income-tax Act is an assessable entity and, therefore, a distinction must be made between a business carried on by a firm and a business carried on by an individual. Although a firm is an assessable entity under the Indian Income-tax Act a firm is not a legal entity. In the eye of the law, a firm is a compendious expression used to indicate that several persons constituting that firm are carrying on a business. But that compendious expression cannot give to the firm a legal entity or a legal existence. In law it is only the partners who exist and who carry on the business. It is equally true that looking to the definition of 'partnership' in section 4 of the Partnership Act, when you have a partnership business, the business is carried on by each of the partners, and the definition of a partnership in the Partnership Act has been incorporated in the Indian Income-tax Act, in section 2(6B). Therefore, the contention that section 10(1) cannot apply to a partner in a registered firm is untenable because he does carry on the business although that business happens to be a partnership business, and, therefore, if any profits and gains are derived by the assessee from the business carried on by him, those profits and gains must be brought to tax only under the head, viz., the head falling under section 10(1) which is the head of business.'
8. Before a Division Bench of this court, consisting of K. T. Desai C.J. and P. N. Bhagwati J. (as they then were), a question arose in Sitaram Motiram Jain v. CIT : [1961]43ITR405(Guj) , whether an assessee is entitled to set off his loss in the individual business against the share of the profits of a firm in which he was a partner taking over business as a running concern. The Division Bench, answering the question in favour of the assessee, posed a crucial question, whether a business which has been carried on by a partnership can be regarded as business carried on by a partner, and held (p. 412) :
'A 'partnership' is defined by section 4 of the Indian Partnership Act as the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all. When a firm carries on business, it is a business carried on by the partners of that firm. One partner is the agent of the other in carrying on that business. When a partnership carries on a business each partner thereof carried on that business. The language used in section 24(2) requires that the business should be continued to be carried on by the individual concerned. The requirements of that section are satisfied when a partner carries on the same business which was carried on previously by him on his sole account. What was urged before us was that the words 'continued to be carried on by him' meant that it was continued to be carried on by him and no other person. There is no warrant for adding the words 'and no other person' having regard to the language used in this sub-section.'
9. In view of these two decisions, the first point does not appear to be doubtful at all as to whether a partner of a firm can be said to be carrying on his business when he carries on that business through partnership. The answer is obviously in the affirmative as has been held by the two decisions above. The learned Government Pleader for the revenue wanted to distinguish these two decisions on the ground that they are pertaining to those assessment years before 1956-57 when a registered firm was not a different entity in the sense that it was not liable to pay firm tax since it was in 1956 that the Indian I. T. Act, 1922, was amended so as to make the firm liable to pay firm tax. We must frankly admit that we are not impressed by this distinction which is without any difference. The question is : can it be said that the partner is carrying on his business when the business is that of a firm in which he is a partne The same question came up for decision before this court again in CIT v. Arun Industries : [1966]61ITR241(Guj) in a slightly different context. It involved a question of interpretation of s. 15C of the Indian I. T. Act, 1922, in its application to a registered firm and arose out of the assessment of a registered firm for the assessment year 1961-62. The question was whether exemption under s. 15C was available both to the registered firm and to the partners. In that perspective the Division Bench of this court, consisting of J. M. Shelat C.J. and P. N. Bhagwati J. (as they then were), was faced with a problem whether the benefit under s. 15C(1) is also available to a partner in a firm which engages itself in manufacturing or producing articles in the industrial undertaking. The Division Bench quoted with approval the passage extracted above from Sitaram Motiram Jain's case : [1961]43ITR405(Guj) and held as under (p. 250) :
'There is, therefore, nothing in sub-section (6) which should compel us to hold that in the case of a registered firm, the assessee contemplated by sub-section (1) can only be the registered firm and not a partner of the registered firm. Where a registered firm manufactures or produces articles in the industrial undertaking, every partner of the registered firm does so and he would, therefore, be an assessee within the meaning of section 15C, sub-section (1), and would be entitled to claim that no tax is payable by him in respect of his share of the exempted profits in his individual assessment.'
10. We, therefore, feel no hesitation in agreeing with the learned advocate for the assessee that the assessee must be held to be carrying on business when that business is a business of a partnership firm since the firm as a partnership firm has no legal entity and, as held by courts, that it is a compendious expression for all the partners.
11. In R. M. Chidambaram Pillai's case : [1977]10ITR292(SC) the Supreme Court, speaking through Krishna Iyer J., referred to the various authorities, viz., Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd. [1948] 18 Comp Cas 205 (PC), Dulichand Laxminarayan v. CIT : [1956]29ITR535(SC) , and Addanki Narayanappa v. Bhaskara Krishnappa : [1966]3SCR400 , and quoted with approval the following pertinent observations from Dulichand's case : [1956]29ITR535(SC) :
'Nevertheless, the general concept of a partnership, firmly established in both systems of law, still is that a firm is not an entity or 'person' is law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute the firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership'.'
12. In that view of the matter, therefore, we are of the opinion that the first condition which is prescribed in s. 22 for purposes of qualifying for exemption, viz., that the person must be carrying on his business in question is fulfilled.
13. The second point, therefore, which arises for our consideration is, whether it can be said that the premises in question in respect of the income of which exemption is claimed is occupied by the assesse The whole controversy in this reference revolves round this point, since the learned Government Pleader appreciated that so far as the first point is concerned, the point is not open to debate. He has laid emphasis on the point that in order to earn the exemption granted under s. 22, the assessee-owner must occupy the premises as such owner and unless the occupation is in the said capacity, namely, that of an owner, the assessee would not be entitled to the exemption. He vehemently urged before us that any other interpretation would lead to many absurd results, the most absurd result to which this interpretation would lead to is, he urged, that on the one hand it would entitle the assessee-firm to claim deduction in respect of notional of notional or actual rent paid by the firm to the owner of the premises, and on the other hand, that income would not be brought to tax if the interpretation canvassed by the assessee and accepted favourably by the Tribunal is accepted by this court. In the first place, on principles of interpretation, we have to read the section in its natural grammatical set up and should not be deterred by its apprehended absurdity though we will deal with a few absurdities which have been pointed out by the learned Government pleader later on. In his submission, occupation must be the occupation by the assessee-owner in his capacity as the owner, and not in any other capacity since the entire basis of the liability of tax for the income from house property is that of ownership and not occupation or possession of the house property. If the basis of the liability is the ownership, it would follow by necessary implication that the basis of the exemption must be also the occupation by the assessee as the owner and not in any other capacity. Though this contention of the learned Government pleader appears to be attractive, on close scrutiny, we do not think that it would stand to reason, obviously for the short and simple reason that if an assessee-partner is in law carrying on business, though the business may be the business of a firm, it is beyond comprehension as well as common sense that he could not be said to be carrying on business in the premises in respect of the income of which the exemption is claimed since he is occupying the same as a partner and not in the capacity of an owner. If, as held by this court in Sitaram Motiram Jain's case : [1961]43ITR405(Guj) , when a partnership carries on a business each partner thereof carried on that business, and if the firm is carrying on business on the premises in respect of the income of which the exemption is claimed, it must be held as a necessary implication that that partner is occupying the premises. To contend, while conceding the point, viz., the business of partnership is carried on by each of the partners, that though the firm occupies a particular premises for the purposes of that business, the partner is not in occupation of it, is something de hors common sense. The learned Government Pleader, therefore, attempted to persuade us that having regard to the mandate in the section given by the Legislature that the assessee-owner can claim exemption in respect of the income of the house property only if he occupies it for the purposes of his business liable to tax, it must be held that the occupation by him must be as an owner and not in any other capacity. He emphasised that the exception provided in s. 22 to the liability of tax in respect of the income from house property is only in respect of such portions of the property of the assessee-owner as may be occupied by him for the purpose of business the income from which is liable to tax. We are afraid we cannot accede to this submission of the learned Government Pleader because apart from the commercial and common sense, he is reading more in the section than what is warranted. If the Legislature had so intended, as contended by the learned Government Pleader, the exception clause would have read that the occupation must be by the owner as such. The Legislature would have said accordingly in so many terms that it must be the occupation in the capacity of owner and in no other capacity. This very contention, which has been sought to be urged by the learned Government Pleader, in respect of the occupation was sought to be advanced before the Division Bench of this court in Sitaram Motiram Jain's case : [1961]43ITR405(Guj) in respect of the business of the firm. The Division Bench specifically rejected this contention in the following terms (p. 412) :
'What was urged before us was that the words 'continued to be carried on by him' meant that it was continued to be carried on by him and no other person. There is no warrant for adding the words 'and no other person' having regard to the language used in this sub-section.'
14. The submission of the learned Government Pleader would require to add some words or to rewrite the exemption clause. In that view of the matter, therefore, we do not think that his submission is well founded when he urged that the occupation by the assessee-owner must be in the capacity of owner and not in any other capacity.
15. The learned Government Pleader invited our attention to the decision of the Supreme Court in Addanki Narayanappa's case, AIR 1966 SC 1300, where the Supreme Court was required to consider what was the interest of a partner in a partner in a partnership property during the subsistence of the partnership and after its dissolution. The learned Government Pleader has invited our attention to the view of the court on the provisions contained in ss. 14, 15, 29, 32, 37, 38, and 48 of the Partnership Act, that when a property is brought by partners to the partnership business, it becomes the property of the firm, and that the partner is entitled to his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to share in the money representing the value of the property. The learned Government Pleader specially invited our attention to the following paragraph from Addanki Narayanappa's case, AIR 1966 SC 1300, 1303 :
'During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can be assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-cls. (i), (ii) and (iii) of clause (b) of s. 48.'
16. There cannot be any dispute as to this principle. But this principle applies to the property which is of the firm. The question with which we are concerned in this reference is, whether an assessee-owner who allows his property to be used by a partnership firm in which he is a partner is liable to pay tax on the notional retable value of such property. We, therefore, do not think that the ruling on which reliance has been placed can be of any assistance to the cause of the revenue.
17. The next decision to which the learned Government Pleader referred to is of the Delhi High Court in Bhai Sunder Dass & Sons v. CIT : [1972]85ITR28(Delhi) , where the question referred to the Delhi High Court was, whether, on the facts and in the circumstances of the case, the assessee-firm was the owner of the house property at No. 4/23-B, Asaf Ali Road, New Delhi, in terms of s. 9 of the Indian I. T. Act, 1922. A contention was urged on behalf of the assessee-firm that the firm being the compendious name of the partners, it is really the partners who are the owners of the property and not the firm. Before the Delhi High Court, the assessee was a registered firm carrying on business under the name and style of Bhai Sundar Dass & Sons for running petrol pumps and dealing in accessories. In about March, 1956, the house property at 4/23-B, Asaf Ali Road, New Delhi, was constructed by the firm. For the first two years, the income from the property being exempt under the law, the matter for the assessment of that income arose for the first time in the assessment year 1958-59. The ITO called upon the assessee to explain why the income from that property should not be assessed in its hands. The assessee contended that it was liable to be taxed in the hands of the partners constituting the firm, which contention was not accepted by the ITO. This order was confirmed by the AAC. The contention of the assessee met with the same fate before the Tribunal. In that context, the Delhi High Court referred to the case of the Supreme Court in Narayana Chetti v. ITO : [1959]35ITR388(SC) and held that the technical view of the nature of partnership cannot be taken in applying the law of income-tax so far as exigibility to tax of the income from property owned by a firm is concerned. We have not been able to appreciate how this decision of the Delhi High Court can be of any assistance in the matter before us since admittedly the property was a property of the firm which was liable to pay tax on its income and it was held to be so liable.
18. The next decision to which the learned Government Pleader referred to was of the Calcutta High Court in Sarvamangala Properties Ltd. v. CIT : [1973]90ITR267(Cal) , where a question arose as it arose before the Delhi High Court, whether income from the property would be taxable in the hands of the firm or the partners. In that case, the assessee was a registered firm consisting of two partners for buying, selling, developing lands, buildings and/or letting our lands, buildings and also dealing in shares, securities, bullion, jute and jute products, textile and other commodities. Premises No. 5, Clive Row, Calcutta, was put up for sale by the Certificate Officer, 24 Parganas, in certain certificate proceedings. On the 19th September, 1956, the assessee-firm was declared the highest bidder and purchaser for the price of Rs. 2,27,250 and the certificate of sale to that effect was granted by the said Certificate Officer on the 19th December, 1956. In the facts, therefore, the Calcutta High Court held that it was a property of the firm and, therefore, the income of the said property was liable to be taxed in the hands of the firm. We do not think that this decision can be of any assistance to us. The learned Government Pleader, thereafter, relied on the Supreme Court's decision in CIT v. National Storage Pvt. Ltd. : [1967]66ITR596(SC) , where the respondent-assessee-company gave on licence vaults for storage of films to different parties and received income from the licensees of the vaults which were put up in the building constructed by it. The question arose, whether it would be an income of business or income from the property. The Bombay High Court held that it was an income from the business and not income from house property under s. 9 (vide : CIT v. National Storage Pvt. Ltd. : [1963]48ITR577(Bom) ). In the appeal, at the instance of the CIT, the Supreme Court confirmed the decision of the Bombay High Court. A contention was urged before the Supreme Court on behalf of the revenue that s. 9 would apply because the respondent-assessee could not be said to be in occupation of the premises for the purposes of any concern of its own because the licensees were in possession of the vaults as lessees and not merely as licensees. Rejecting this contention, Sikri J. (as he then was), speaking for the court, observed (p. 603) :
'But, in our opinion, the agreements are licences and not leases. The assessee kept the key of the entrance which permitted access to the vaults in its own exclusive possession. The assessee was thus in occupation of all the premises for the purposes of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees. As observed by Viscount Finlay in Governors of the Rotunda Hospital, Dublin v. Coman [1920] 7 TC 517; [1921] AC 1 (HL), 'the subject which is hired out is a complex one' and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure or concern in the nature of trade.'
19. It was urged on the basis of this ruling that the occupation must be the occupation of the assessee in order that exemption can be claimed under s. 22. We do not find any question of exemption being involved in this case before the Supreme Court in National Storage Pvt. Ltd.'s case : [1967]66ITR596(SC) . In any case, the question before us is, as tried to be urged on behalf of the revenue by the learned Government Pleader, whether the occupation of the premises in respect of the income of which exemption is claimed should be the occupation as owner only or can be in any other capacity. The attempt of the learned Government pleader to impress upon us that it can be only in the capacity of owner and no other capacity cannot be accepted because, as stated above, it would amount to rewriting the section or, in any case, reading more than what is warranted.
20. The result is that we must reject this reference of the Commissioner and we answer the question referred to us in the affirmative, in favour of the assessee and against the revenue. The Commissioner shall pay costs of this reference to the assessee.