RIKHABCHAND V. MEHTA, MUMBAI V. ACIT RG 15(2), MUMBAI

ITA 1337/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1894 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANILKUMAR DHONDIAL
• Keywords: Proportionate interest
• Section: 14A; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I .T.A. NO.1337/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) SHRI. RIKHABCHAND V. MEHTA 915-919, PANCHSHEEL PLAZA, NEAR DHARAM PALACE, HUGHES ROAD, CHOWPATTY, MUMBAI - 400007 / VS. THE ACIT 15(2) 1 ST FLOOR, MATRU MANDIR, INCOME TAX, OPP.BHATIA HOSPITAL, TARDEO, MUMBAI - 400007 ./ ./ PAN/GIR NO. : AACPM0691D ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI DEEPAK TRALSHAWALA DEPARTMENT BY: SHRI ANILKUMAR DHONDIAL / DATE OF HEARING: 14.10.2015 /DATE OF PRONOUNCEMENT: 16.12.2015 ! / O R D E R PER AMARJIT SINGH, JM: THIS IS AN APPEAL DIRECTED AGAINST THE ORDER DATED 02.01.2013 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-26 , MUMBAI [HEREINAFTER REFERRED TO AS THE LEARNED CIT(A)] RELEVANT TO TH E ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING POINTS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME TAX, APPEALS - 2 6, MUMBAI, HEREINAFTER REFERRED TO AS THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING DISA LLOWANCE OF INTEREST U/S. 14 A IN RESPECT OF CONTRIBUTION MADE BY THE APPELLANT AS CAPITAL IN THE PARTNERSHIP FIRM M/S. M ETAL GEMS. THE SAID INTEREST MAY PLEASE BE ALLOWED. ITA NO.1337/MUM/2013 ASSESSMENT YEAR: 2009-10 2 3. THE FACTS OF THE CASE ARE THAT THE APPELLANT TOO K LOAN OF RS.112.50 LAKHS FROM KOTAK MAHINDRA BANK LIMITED AGAINST THE SECURI TY OF THE PROPERTY WHICH WAS CO OWNED BY THE APPELLANT IN EQUAL SHARES ALONG WITH THREE OTHER OWNERS NAMELY SHRI PINAKIN L. SHAH, SHRI GIRISH L. SHAH AN D SHRI SANJAY RAMNIKLAL SHAH. OUT OF THE SAID LOAN AN AMOUNT OF RS.68,75,0 00/- WAS TRANSFERRED TO THE ACCOUNT OF SHRI. RIKHAB MEHTA ON 15.01.2007 WHICH H AS BEEN REFLECTED IN THE BANK STATEMENT OF SHRI PINAKIN L. SHAH. THE SAID A MOUNT WAS GIVEN AS CAPITAL CONTRIBUTION TO THE METAL GEMS ON 16.01.2007 BY THE APPELLANT AND ENTRIES OF CREDIT AND DEBIT HAS BEEN REFLECTED IN THE BANK STA TEMENT. INTEREST OF RS.11,49,403/- WAS PAID AGAINST THE SAID LOAN BEING THE SHARE OF APPELLANT. THE PROPORTIONATE INTEREST PAID BY THE APPELLANT FOR CA PITAL CONTRIBUTION TO METAL GEMS WAS RS.7,02,413/-. THEREFORE, THE APPELLANT I S ENTITLED TO ALLOW THE DEDUCTION UPON THE SAID INTEREST U/S. 36(1)(III) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). THE SAID CLAIM OF THE APPELLANT HAS WRONGLY BEEN CONFIRMED BY THE LEARNED CIT(A) THEREFORE FEELING AGGRIEVED, THE PRESENT APPEAL HAS BEEN FILED. 4. WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LEAR NED REPRESENTATIVE OF THE PARTIES AND HAVE GONE THROUGH THE RECORD CAREFU LLY. THE SOLE POINT WHICH HAS BEEN ARGUED BEFORE US IS IN CONNECTION WITH THE DISALLOWANCE OF INTEREST U/S. 14A IN RESPECT OF CONTRIBUTION MADE BY THE APPELLA NT AS CAPITAL IN THE PARTNERSHIP FIRM M/S. METAL GEMS. ON THIS POINT TH E MATTER OF CONTROVERSY HAS BEEN ADJUDICATED IN ITA NO.1328/M/2009 TITLED AS AC IT 12(3), MUMBAI VS. M/S. NOVEL ENTERPRISES DATED 13.06.2012. HOWEVER, THE LEARNED CIT(A) HAS DISCUSSED THE SAID CASE BUT NOWHERE CAME TO THE NOT ICE THAT WHY THE OBSERVATIONS MADE IN THE SAME CASE HAS NOT BEEN FOL LOWED. IN THE SAID CASE THE APPEAL WAS FILED BY THE REVENUE AGAINST THE ORDER O F LEARNED CIT(A) AND THE FOLLOWING FINDINGS HAS GIVEN: ITA NO.1337/MUM/2013 ASSESSMENT YEAR: 2009-10 3 I HAVE CONSIDERED THE SUBMISSIONS MADE FOR THE APPELLANTS AND THE ASSESSMENT ORDER. ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE AND THE PROV ISIONS OF THE ACT, I AGREE WITH THE APPELLANT THAT THE PRO VISIONS OF SECTION 14A ARE NOT APPLICABLE IN THE PRESENT CA SE. THE APPELLANT HAD RAISED INTEREST BEARING LOAN FROM RELIANCE CAPITAL LTD. THE SAID LOAN HAD BEEN UTILIZ ED BY THE APPELLANT 'FOR THE PURCHASE OF SHARES AND AL SO FOR MAKING CAPITAL CONTRIBUTION TO M/S SHREENATH ENTERPRISES IN WHICH THE APPELLANT WAS A PARTNER. T HUS, TO THE EXTENT THE INTEREST BEARING LOAN HAS BEEN US ED FOR MAKING CONTRIBUTION, THERE IS A DIRECT NEXUS BETWEE N THE LOAN OBTAINED FROM RELIANCE CAPITAL LTD. AND CONTRIBUTION MADE TO THE PARTNERSHIP FIRM. IN OTHER WORDS, THERE IS A DIRECT NEXUS BETWEEN THE AMOUNT T AKEN AND LOAN GIVEN IN RESPECT OF FUNDS BORROWED FROM RELIANCE CAPITAL TO THE APPELLANT HAD INCURRED AN INTEREST EXPENDITURE OF RS. 10,41,51,584/- AGAINST WHICH THE APPELLANT HAS RECEIVED INTEREST OF RS.10,38,04, 143/- FROM SHREENATH ENTERPRISES IN RESPECT OF ITS CAPITA L CONTRIBUTION. THUS, THERE IS A DIRECT CONNECTION OR NEXUS BETWEEN THE INTEREST PAID BY THE APPELLANT AND THE INTEREST RECEIVED BY THE APPELLANT. THE ONLY ISSUE OF DISPUTE RAISED BY THE ASSESSING OFFICER IS THAT THE APPELLANT HAS RECEIVED INCOME IN TWO FORMS FROM M/S . SHREENATH ENTERPRISES VIZ., INTEREST ON CONTRIBUTIO N AND SHARE OF PROFIT. WHITE THE INTEREST INCOME IS SUBJE CT TO THE SHARE OF PROFIT FROM THE FIRM IS EXEMPT U/S. 10 (2A) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER THE IN TEREST EXPENDITURE INCURRED BY THE APPELLANT HAS RESULTED INTO TAXABLE AS WELL AS TAX FREE INCOME AND HENCE THAT PORTION OF THE INTEREST EXPENDITURE WHICH RELATES T O THE SHARE OF PROFIT IS LIABLE TO BE DISALLOWED IN TERMS OF SECTION 14A OF THE INCOME TAX ACT, 1961. THE ASSESS ING OFFICER HAS GIVEN THE DETAILS OF CAPITAL CONTRIBUTE D BY ALL THE THREE PARTNERS INCLUDING THE APPELLANT IN O RDER TO SUBSTANTIATE HIS CONTENTION THAT THE SHARE OF PROFI T RECEIVED BY THE PARTNER IS DIRECTLY IN PROPORTION T O THE CAPITAL CONTRIBUTED BY THE PARTNERS. ON THE OTHER H AND, THE APPELLANT IS OF THE VIEW THAT THERE IS NO CONNE CTION BETWEEN THE FUNDS CONTRIBUTED BY THE APPELLANT AND THE SHARE OF PROFIT RECEIVED FROM THE PARTNERSHIP FIRM. M/S. SHREENATH