Law:

Section:

Section 4 of the Income-tax Act, 1961 - Mutual concern - Assessable as - Assessment years 1996-97 to 1999-2000 - Assessee was a partnership firm carrying on business as property developers, traders in general merchandise and as commission agents - Firm pooled resources of all partners and carried on its business - It owned a building which had been rented out to two of its partners on certain monthly rent - It claimed exemption of income on ground of principle of mutuality - Whether since nature of assessee's business was such that it was enabled to enter into business transaction with third parties and not only amongst various partners, as such, doctrine of mutuality did not apply and assessee's income was assessable to tax - Held, yes FACTS The assessee was a partnership firm carrying on the business as property developers, traders in general merchandise and as commission agents. The firm pooled the resources of all the partners and carried on its business. According to the assessee, it owned a building which had been rented out to two of its partners on a monthly rent. Apart from the rental income, the firm also got interest income from the other partners. The assessee claimed exemption from income-tax on ground of principle of mutuality. The Assessing Officer did not accept the plea of mutuality of receipt and assessed the rental income in the hands of the assessee. The Commissioner (Appeals) as well as the Tribunal dismissed the assessee's appeal. On appeal to the High Court : HELD A reading of the partnership deed and the supplementary agreement which had been executed by way of amendment to the original partnership deed, made it clear that the business activities of the assessee-firm were not restricted to the partners only. The assessee was engaged in the business of property development, commission agency and other allied activities which implied dealings with third parties. It also had the intention of pooling resources of the partners and the funds of the partnership firm not immediately required by the firm could be made use of by the partners. In the supplementary agreement, only with regard to the scheduled building, two of the partners were…

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