ACIT, Chandigarh V. M/s Assam Tea House, Chandigarh

ITA 1017/CHANDI/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2314 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Business income
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1017 /CHD/2012 (ASSESSMENT YEAR : 2009-10) THE A.C.I.T., VS. M/S ASSAM TEA HOUSE CIRCLE 5(1), SCF 72, SECTOR 26-D, CHANDIGARH. CHANDIGARH. PAN: AAGFA6141C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI, DR RESPONDENT BY : SHRI TEJ MOHAN SINGH DATE OF HEARING : 11.04.2013 DATE OF PRONOUNCEMENT : 16.04.2013 O R D E R PER SUSHMA CHOWLA, J.M. : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DA TED 18.07.2012 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST THE ORD ER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED FOLLOWING GROUND OF APPEA L: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. THE LEARNED A.R. FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE APPEAL FILED BY THE REVENUE HAD ALREADY ADJUDICATED UPON BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE EARLIER YEARS AND THE CIT (APPEALS) HAS ALLOWED THE APPEAL FOLLOWING THE ORDER OF THE TRIBUNAL. 2 4. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RELATION T O NON-ALLOWANCE OF COMMISSION PAID TO THE PARTNERS FOR NON-DEDUCTION O F TAX AT SOURCE ON THE SAID PAYMENTS. WE FIND THAT IDENTICAL ISSUE AR OSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.1107 & 1 112/CHANDI/2009 FOR ASSESSMENT YEAR 2006-07 DATE OF ORDER 24.5.20 10, ITA NO.1210/CHANDI/2010 FOR ASSESSMENT YEAR 2007-08 D ATE OF ORDER 29.11.2010 AND ITA NO.759/CHANDI/2011 FOR ASSESSMEN T YEAR 2008-09 DATE OF ORDER 27.12.2011. THE TRIBUNAL IN LEAD ORD ER RELATING TO ASSESSMENT YEAR 2006-07 (SUPRA) ALLOWED THE CLAIM O F THE ASSESSEE HOLDING AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE IS PARTNERSHIP FIRM CONSTITUT ED VIDE ARTICLES OF PARTNERSHIP DEED DATED IST DAY OF APRIL , 2005. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF THE RESA LE OF TEA, ETC AS PER CLAUSE (3) OF THE PARTNERSHIP DEED. AS PER CLAUSE 14, INTEREST AT THE RATE OF 12% IS TO BE PAID ON TH E RESPECTIVE CAPITAL INVESTMENT OF EACH OF THE PARTNE R. AS PER CLAUSE 15, REMUNERATION IS PAYABLE TO THE WORKING P ARTNER OF THE ASSESSEE FIRM. AS PER CLAUSE 16, IN ADDITION T O THE SALARY PAYABLE, EACH OF THE PARTNERS IS ENTITLED TO COMMISSION AT THE RATE OF 2% ON TOTAL SALES OF THE YEAR. AS PER CLAUSE 17, AFTER ADJUSTMENT OF SALARY, COMMISSI ON, REMUNERATION OR BONUS TO THE WORKING PARTNERS, PROF ITS OF LOSS FOR THE YEAR IS TO BE APPORTIONED AMONGST THE TWO PARTNERS IN THE RATIO OF 50% EACH. 6. THE FINANCE ACT, 1992 W.E.F. 1.4.1993 HAD AMENDE D THE PROVISIONS WITH REGARD TO THE ASSESSMENT OF A F IRM U/S 184 OF THE ACT. IT HAS BEEN PROVIDED THAT A FIRM SH ALL BE ASSESSED AS A FIRM FOR THE PURPOSE OF THIS ACT, IF (I) THE PARTNERSHIP IS EVIDENCED BY AN INSTRUMENT AND (II) THE INDIVIDUAL SHARES OF THE PARTNERS ARE SPECIFIED IN THAT INSTRUMENT. CLAUSE (B) UNDER SECTION 40 WAS ALSO SUBSTITUTED BY THE FINANCE ACT, 1992 W.E.F. 1.4.199 3 UNDER WHICH IT HAD BEEN PROVIDED THAT WHERE THE TERMS OF PARTNERSHIP DEED PROVIDE FOR THE PAYMENT OF SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED , AND THE SAME IS PAID TO ANY WORKING PARTNERS THEN SUCH PAYMENTS IS TO BE ALLOWED AS AN EXPENDITURE SUBJECT TO THE F ULFILLMENT 3 OF THE CONDITIONS LAID UNDER THE SAID SUB SECTION. THE PROVISIONS OF CLAUSE (V) TO SECTION 28 WAS INSERTED BY THE FINANCE ACT, 1992 W.E.F. 1.4.1993 WHICH PROVIDES TH AT WHERE ANY BONUS, COMMISSION OR REMUNERATION BY WHATEVER N AME CALLED, IS PAID TO ANY WORKING PARTNERS THE SAME WO ULD BE CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS, IN THE HANDS OF THE PARTNER. READING T HE PROVISIONS OF THE ACT IN CONJUNCTION, WE FIND THAT AFTER THE AMENDMENTS MADE BY THE FINANCE ACT, 1992 W.E.F. 1.4 .1993, THE PROVISIONS REGULATING THE ASSESSMENT OF THE FIR M AND THE PROVISION OF INTEREST, SALARY, BONUS, COMMISSION ET C TO THE PARTNERS UNDERWENT A CHANGE. AFTER THE AMENDMENT, THE SAID PAYMENTS BEING MADE TO THE PARTNERS OF A FIRM ARE A LLOWABLE AS A DEDUCTION IN THE HANDS OF THE FIRM AND ARE CHA RGEABLE AS PROFIT AND GAINS OF THE BUSINESS IN THE HANDS OF THE PARTNERS. BEFORE THE AFORESAID AMENDMENT, NO SUCH DEDUCTION WAS ALLOWED. 7. UNDER THE PRE AMENDED PROVISIONS REGARDING THE ASSESSMENT OF FIRM, THE SALARY IF ANY PAID TO THE P ARTNER/S WAS NOT ALLOWED AS A DEDUCTION FROM THE PROFITS OF BUSINESS BECAUSE OF THE ESTABLISHED PRINCIPLE THAT PARTNERS HIP IS A CERTAIN RELATION BETWEEN PERSONS, THE PRODUCT OF AG REEMENT TO SHARE THE PROFITS OF A BUSINESS. FIRM IS AS COL LECTIVE NOUN, A COMPENDIOUS EXPRESSION TO DESIGNATE AN ENTI TY, NOT A PERSON. THE SAID PROPOSITION WAS ELUCIDATED BY T HE HON'BLE SUPREME COURT IN CIT VS. R.M. CHIDAMBARAM PILLAY [1977] 106 ITR 292 (SC), WHEREIN IT WAS FURT HER HELD AS UNDER:- A FIRM IS NOT A LEGAL PERSON EVEN THOUGH IT HAS SO ME ATTRIBUTES OF PERSONALITY. IN INCOME-TAX LAW A FIRM IS A UNIT OF ASSESSMENT, BY SPECIAL PROVISIONS, BUT IS N OT A FULL PERSON. 8. IN VIEW OF THE PROPOSITION LAID DOWN BY VARIOUS COURTS INCLUDING HON'BLE SUPREME COURT THAT FIRM IS ONLY A UNIT OF ASSESSMENT AND NOT A LEGAL PERSON, THERE CANNOT BE A CONTRACT OF SERVICE BETWEEN A FIRM AND ANY OF ITS P ARTNERS. IN THE FACTS OF THE PRESENT CASE, THE COMMISSION WA S PAID TO THE PARTNERS OF THE ASSESSEE FIRM AS PER THE CONVEN ANTS IN THE PARTNERSHIP DEED I.E. AN AGREEMENT BETWEEN THE PARTNERSHIP FIRM AND ITS PARTNERS, WHICH ARE NOT TW O DISTINCT PERSONS. THE INVOKING OF PROVISIONS OF SECTION 194H OF THE ACT IN A CASE WHERE THE PARTNERSHIP FIRM HAD PAID COMMISSION TO ITS PARTNERS, BY WAY OF REMUNERATION, IS NOT VALID, AS THE SAID PROVISIONS ARE ATTRACTED WHEREIN , ANY PERSON PAYS COMMISSION TO THE PAYEE, WHO IS A DISTI NCT IDENTITY. HOWEVER, IN THE CASE OF A FIRM AND ITS P ARTNERS, THE SAID DISTINCTION IN THE IDENTITIES DOES NOT EXIST. IN THE ABSENCE OF A CONTRACT BETWEEN TWO ENTITIES, THE PRO VISIONS OF SECTION 194H ARE NOT ATTRACTED. ACCORDINGLY, WE H OLD THAT WHERE THE ASSESSEE FIRM HAD PAID COMMISSION AS REMUNERATION TO ITS PARTNER/S IN TERMS OF THE PARTN ERSHIP DEED, ALLOWABILITY OF WHICH IS REGULATED UNDER THE PROVISION OF SECTION 40(B) OF THE ACT, THERE IS NO MERIT IN H OLDING THAT THE SAID COMMISSION PAYMENT IS REGULATED BY THE PRO VISIONS OF SECTION 194H OF THE ACT, AS THERE IS NO REQUIREM ENT TO 4 DEDUCT TAX OUT OF SUCH PAYMENTS OF COMMISSION BY TH E ASSESSEE FIRM TO ITS PARTNERS. THE NON DEDUCTION OF TAX IN SUCH CASES WOULD NOT ATTRACT THE PROVISIONS OF SECT ION 40(A)(IA) OF THE ACT, WHICH IS ANY CASE ARE APPLICA BLE TO THE DEDUCTION CLAIMED U/S 30 TO 38 OF THE ACT. IN THE INSTANT CASE BEFORE US, THE DEDUCTION ON ACCOUNT OF COMMISS ION PAID TO THE PARTNERS BY THE ASSESSEE FIRM IS GOVERNED BY THE PROVISIONS OF SECTION 40(B) OF THE ACT IN THE HANDS OF THE FIRM AND THE SAME IS INCLUDIBLE AS INCOME IN THE HA NDS OF THE PARTNER IN VIEW OF PROVISIONS OF SECTION 28 (V ) OF THE ACT. WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD AND DI SMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 6. THE ISSUE ARISING IN THE PRESENT CASE IS IDENTIC AL TO THE ISSUE BEFORE THE TRIBUNAL IN THE EARLIER YEARS AND FOLLOWING THE PARITY OF REASONING WE UPHOLD THE ORDER OF THE CIT (APPEALS) AND DISMISS T HE GROUND OF APPEAL RAISED BY THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF APRIL, 2012. SD/- SD/- (T.R. SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 16 TH APRIL, 2013 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 5