The main legal point established in the judgment is that if a property owned by an assessee is occupied by him for the purpose of his own business or profession, or a property owned by a firm is used for its business, such assessee is entitled to exemption under section 22 of the Income Tax Act.

Rajasekhara Murthy, J.— The following question of law has been referred to this court u/s. 256(1) of the I.T. Act, by the Income Tax Appellate Tribunal, Bangalore Bench :

"On the facts of the case, whether the notional income from house property owned by a partner of a firm, and used in the firm's business, can be included in the total income of the partner ?"

2. The assessee is the owner of house property bearing No. 174, Subbarama Chetty Road, Bangalore. During the previous year relevant to the assessment year 1971-72 this property was used by the firm of M/s. Guruswamy & Co. for its business, free of rent. The assessee was one of the partners in the said firm.

3. The ITO reopened the assessment for the assessment year 1971-72 to include the annual letting value of the premises in his individual assessment. The assessee objected to the said proposal on the ground that the said premises was used by the firm of M/s. Guruswamy & Co. for its business during the previous year and that the assessee being a partner of the firm, was entitled to claim exemption of the annual value of the property in this individual assessment. The ITO rejected the assessee's claim and included the annual value of Rs.2,750 in his assessment u/s. 22 of the Act. In the appeal filed by the assessee against the assessment order, the AAC upheld the contention of the assessee and deleted the addition of the annual value. Aggrieved by the said deletion, the Department preferred an appeal to the Tribunal. The Tribunal agreed with the view taken by the AAC and held that the assessee was entitled to the exemption.

Hence this reference at the instance of the Revenue.

4. The point that is required to be examined is :

"Whether the user of the premises by a firm for its business enures to the benefit of the owner who is also a partner of the firm, so as to claim exemption under section 22 of the Act ?"

5. As a preliminary to the consideration of the point, it is necessary to analyse the relevant provisions of the I.T. Act, 1961, vis-a-vis the provisions of s. 22.

6. Chapter IV of the I.T. Act contains the various provisions for computation of total income under several heads of income classified u/s. 14 of the Act, viz. : -

A. Salaries.

B. Interest on securities.

C. Income from house property.

D. Profits and gains of business or profession.

E. Capital gains.

F. Income from other sources.

Sections 22 to 27 deal with the income from house property. Section 22, which is relevant for our purpose, reads :

"22. The annual value of property consisting of any building 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'."

Section 23 defines "annual value" and indicates how the annual value is to be arrived at. That annual value is taxed subject to certain allowances and s. 24 enumerates such allowances. Section 25 specifies the amounts not deductible from the income from house property. Section 26 provides for the mode of taxing the income from the property owned by co-owners.

It will be seen from the above provisions that one of the heads of income enumerated in s. 14 of the Act is the head "Income from house property". From a plain reading of s. 22, it will be clear that it is the owner of a house property who becomes liable to be charged under the head "Income from house property" unless the house property is used by him for the purposes of his own business or profession. If a building is let out, the income from such letting out is to be computed under this head. But if the owner himself occupies it for his own business, no income falls to be computed. If the property is used for the owner's residence, the I.T. Act, by a fiction, requires the computation of a notional income in respect of an assessee'