ENTERPRISES, BEING A PARTNERSHIP FIRM, IS GOVERNED BY THE INDIAN PARTNERSHIP ACT, 1932. THERE IS NO PROVISION IN THE SAID ACT AS REGARDS THE CONTRIB UTION OF CAPITAL BY THE PARTNERS. IN OTHER WORDS, THE ACT DOES NOT CONTEMPLATE OR STIPULATE CAPITAL CONTRIBUTION B Y THE PARTNER AS ONE OF THE CONDITIONS FOR A PARTNERSHIP FIRM. SECTION 4 OF THE INDIAN PARTNERSHIP ACT DEFINES PARTNERSHIP TO MEAN THE RELATION BETWEEN THE PERSON S ITA NO.1337/MUM/2013 ASSESSMENT YEAR: 2009-10 4 WHO HAVE AGREED TO SHARE PROFIT OF BUSINESS CARRIED ON BY ALL OR ANY OF THEM ACTING FOR ALL THEREFORE, THE SHARING OF PROFIT OR LOSSES IS THE DETERMINATIVE FA CTOR FOR THE EXISTENCE OF THE PARTNERSHIP FIRM. M/S. SHREENA TH ENTERPRISES WAS FORMED AS A PARTNERSHIP FIRM VIDE PARTNERSHIP DEED DATED 24TH JULY, 2000 AND THE APPELLANT WAS ADMITTED AS A PARTNER IN THE SAID PARTNERSHIP FIRM VIDE ADMISSION AGREEMENT DATED 1 JANUARY, 2004. CLAUSE (5) OF THE ADMISSION AGREEMEN T SETS OUT THE PROFIT SHARING RATIO AMONGST THE PARTN ERS INCLUDING THE APPELLANT. NOWHERE IN THE SAID CLAUSE HAS IT BEEN STATED THAT CONTRIBUTION OF MONEY TOWARDS CAPITAL OR LOAN WERE THE CONDITIONS OF ADMITTANCE O F THE NEW PARTNERS FOR SHARING OF PROFITS BY THE PARTNERS ALT THE PARTNERS, INCLUDING THE APPELLANT, ARE ENTITLED TO THE PROFIT SHARING AS PER THE PARTNERSHIP DEED AND THE SAME WAS NOT DEPENDENT ON CONTRIBUTION OF FUNDS MADE BY THE PARTNERS. CLAUSE (8) OF THE PARTNERSHIP DEED DEALS WITH THE, CAPITA/LOANS INTRODUCED BY THE PARTNERS TO THE FIRM. IT CLEARLY STATES THAT THE PARTNERS MAY INTRODUCE C APITAL AND OR GIVE LOAN TO THE FIRM WHICH SHALL CARRY INTE REST @ ANNUM OR ANY OTHER RATE HAS BEEN MUTUALLY AGREED UPON THE CO-ORDINATE BENCH WAS AGREED WITH FINDING GIVEN BY THE LEARNED CIT(A) AND UPHOLD THE ORDER OF LEARNED CIT(A) IN THE QUESTION IN THE SAID CASE. WE HAVE GONE THROUGH THE SAID FINDINGS AND FOUND NOWHERE AN Y GROUND TO DIFFER WITH THE SAME THEREFORE, BY RELYING UPON THE ORDER DATED 13. 06.2012 BY THE CO-ORDINATE BENCH OF MUMBAI. WE ARE OF THE VIEW THAT THE DISAL LOWANCE OF INTEREST IN RESPECT OF CONTRIBUTION MADE BY THE APPELLANT AS C APITAL IN THE PARTNERSHIP FIRM M/S. METAL GEMS IS LIABLE TO BE ALLOWED IN VIEW OF THE PROVISIONS CONTENDED U/S. 36(1)(III) OF THE ACT. ACCORDINGLY WE ALLOW THIS A PPEAL AND DIRECT THE ASSESSING OFFICER TO REASSESS THE MATTER IN VIEW OF THE OBSER VATIONS MADE ABOVE. 5. IN RESULT THE APPEAL OF THE ASSESSEE IS HEREBY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER, 2015 SD/- SD/- (N.K.BILLAIYA) (AMARJIT SINGH) / ACCOUNTANT MEMBER #$ /JUDICIAL MEMBER % & MUMBAI; ' DATED : 16 TH DECEMBER, 2015 MP MP MP MP ITA NO.1337/MUM/2013 ASSESSMENT YEAR: 2009-10 5 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ( ) / THE CIT(A)- 4. ( / CIT 5. )*+ $$,- , ,- , % & / DR, ITAT, MUMBAI 6. +./ 0 / GUARD FILE. / BY ORDER, ) $ //TRUE COPY// % / & ' (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI