Tirumala Estates, Hyderabad, Hyderabad V. DCIT, Circle-4(1), Hyderabad, Hyderabad

ITA 1512/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2541 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 09-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1510, 1511 & 1512/HYD/2016 ASSESSMENT YEARS: 2002-03, 2003-04 AND 2004-05 TIRUMALA ESTATES, HYDERABAD. PAN AAAFT 9809N VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 4(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MOHD. AFZAL REVENUE BY : SHRI A. SITARAMA RAO DATE OF HEARING : 01-03-2017 DATE OF PRONOUNCEMENT : 26-04-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST A COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 1,(IN SHORT CIT(A), HYDERABAD, DATED, 01/07/2016 FOR AY 2002-0 3 TO 2004-05. AS IDENTICAL ISSUE IS INVOLVED IN ALL THESE APPEALS, T HEY WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, FOR THE SAKE OF CONV ENIENCE, A COMMON ORDER IS PASSED. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT IN THE AS SESSMENT ORDERS, THE ASSESSING OFFICER MENTIONED THAT FOR THE ASSESS MENT YEARS 2002- 03, 2003-04 AND 2004-05, THE ASSESSEE CLAIMED INTER EST ON PARTNERS' LOAN ACCOUNTS, FOR THE AY 2002-03, ASSESSEE HAD CLA IMED INTEREST OF RS.16,20,000/-. THE CLAIM MADE BY THE ASSESSEE TOWA RDS INTEREST ON PARTNERS' LOAN ACCOUNTS WAS CONSIDERED FOR DISALLOW ANCE IN THE ASSESSMENT MADE FOR THE A.YS. 2002-03, 2003-04 AND 2004-05, THE SAID DISALLOWANCE HAS BEEN UPHELD BY THE CIT(A) FOR THE ASST. YEAR 2 ITA NOS. 1510, 1511, & 1512/H/16 TIRUMALA ESTATES, HYD. 2001-02. THE ASSESSEE SUBMITTED THAT, IN ITS OWN CA SE FOR THE ASST. YEAR 2001-02, THE HON'BLE TRIBUNAL IN THEIR ORDER I N ITA NO.219/HYD/1999, DATED 10,09.2.005 FOLLOWING THE RA TIO OF DECISIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF PHABIOMAL & SONS (158 ITR 773), VEERABHADRA INDUSTRIES (240 ITR 5), V. NARAYANAMURTHY (270-ITR 275), HELD THAT THERE CANNO T BE A FIRM WITHOUT ANY BUSINESS AND THUS THE INCOME DERIVED BY THE ASSESSEE FROM HOUSE PROPERTY IS TO BE ASSESSED IN THE HANDS OF THE COOWNERS IN ACCORDANCE WITH THE PROVISIONS OF SEC.26 OF THE I.T. ACT, 1961. FOR THIS REASON, THE ASSESSEE SUBMITTED THAT THE RENTAL INCOME FOR THE YEARS UNDER CONSIDERATION IS TO BE TAXED IN THE HAN DS OF THE PARTNERS/COOWNERS AND NOT IN THE HANDS OF THE FIRM. 2.1 THE ASSESSING OFFICER OBSERVED THAT AGAINST THE AFORESAID ORDER OF THE HON'BLE TRIBUNAL, THE REVENUE MADE AN APPEAL BEFORE THE HONBLE ANDHRA PRADESH HIGH COURT ON 12.01.2006 AND THE APPEAL IS STILL PENDING, IN ORDER TO BRING TO TAX, AO REOPENE D THE ASSESSMENT FOR THE AY 2002-03 & 2003-04. HE MADE THE ADDITION IN THE AY 2004- 05 U/S 143(3). 2.2 THE ASSESSING OFFICER CONCLUDED THAT THE PROPERTY H ITHERTO HELD BY THE ASSESSEE IS THE PROPERTY OF THE PARTNERSHIP FIRM SINCE THE PARTNERSHIP FIRM CONSTRUCTED THE PROPERTY AND IN TH E ABSENCE OF DISSOLUTION OF PARTNERSHIP FIRM, IT CANNOT BE STATE D THAT THIS PROPERTY IS OWNED BY THE CO-OWNERS WHEREAS THE PREREQUISITE TO ASSESS THE INCOME UNDER THE PROVISIONS OF SEC.26 IS THAT THE P ROPERTY SHOULD BE OWNED BY MORE THAN ONE PERSON. THE PARTNERS OF THE ASSESSEE ARE NOT CO-OWNERS OF THE PROPERTY SINCE THEIR SHARES AR E NOT DEFINITE AND ASCERTAINABLE AND AS SUCH THE INCOME CANNOT BE ASSE SSED IN THE HANDS OF THE PARTNERS I.E. THE SO CALLED CO-OWNERS, UNDER THE PROVISIONS OF SEC.26 OF THE I. T. ACT. ACCORDINGLY, THE DISALLOWANCE OF INTEREST ON PARTNERS' LOAN AT RS.16,20,000/- WAS AD DED TO THE INCOME RETURNED FOR THE A.YS. 2002-03. 3 ITA NOS. 1510, 1511, & 1512/H/16 TIRUMALA ESTATES, HYD. 3. AGGRIEVED BY THE ORDERS OF AO, THE ASSESSEE PREF ERRED APPEALS BEFORE THE CIT(A) AND SUBMITTED BEFORE THE CIT(A) T HAT THE ISSUE IS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES O WN CASE FOR AY 2001-02 IN ITA NO. 418/HYD/2004, DATED 22/06/2005. 4. THE CIT(A) REFERRING TO THE FINDINGS OF THE ITAT IN ITS ORDER IN AY 2001-02, HELD AS UNDER: THAT IS TO SAY THAT THE TRIBUNAL HAS NOT COME TO A FINALITY, ONLY IT HAS GIVEN A GUIDANCE TO THE ASSESSING OFFICER THAT 'IF LAW OTHERWISE PERMITS/ MAKE ASSESSMENT BY APPLYING SECT ION 26 OF THE ACT/ ON THE SO CALLED PARTNERS/ AS THEY ARE IN FACT CO-OWNERS', TO ASSESS THE INCOME IN THE HANDS OF CO-OWNERS. THA T IS TO SAY THAT IF LAWFULLY THE FIRM HAS BEEN DISSOLVED THEN T HE DISSOLUTION DEED WILL HAVE THE FINALITY TO ASSESS THE PROPERTY IN THE HANDS OF THE CO-OWNERS AT THE GIVEN PERCENTAGE BY THE DISSOL UTION DEED. DURING THE ASSESSMENT, THE ASSESSING OFFICER CAME I NTO CONCLUSION THAT THERE IS NO DISSOLUTION DEED, HENCE AS PER LAW, CO-OWNERS CANNOT BE GIVEN THE OWNERSHIP RIGHTS OVER THE PROPERTY WHICH HAS BEEN THE FIRM'S PROPERTY. WHEN T HE PARTNERSHIP DEED WAS ENACTED, THE OWNERSHIP RIGHTS OR PERSONAL CONTRIBUTIONS OF THE LAND ETC., WERE WASHED OUT AND GIVEN THE FIRM THE OWNERSHIP RIGHTS. IN LEGAL TERMS, THE FIRM IS T HE OWNER OF THE PROPERTY. HENCE, THE ASSESSING OFFICER IS CORRECT I N TAKING THE INCOME IN THE HANDS OF THE FIRM. THEREFORE, I UPHEL D THE ORDER OF THE ASSESSING OFFICER. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE COMMON IN ALL THE THREE YEARS UNDER CONSIDERATION: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), IS AGAINST THE LAW, WEIGHT OF EVIDENCE A ND PROBABILITIES OF CASE. 2. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER, WHEREIN INTEREST PAID TO PARTNER S IS DISALLOWED AMOUNTING TO RS.16,20,000/-. 3. THE LEARNED COMMISSIONER OUGHT TO HAVE FOLLOWED THE ORDER OF THE HON'BLE ITAT IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2001-02, WHEREIN, THE HON'BLE ITAT DIRECTED TH E ASSESSING OFFICER TO MAKE THE ASSESSMENT BY APPLYING SECTION 26 OF THE IT 4 ITA NOS. 1510, 1511, & 1512/H/16 TIRUMALA ESTATES, HYD. ACT AND TO ASSESS THE INCOME IN THE HANDS OF EACH O F THE CO- OWNER. 4. THE LEARNED COMMISSIONER OUGHT TO HAVE APPRECIAT ED THAT THE HON'BLE ITAT FOLLOWING THE ORDER OF THE HON'BLE AP HIGH COURT HELD THAT THERE CANNOT BE ANY FIRM IN EXISTENCE IN THE ABSENCE OF BUSINESS, THEREFORE, DIRECTED THE INCOME TO BE ASSE SSED ACCORDING TO THE PROVISIONS OF SECTION 26 OF THE IT ACT. 5. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR M ODIFY THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIM E OF HEARING OF THE APPEAL, IF IT IS CONSIDERED NECESSARY. 6. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECI SION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2001 -02 AND CONTENDED THAT THE CIT(A) OUGHT TO HAVE FOLLOWED TH E ORDER OF THE ITAT WHEREIN, THE HON'BLE ITAT DIRECTED THE ASSESSI NG OFFICER TO MAKE THE ASSESSMENT BY APPLYING SECTION 26 OF THE I T ACT AND TO ASSESS THE INCOME IN THE HANDS OF EACH OF THE CO-OW NER. 7. LD. DR, ON THE OTHER HAND RELIED ON THE ORDERS O F REVENUE AUTHORITIES. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2001-02 RELYING ON THE JUDGMENT OF THE HONBLE AP HIGH COURT IN THE CASE OF CIT VS. PHABIOMAL & SONS, [198 6] 158 ITR 773, OBSERVED THAT ON THE FACE OF THE SPECIFIC FINDINGS OF THE HONBL E JURISDICTIONAL HIGH COURT, WE HAVE NO OTHER ALTERNA TIVE BUT TO APPLY THE RATIO DECIDENDI OF THIS JUDGMENT AND HOLD THAT THE INCOME SHOULD HAVE BEEN COMPUTED UNDER THE HEAD INCOME FROM PROP ERTY IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 26 OF THE ACT. IT CAN BE SEEN THAT IN THE SAID CASE, IT WAS A PARTNER SHIP CONCERN AS IN THE CASE OF THE ASSESSEE BEFORE US, AND THE HONBLE HIGH COURT DIRECTED APPLICATION OF SECTION 26 BY HOLDING THAT THIS SECTION COMES 5 ITA NOS. 1510, 1511, & 1512/H/16 TIRUMALA ESTATES, HYD. INTO OPERATION AND THE ASSESSMENT SHOULD HAVE BEEN MADE ON EACH OF THE COOWNERS IN ACCORDANCE WITH THE PROVISIONS CONT AINED THEREIN. 8.1 THE CIT(A) INSTEAD OF FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSSSESSEES OWN CASE, UPHELD THE ACTION OF THE AO IN TAKING THE INCOME IN THE HANDS OF THE FIRM. THEREFORE, FOLLOWI NG THE OBSERVATIONS OF THE COORDINATE BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE DISALLOWANCE OF RS. 16,20,000/- MADE BY THE AO ON ACCOUNT OF INTEREST PAID TO PARTNERS IN THE HANDS O F THE ASSESSEE AND FOR ALL THE THREE YEARS UNDER CONSIDERATION WITH A DIRECTION TO REDO THE ASSESSMENT IN LINE WITH THE DIRECTION OF THE COORDI NATE BENCH AFRESH. 9. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOW ED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 26 TH APRIL, 2017. KV COPY TO:- 1) TIRUMALA ESTATES, C/O MOHD. AFZAL, ADVOCATE, 11- 5-465, SHERSONS RESIDENCY, FLAT NO. 402, CRIMINAL COURT ROAD, RE D HILLS, HYDERABAD 04. 2) DCIT, CIRCLE 4(1), IT TOWERS, HYD. 3) CIT(A) - 1, HYDERABAD 4 PR. CIT - 1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE 6 ITA NOS. 1510, 1511, & 1512/H/16 TIRUMALA ESTATES, HYD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER