Fomra & Co., CHENNAI V. ITO NON CORPORATE WARD-6(3), CHENNAI

ITA 1648/CHNY/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6584 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 27-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R ANITHA
• Assessee Lawyers: M ABISHEK
• Keywords: Business income; Question of law; Set aside
• Section: 143(3); 40(b); 143(2); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ' , ' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ ITA NO.1648/CHNY/2019 ( ( /ASSESSMENT YEAR: 2014-15 M/S.FOMRA & CO., NO. 24, NSC BOSE ROAD, SOWCARPET, CHENNAI-600 079. [PAN: AAAFF 6476 F] V . THE PRINCIPAL COMMISSIONER OF INCOME-TAX-9, 2 ND FLOOR, TOWER-1, BSNL BUILDING, 16, GREAMS RAOD CHENNAI-600006 CHENNAI. ( + /APPELLANT) ( ,-+ /RESPONDENT) + . / APPELLANT BY : MR. M.ABISHEK, CA ,-+ . /RESPONDENT BY : MS.R.ANITHA, JCIT . /DATE OF HEARING : 18.09.2019 . /DATE OF PRONOUNCEMENT : 24.10.2019 / O R D E R PER RAMIT KOCHAR , ACCOUNTANT MEMBER : THIS APPEAL HAS ARISEN AGAINST THE REVISIONARY ORD ER DATED 29 TH MARCH 2019 PASSED BY LEARNED PRINCIPAL COMMISSIONE R OF INCOME TAX-9, CHENNAI (HEREINAFTER CALLED THE PCIT) BEARING NO. 12/263/PCIT-9/2018-19 U/S 263 OF THE INCOME-TAX ACT,1961( HEREINAFTER CAL LED THE ACT), WHEREIN, LD.PCIT HAS HELD THE ASSESSMENT ORDER DATE D 24 TH NOVEMBER 2016 PASSED BY LEARNED ASSESSING OFFICER ( HEREINAF TER CALLED THE AO) U/S.143(3) OF THE 1961 ACT TO BE ERRONEOUS SO FAR I S PREJUDICIAL TO THE ITA NO.1648/CHNY/2019 :- 2 -: INTEREST OF THE REVENUE AND CONSEQUENTLY SAME WAS C ANCELLED BY LEARNED PCIT WITH DIRECTIONS TO AO TO FRAME FRESH ASSESSMEN T AS DETAILED IN HIS REVISIONARY ORDER. THE LD.PCIT WAS OF THE VIEW THA T PAYMENT OF INTEREST TO THE TUNE OF ` 18,,03,077/- WAS MADE BY ASSESSEE FIRM TO ONE H UF NAMELY M/S ASHOK KUMAR FOMRA (HUF) (PAN-AAAHA1354B) WHO IS STATED TO BE PARTNER OF THE ASSESSEE FIRM HOLDING 25% SHAR E, WHEREIN LEARNED PCIT WAS OF THE VIEW THAT HUF CANNOT BE PARTNER IN PARTNERSHIP FIRM AND SUCH PAYMENTS OF INTEREST MADE TO M/S ASHOK KUMAR F OMRA (HUF) IS LIABLE TO BE DISALLOWED OWING TO THE FACT THAT HUF CANNOT BE PARTNER IN THE FIRM . IT WAS OBSERVED BY LEARNED PCIT THAT M/S ASHOK KUMA R FOMRA (HUF) IS PARTNER IN ASSESSEE FIRM AND IT IS NOT THE CASE THA T THE KARTA OF THE SAID HUF NAMELY MR. ASHOK KUMAR FOMRA IS PARTNER IN ASS ESSEE FIRM IN HIS INDIVIDUAL CAPACITY . IT WAS OBSERVED BY LEARNED PC IT THAT THESE PAYMENTS MADE TO AFORESAID HUF BY ASSESSEE FIRM CANNOT BE AL LOWED AS BUSINESS DEDUCTION AS HUF CANNOT BECOME PARTNER IN THE FIRM. THE LEARNED PCIT OBSERVED THAT THIS ASPECT HAS NOT BEEN INQUIRED, VE RIFIED AND INVESTIGATED BY THE AO WHILE DURING THE COURSE OF SCRUTINY ASSES SMENT CONDUCTED BY THE AO U/S 143(3) READ WITH SECTION 143(2) AND CLAI M OF DEDUCTION OF INTEREST PAID TO HUF WAS ALLOWED AS BUSINESS DEDUCT ION BY THE AO WITHOUT ANY INQUIRY, VERIFICATION AND INVESTIGATION . FURTH ER, THE LEARNED PCIT ALSO OBSERVED THAT WHETHER THE ASSESSEE FIRM WILL LOSE I TS STATUS OF PARTNERSHIP FIRM OWING TO HUF BEING PARTNER IN ASSESSEE FIRM IS ALSO NOT INVESTIGATED BY THE AO WHILE FRAMING ASSESSMENT U/S 143(3) OF TH E 1961 ACT AND HENCE ASSESSMENT ORDER DATED 24.11.2016 PASSED BY T HE AO U/S 143(3) ITA NO.1648/CHNY/2019 :- 3 -: OF THE 1961 ACT WAS HELD BY LEARNED PCIT TO BE TO B E ERRONEOUS SO FAR AS IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND T HE SAID ASSESSMENT ORDER WAS SET ASIDE/CANCELLED BY LEARNED PCIT AND DIRECTI ONS WERE ISSUED BY LEARNED PCIT TO AO TO VERIFY WHETHER PAYMENTS MADE TO HUF ARE HIT BY SEC.40(B) OF THE 1961 ACT AND ALSO WHETHER THE ASSE SSEE FIRM HAS LOST ITS STATUS OF THE PARTNERSHIP FIRM BY HOLDING AS UNDER: 4. DECISION - I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE RELEVANT MISCELLANEOUS RECORD, APART FROM THE ORAL AND WRITT EN SUBMISSIONS OF THE ARS. THE FACT THAT SHRI ASHOK FOMRA (HUF) IS A PARTNER IN THE ASSESSEE- FIRM IS NOT DISPUTED, AS A PERUSAL OF THE RETURN OF INCOME REVEALS THE EXISTENCE OF THE F OLLOWING PARTNERS: SR.NO. NAME (S/SHRI) PERCENTAGE OF SHARE PAN 1 ASHOK KUMAR FOMRA (HUF) 25% AAAHA1354B 2 SMT.VIJAYSHREE FOMRA 25% AAAPF2425L 3 SUDERSON FOMRA 25% AAAPF242M 4 SMT. MADHURI FOMRA 25% AAEPF6488P THE PAN OF THE PARTNER SHRI ASHOK FOMRA (HUF) IS IND EED THAT OF THE HUF AND IS NOT OF THE INDIVIDUAL VIZ. SHRI ASHOK FORMA. FURTHER, THE CAPI TAL ACCOUNT OF THE ASSESSEE-FIRM REVEALS THAT SHRI ASHOK FOMRA (HUF) HAD A CREDIT BALANCE OF RS. 1,70,12,818/-. IT IS NOW QUITE CLEAR THAT SHRI ASHOK FOMRA (HUF) IS THE PARTNER IN THE ASSESSEE-FIRM AND NOT SHRI ASHOK FOMRA IN HIS INDIVIDUAL CAPACITY, AS SOUGHT TO BE A RGUED BY THE ARS. HENCE, THE INTEREST, REMUNERATION AND ANY OTHER PAYMENTS MADE TO SHRI AS HOK FORMRA (HUF) IN HIS CAPACITY AS PARTNER IN THE ASSESSEE-FIRM APPEAR TO BE LIABLE FO R DISALLOWANCE. THE AO HOWEVER APPEARS TO HAVE NEITHER EXAMINED THIS MATTER NOR CARRIED OU T ANY FURTHER INVESTIGATIONS IN THIS REGARD, THE DECISIONS OF THE VARIOUS SUPERIOR APPEL LATE AUTHORITIES SOUGHT TO BE RELIED ON BY THE ARS ARE NOT APPLICABLE TO THIS CASE AS ALL THOS E DECISIONS HAVE BEEN RENDERED IN THE CONTEXT OF THE PARTNER IN HIS INDIVIDUAL CAPACITY A ND NOT AS THE KARTA OF AN HUF. THESE FACTS CAN BE DISTINGUISHED EASILY. AFTER CAREFUL CONSIDER ATION, I FIND THAT THE AO HAS NOT VERIFIED AND INVESTIGATED THIS MATTER AT ALL. THE ORDER UNDE R CONSIDERATION IS HENCE SEEN TO BE ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. IT IS ACCORDINGLY CANCELLED. THE AO SHALL VERIFY THE ISSUE OF PAYMENTS MADE TO THE HUF IN ITS CAPACITY AS PARTNER OF THE FIRM INSOFAR AS PROVISIONS OF SECTIO N 40(B) OF THE ACT ARE CONCERNED. HE SHALL ALSO INVESTIGATE AND DECIDE ON THE MATTER AS TO WHE THER THE ASSESSEE LOSES ITS STATUS AS A PARTNERSHIP FIRM. HE SHALL THEN FRAME A FRESH ASSES SMENT ORDER AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. 2. THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIB UNAL CHALLENGING THE REVISIONARY ORDER DATED 29.03.2019 PASSED BY LEARNE D PCIT U/S 263 OF THE 1961 ACT. THE ARGUMENTS ARE ADVANCED BY LEARNED COU NSEL FOR THE ASSESSEE BEFORE THE BENCH THAT INTEREST WAS PAID B Y ASSESSEE FIRM TO ITA NO.1648/CHNY/2019 :- 4 -: KARTA OF HUF AND NOT TO HUF. THE LEARNED COUNSEL FO R ASSESSEE SUBMITTED THAT ONLY SHARE OF PROFIT WAS CREDITED TO HUF. IT W AS SUBMITTED THAT NO REMUNERATION WAS PAID TO HUF OR TO KARTA OF HUF. TH E LEARNED COUNSEL FOR ASSESSEE ALSO FAIRLY SUBMITTED THAT IT IS TRUE THAT THE AO WHILE FRAMING SCRUTINY ASSESSMENT U/S 143(3) OF THE 1961 ACT DID NOT SPECIFICALLY ASKED THIS QUESTION AS TO WHETHER HUF IS PARTNER IN ASSES SEE FIRM OR SHRI ASHOK KUMAR FOMRA IS PARTNER IN ASSESSEE FIRM IN HIS IND IVIDUAL CAPACITY REPRESENTING HUF , AS NO ENQUIRY TO THAT EFFECT WAS MADE BY THE AO. THE LD.DR, ON THE OTHER HAND, SUBMITTED THAT THE AO HAS NOT MADE ANY INQUIRY AND NO VERIFICATION WAS DONE BY THE AO AS T O THIS VITAL ASPECT AND HENCE , THE ASSESSMENT ORDER DATED 24.11.2016 PASSE D BY THE AO IS ERRONEOUS SO FAR AS IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS SUBMITTED BY LEARNED DR THAT LEARNED PCIT RIGHTLY C ANCELLED THE ASSESSMENT ORDER PASSED BY THE AO AND NOW ENQUIRY C AN BE MADE BY THE AO IN PURSUANCE TO REVISIONARY ORDER PASSED BY LD. PCIT, WHEREIN SPEAKING ORDER CAN BE PASSED BY THE AO . 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE IS A PAR TNERSHIP FIRM HAVING FOUR PARTNERS, THE DETAILS ARE AS UNDER: SR.NO. NAME (S/SHRI) PERCENTAGE OF SHARE PAN 1 ASHOK KUMAR FOMRA (HUF) 25% AAAHA1354B 2 SMT.VIJAYSHREE FOMRA 25% AAAPF2425L 3 SUDERSON FOMRA 25% AAAPF242M 4 SMT. MADHURI FOMRA 25% AAEPF6488P ITA NO.1648/CHNY/2019 :- 5 -: WE HAVE OBSERVED THAT WHAT APPEARS FROM RECORDS BEFORE US IS THAT M/S ASHOK KUMAR FOMRA (HUF) IS PARTNER OF ASS ESSEE FIRM, AND IT IS NOT BROUGHT ON RECORD THROUGH EVIDENCES THAT SHRI A SHOK KUMAR FOMRA IS PARTNER IN HIS INDIVIDUAL CAPACITY ALTHOUGH HE MAY BE REPRESENTING HUF, AS NO INQUIRIES AND VERIFICATIONS WERE DONE BY THE AO TO THAT EFFECT WHILE FRAMING SCRUTINY ASSESSMENT U/S 143(3) OF THE 1961 ACT. THIS IS NO MORE RES-INTEGRA THAT HUF CANNOT BE PARTNER IN A PARTNER SHIP FIRM. REFERENCE IS DRAWN TO THE DECISION OF HONBLE SUPREME COURT IN T HE CASE OF RASHIK LAL & CO V. CIT REPORTED IN (1998)229 ITR 458(SC), WHER EIN, IT WAS ELABORATELY EXPLAINED BY HONBLE SUPREME COURT THAT HUF CANNOT BE PARTNER IN THE PARTNERSHIP FIRM. IT IS PROFITABLE A T THIS STAGE TO REPRODUCE THE AFORESAID JUDGMENT IN ITS ENTIRETY , WHEREIN H ONBLE SUPREME COURT HELD AS UNDER: THE FOLLOWING QUESTION OF LAW WAS REFERRED BY THE TRIBUNAL TO THE ORISSA HIGH COURT UNDER SECTION 256(1) OF THE INCOME TAX ACT, 1961 : 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE COMMISSION PAID BY THE ASSESSEE-FIRM TO SRI RASHIKLAL P. RATHOR (INDIVIDUA L) IS ALLOWABLE UNDER SECTION 40(B) OF THE INCOME TAX ACT, 1961 AS A DEDUCTION WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE.' 2. THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON A NUMBER OF BUSINESSES INCLUDING SALE AND PURCHASE OF VARIOUS COMMODITIES AS WELL AS MINING. THE PARTNERS OF THE FIRM WERE : (1) POPATLAL DEVRAM (2) JAYANTILAL JAGMAL (3) PRAGJI DEVRAM (4) RATILAL ODHAYJI (5) RASHIKLAL P. RATHOR POPATLAL IS RASHIKLAL'S FATHER. ON 1.4.1967, THERE WAS AN ORAL PARTITION OF THE SHARE OF POPATLAL IN THE FIRM AMONGST POPATLAL, HIS WIFE AND HIS TWO SON S INCLUDING RASHIKLAL. THE ASSETS OF RASHIKLAL CONTINUED TO BE INVESTED IN THE PARTNERSHIP FIRM. R ASHIKLAL WAS KARTA OF A SMALLER HUF. ON 17.10.1978, THERE WAS AN AGREEMENT BETWEEN RASHIKLA L AND THE FIRM RASHIKLAL AND COMPANY THAT RASHIKALAL WILL RECEIVE 37 PAISE PER TONNE OF MINERAL SOLD BY THE FIRM. IN THE ASSESSMENT YEAR 1980-81 RASHIKLAL RECEIVED A SUM OF RS. 28579 AS COMMISSION. THE FIRM CLAIMED DEDUCTION OF THIS AMOUNT FROM ITS INCOME. THE CLAIM WAS NEGAT IVED BY THE INCOME TAX OFFICER. THE APPELLATE ASSISTANT COMMISSIONER ALLOWED THE APPEAL HOLDING THAT THE COMMISSION WAS PAID TO RASHIKLAL IN HIS INDIVIDUAL CAPACITY AND NOT AS KAR TA OF THE SMALLER HUF WHICH IS THE PARTNER OF THE FIRM. SINCE THE PAYMENT WAS NOT MADE TO THE PAR TNER, SECTION 40(B) OF THE INCOME TAX ACT WAS NOT ATTRACTED. THE AMOUNT OF COMMISSION PAID TO RASHIKLAL COULD NOT BE INCLUDED IN THE INCOME OF THE FIRM. ON FURTHER APPEAL BY THE REVENU E, THE TRIBUNAL HELD THAT SECTION 40(B) OF THE INCOME TAX ACT CLEARLY APPLIED IN THIS CASE. PA YMENT TO RASHIKLAL WILL BE PAYMENT TO A PARTNER. THE PARTNERSHIP FIRM COULD NOT CLAIM ANY D EDUCTION FOR THIS PAYMENT FROM ITS INCOME. ITA NO.1648/CHNY/2019 :- 6 -: THE HIGH COURT ON REFERENCE HELD THAT THERE WAS CLE AR MATERIAL THAT RASHIKLAL HAD INVESTED HIS JOINT FAMILY FUNDS TO ENTER INTO THE PARTNERSHIP. P AYMENT WAS MADE TO RASHIKLAL WHO WAS A PARTNER. ACCORDINGLY, THE TRIBUNAL WAS CORRECT IN C OMING TO THE CONCLUSION THAT SECTION 40(B) WILL BE APPLICABLE IN THIS CASE. THE FIRM WAS NOT ENTITL ED TO CLAIM ANY DEDUCTION ON ACCOUNT OF PAYMENT OF COMMISSION TO ONE OF ITS PARTNERS. 3. THE FIRM HAS COME UP IN APPEAL AGAINST THE JUDGM ENT OF THE HIGH COURT. SECTION 40(B) OF THE INCOME TAX ACT, AT THE MATERIAL TIME, STOOD AS UNDE R: '40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SE CTIONS 30 TO 39, THE FOLLOWING AMOUNT SHALL NOT HE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION.' (A) X X X X X X X X X (B) IN THE CASE OF ANY FIRM, ANY PAYMENT OF INTERES T, SALARY, BONUS, COMMISSION OR REMUNERATION MADE BY THE FIRM TO ANY PARTNER OF THE FIRM.' IN OUR VIEW, THE ANSWER TO THE QUESTION RAISED IN T HIS CASE IS SELF-EVIDENT. THERE IS NO DEPUTE THAT RASHIKLAL WAS A PARTNER OF THE ASSESSEE-FIRM. FOR ASSESSMENT OF THE FIRM UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION ANY PA YMENT OF COMMISSION BY THE FIRM TO ANY PARTNER OF THE FIRM WILL NOT BE ALLOWED AS DEDUCTIO N. THE FIRM HAS PAID A COMMISSION OF RS. 28579 TO RASHIKLAL AND HAS CLAIMED THAT AMOUNT AS D EDUCTION. SUCH DEDUCTION IS NOT PERMISSIBLE IN CLEAR TERMS OF SECTION 40(B). THE LANGUAGE OF THE SECTION IS SIMPLE AND CLEAR. B UT TO COMPLICATE THE MATTER AN ARGUMENT WAS SOUGHT TO BE MADE THAT RASHIKLAL HAD NOT JOINED THE FIRM AS AN INDIVIDUAL BUT WAS REALLY REPRESENTING AN HUF. THE REAL PARTNER OF THE FIRM W AS THE HUF. THE PAYMENT TO RASHIKLAL DID NOT AMOUNT TO PAYMENT OF COMMISSION TO THE HUF WHICH WA S THE REAL PARTNER. THEREFORE, THE AMOUNT OF COMMISSION PAID BY THE FIRM TO A NON-PARTNER OR A PARTNER WHO HAD JOINED THE FIRM IN A REPRESENTATIVE CAPACITY, WILL NOT FALL WITHIN THE M ISCHIEF OF SECTION 40(B). 4. WE ARE UNABLE TO UPHOLD THIS CONTENTION FOR A NU MBER OF REASONS. A FIRM IS A COMPENDIOUS WAY OF DESCRIBING THE INDIVIDUALS CONSTITUTING THE FIRM. AN HUF DIRECTLY OR INDIRECTLY CANNOT BECOME A PARTNER OF A FIRM BECAUSE THE FIRM IS AN A SSOCIATION OF INDIVIDUALS. 5. IN THE CASE OF DULICHAND LAXMINARAYAN V. COMMISS IONER OF INCOME TAX, 29 ITR 535, IT WAS HELD BY A BENCH OF THREE JUDGES OF THIS COURT THAT A FIRM IS NOT A 'PERSON' AND AS SUCH WAS NOT ENTITLED TO ENTER INTO A PARTNERSHIP WITH ANOTHER F IRM OR AN HUF OR AN INDIVIDUAL. IN THAT CASE, AN INDIVIDUAL, A JOINT FAMILY AND THREE FIRMS PURPORTE D TO ENTER INTO A PARTNERSHIP. THE AGREEMENT OF PARTNERSHIP WAS SIGNED BY THE INDIVIDUAL PARTNER, T HE KARTA OF THE JOINT FAMILY AND ONE PARTNER EACH OF THE THREE FIRMS. THE FIRM APPLIED FOR REGIS TRATION UNDER SECTION 266 OF THE INCOME TAX ACT. THE APPLICATION WAS SIGNED BY THE AFORESAID FI VE INDIVIDUALS. THIS COURT HELD THAT THERE COULD NO QUESTION OF GRANTING REGISTRATION TO A PARTNERSH IP PURPORTING TO BE ONE BETWEEN THREE FIRMS, AN HUF AND AN INDIVIDUAL. IN COMING TO THIS CONCLUS ION, THIS COURT RELIED ON THE PROVISIONS OF INDIAN PARTNERSHIP ACT WHEREIN, 'PARTNERSHIP', 'PAR TNER', 'FIRM' AND 'FIRM NAME' WERE DEFINED IN THE FOLLOWING MANNER : '4. DEFINITION OF 'PARTNERSHIP', 'PARTNER', 'FIRM' AND 'FIRM NAME' : 'PARTNERSHIP' IS THE RELATION BETWEEN PERSONS WHO H AVE AGREED TO SHARE THE PROFITS OF A BUSINESS CARRIED ON BY ALL OR ANY OF THEM ACTING FOR ALL. PERSONS WHO HAVE ENTERED INTO PARTNERSHIP WITH ONE ANOTHER ARE CALLED INDIVIDUALLY 'PARTNERS' AND COLLECTIVELY 'A FIRM', AND THE NAME UNDER WHICH THEIR BUSINESS IS CARRIED ON IS CALLED THE 'FIRM NAME'.' S.R. DAS, C.J. SPEAKING FOR THE COURT OBSERVED : 'THIS SECTION CLEARLY REQUIRES THE PRESENCE OF THRE E ELEMENTS, NAMELY, (1) THAT THERE MUST BE AN AGREEMENT ENTERED INTO BY TWO OR MORE PERSONS; (2) THAT THE AGREEMENT MUST BE TO SHARE THE PROFITS OF A BUSINESS; AND (3) THAT THE BUSINESS MU ST BE CARRIED ON BY ALL OR ANY OF THOSE PERSONS ACTING FOR ALL. ACCORDING TO THIS DEFINITION 'PERSO NS' WHO HAVE ENTERED INTO PARTNERSHIP WITH ONE ANOTHER ARE COLLECTIVELY CALLED A 'FIRM' AND THE NA ME UNDER WHICH THEIR BUSINESS IS CARRIED ON IS CALLED THE 'FIRM NAME'. THE FIRST QUESTION THAT ARI SES IS AS TO WHETHER A FIRM AS SUCH CAN ENTER ITA NO.1648/CHNY/2019 :- 7 -: INTO AN AGREEMENT WITH ANOTHER FIRM OR INDIVIDUAL. THE ANSWER TO THE QUESTION WOULD DEPEND ON WHETHER A FIRM CAN BE CALLED A 'PERSON'.' DAS, C.J., THEREAFTER, WENT ON TO EXAMINE THE MEANI NG OF THE WORD 'PERSON' IN THE PARTNERSHIP ACT. IT NOTED THAT 'PERSON' HAD NOT BEEN DEFINED IN THE PARTNERSHIP ACT. HOWEVER, THE GENERAL CLAUSES ACT, 1897, HAD DEFINED 'PERSON' IN SECTION 3(42) AS UNDER: 'PERSON' SHALL INCLUDE ANY COMPANY OR ASSOCIATION O R BODY OF INDIVIDUALS WHETHER INCORPORATED OR NOT.' AFTER REFERRING TO THE DEFINITION OF 'PERSON' IN T HE GENERAL CLAUSES ACT, DAS, C.J. OBSERVED THAT THE FIRM WAS NOT A COMPANY BUT WAS CERTAINLY AN ASS OCIATION OR BODY OF INDIVIDUALS. 6. THE COURT, HOWEVER, AFTER EXAMINING THE SCHEME O F THE PARTNERSHIP ACT AND THE CORRESPONDING PROVISIONS OF THE ENGLISH LAW ON THE SUBJECT, HELD THAT THE DEFINITION GIVEN TO 'PERSON' BY THE GENERAL CLAUSES ACT COULD NOT BE EXTENDED TO THE PA RTNERSHIP ACT HAVING REGARD TO THE VARIOUS PROVISIONS OF THAT ACT. THE COURT CONCLUDED : 'IT IS CLEAR FROM THE FOREGOING DISCUSSION THAT THE LAW, ENGLISH AS WELL AS INDIAN, HAS, FOR SOME SPECIFIC PURPOSES, SOME OF WHICH ARE REFERRED TO AB OVE, RELAXED ITS RIGID NOTIONS AND EXTENDED A LIMITED PERSONALITY TO A FIRM. NEVERTHELESS, THE GE NERAL CONCEPT OF PARTNERSHIP, FIRMLY ESTABLISHED IN BOTH SYSTEMS OF LAW, STILL IS THAT A FIRM IS NOT AN ENTITY OR 'PERSON' IN LAW BUT IS MERELY AN ASSOCIATION OF INDIVIDUALS AND A FIRM NAME IS ONLY A COLLECTIVE NAME OF THOSE INDIVIDUALS WHO CONSTITUTE THE FIRM..' THE VIEW OF THIS COURT WAS THAT WHEN SECTION 4 OF THE PARTNERSHIP ACT SPOKE OF 'PERSONS' WHO HAD ENTERED INTO PARTNERSHIP WITH ONE ANOTHER IT CO ULD ONLY BE INDIVIDUALS AND NOT A BODY OF PERSONS. A BODY OF PERSONS LIKE A FIRM COULD NOT EN TER INTO PARTNERSHIP WITH OTHER INDIVIDUALS. 7. AN HUF CANNOT BE IN A BETTER POSITION THAN A FIR M IN THE SCHEME OF THE PARTNERSHIP ACT. THE REASONS THAT LED THIS COURT TO HOLD THAT A FIRM CAN NOT JOIN A PARTNERSHIP WITH ANOTHER 'INDIVIDUAL' WILL APPLY WITH EQUAL FORCE TO AN HUF. IN LAW, AN H UF CAN NEVER BE A PARTNER OF A PARTNERSHIP FIRM. EVEN IF A PERSON NOMINATED BY THE HUF JOINS A PARTNERSHIP, THE PARTNERSHIP WILL BE BETWEEN THE NOMINATED PERSON AND THE OTHER PARTNERS OF THE FIRM. HAVING REGARD TO THE DEFINITION OF 'PARTNERSHIP' AND 'PARTNERS' AND IN VIEW OF THE PRI NCIPLE LAID DOWN IN DULICHAND'S CASE (SUPRA), IT IS NOT POSSIBLE TO HOLD THAT AN HUF BEING A FLUCTUA TING BODY OF INDIVIDUALS, CAN ENTER INTO A PARTNERSHIP WITH OTHER INDIVIDUAL PARTNERS. IT CANN OT DO INDIRECTLY WHAT IT CANNOT DO DIRECTLY. IF A KARTA OR ANY OTHER MEMBER OF THE HUF JOINS A PARTNE RSHIP, HE CAN DO SO ONLY AS AN INDIVIDUAL. HIS RIGHTS AND OBLIGATIONS VIS-A-VIS OTHER PARTNERS ARE DETERMINED BY THE PARTNERSHIP ACT AND NOT BY HINDU LAW. WHATEVER MAY BE THE RELATIONSHIP BETW EEN AN HUF AND ITS NOMINEE PARTNER, IN A PARTNERSHIP, NEITHER THE HUF NOR ANY MEMBER OF THE HUF CAN CLAIM TO BE A PARTNER OR CONNECTED WITH THE PARTNERSHIP THROUGH A NOMINEE. WHERE THE K ARTA OF AN HUF ENTERS INTO A PARTNERSHIP AGREEMENT WITH A STRANGER, THE KARTA ALONE IN THE E YE OF LAW IS THE PARTNER. IF ANY PAYMENT BY THE FIRM TO A PARTNER IS PROHIBITED BY LAW, THE KAR TA CANNOT BE HEARD TO SAY THAT THE PAYMENT WAS RECEIVED BY HIM NOT AS A PARTNER BUT IN SOME OT HER CAPACITY. WITHIN THE PARTNERSHIP, THE KARTA IS A PARTNER LIKE ANY OTHER PARTNER WITH WHOM HE HAS ENTERED INTO A PARTNERSHIP AGREEMENT INDIVIDUALLY. IT IS ESSENTIAL TO HAVE AN AGREEMENT BETWEEN THE PARTNERS TO FORM A PARTNERSHIP. AN HUF NOT BEING A 'PERSON' CANNOT ENTER INTO AN AGREE MENT OF PARTNERSHIP. IF THE KARTA OF AN HUF ENTERS INTO PARTNERSHIP WITH A STRANGER, UPON THE D EATH OF THE KARTA, THE PARTNERSHIP WILL STAND DISSOLVED. IN THE ABSENCE OF A CONTRACT TO THE CONT RARY, ANOTHER MEMBER OF THE FAMILY CANNOT STEP INTO THE SHOES OF THE KARTA CLAIMING THAT THE KARTA WAS MERELY REPRESENTING THE HUF AND THE REAL PARTNER WAS THE HUF. A KARTA WHO ENTERS IN TO A CONTRACT OF PARTNERSHIP WITH A STRANGER MAY BE ACCOUNTABLE TO THE OTHER MEMBERS OF THE HUF FOR THE PROFITS RECEIVED FROM THE PARTNERSHIP BUSINESS. BUT THAT IS SOMETHING BETWEEN THE KARTA AND THE HUF. BUT SO FAR AS THE PARTNERSHIP FIRM IS CONCERNED, THE KARTA IS A PARTN ER LIKE ANY OTHER PARTNER. IF A COMMISSION IS PAID TO A PARTNER WHO HAPPENS TO BE A NOMINEE OF AN HUF, THE COMMISSION IS NOT PAID TO THE HUF. IT IS PAID BY THE FIRM TO ONE OF ITS INDIVIDUA L PARTNERS. THE PARTNER MAY HAVE TO ACCOUNT FOR THE MONIES RECEIVED FROM THE FIRM TO ANOTHER PERSON OR ANOTHER FIRM OR AN ASSOCIATION OF PERSONS OR AN HUF. BUT THAT WILL NOT ALTER THE FACT THAT CO MMISSION WAS PAID BY THE FIRM TO ONE OF ITS PARTNERS. 8. THE INDIAN PARTNERSHIP ACT CONTAINS VARIOUS PROV ISIONS REGULATING THE RELATIONSHIP BETWEEN PARTNERS. THE PARTNERS ARE BOUND TO CARRY ON THE BU SINESS OF THE FIRM TO THE GREATEST COMMON ADVANTAGE, TO BE JUST AND FAITHFUL TO EACH OTHER AN D TO RENDER TRUE ACCOUNT AND TRUE INFORMATION OF ALL THINGS AFFECTING THE FIRM TO ANY PARTNER OR HIS LEGAL REPRESENTATIVE. EVERY PARTNER HAS A RIGHT TO TAKE PART IN THE CONDUCT OF THE BUSINESS. EVERY PARTNER IS BOUND TO ATTEND DILIGENTLY TO ITA NO.1648/CHNY/2019 :- 8 -: HIS DUTIES IN THE CONDUCT OF THE BUSINESS. ANY DIFF ERENCES ARISING AS TO ORDINARY MATTERS CONNECTED WITH THE BUSINESS MAY BE DECIDED BY MAJOR ITY OF THE PARTNERS AND EVERY PARTNER SHALL HAVE THE RIGHT TO EXPRESS HIS OPINION BEFORE THE MA TTER IS DECIDED. NO CHANGE CAN BE MADE IN THE NATURE OF THE BUSINESS WITHOUT THE CONSENT OF ALL T HE PARTNERS. EVERY PARTNER HAS A RIGHT TO HAVE ACCESS TO AND TO INSPECT AND COPY ANY OF THE BOOKS OF THE FIRM. ALL THESE PROVISIONS WILL APPLY TO A PARTNER WHO REPRESENTS ANOTHER BODY. THE HUF WHO HAS A NOMINEE PARTNER IN A FIRM HAS NEITHER ANY RIGHT NOR ANY OBLIGATION UNDER THE PROV ISIONS OF THE PARTNERSHIP ACT. SECTION 13 PROVIDES THAT A PARTNER IS NOT ENTITLED TO RECEIVE REMUNERATION FOR TAKING PART IN THE CONDUCT OF THE BUSINESS. THE PARTNERS ARE ENTITLED TO SHARE EQ UALLY IN THE PROFITS EARNED AND SHALL CONTRIBUTE EQUALLY TO THE LOSSES SUSTAINED BY THE FIRM. WHERE A PARTNER IS ENTITLED TO INTEREST ON THE CAPITAL SUBSCRIBED BY HIM, SUCH INTEREST SHALL BE PAYABLE O NLY OUT OF PROFITS. A FIRM HAS TO INDEMNIFY A PARTNER IN RESPECT OF PAYMENTS MADE AND LIABILITIES INCURRED BY HIM IN THE ORDINARY AND PROPER CONDUCT OF BUSINESS AND IN DOING SUCH ACT, IN AN EM ERGENCY FOR THE PURPOSE OF PROTECTING THE FIRM FROM ANY LOSS AS WOULD BE DONE BY A PERSON OF ORDINARY PRUDENCE UNDER SIMILAR CIRCUMSTANCES. THE PARTNER HAS ALSO A DUTY TO INDEM NIFY FOR ANY LOSS CAUSED TO THE FIRM BY HIS WILFUL NEGLECT IN THE CONDUCT OF THE BUSINESS OF TH E FIRM. ALL THESE PROVISIONS RELATING TO MUTUAL RIGHTS AND LIABILITIES ARE ONLY APPLICABLE TO THE INDIVIDUAL PARTNERS WHO ARE MEMBERS OF THE FIRM. THERE IS NO W AY THAT AN HUF CAN INTRUDE INTO THE RELATIONSHIP CREATED BY A CONTRACT BETWEEN CERTAIN INDIVIDUALS. THE ONLY RIGHT OF THE HUF IS POSSIBLY TO CALL UPON ITS NOMINEE PARTNER TO RENDER ACCOUNTS FOR THE PROFITS THAT HE HAS MADE FROM THE PARTNERSHIP BUSINESS. BUT THAT IS SOMETHIN G BETWEEN THE NOMINEE AND THE HUF WITH WHICH THE PARTNERSHIP IS NOT CONCERNED. THE SPECIFIC PROVISION IN SECTION 13 OF THE PARTNER SHIP ACT THAT A PARTNER IS NOT ENTITLED TO RECEIVE ANY REMUNERATION FOR TAKING PART IN THE CONDUCT OF THE BUSINESS HAS BEEN INTERPRETED TO MEAN THAT EVERY PARTNER IS BOUND TO ATTEND DILIGENTLY TO THE BUSINESS OF THE FIRM. FOR DOING HIS DUTIES HE CANNOT CHARGE HIS CO- PARTNERS ANY SUM OR REMUNE RATION WHETHER IN THE SHAPE OF SALARY, COMMISSION OR OTHERWISE ON ACCOUNT OF THE TROUBLE T AKEN BY HIM IN CONDUCTING THE PARTNERSHIP BUSINESS. THERE, HOWEVER, CAN BE A SPECIAL CONTRACT TO THE CONTRARY IN WHICH CASE, THE PROVISIONS OF THAT CONTRACT WILL PREVAIL. 9. SECTION 40(B) OF THE INCOME TAX ACT WILL APPLY E VEN WHEN THERE IS SUCH A SPECIAL CONTRACT. ANY COMMISSION PAID BY A FIRM TO ITS PARTNER WILL NOT B E PERMITTED AS DEDUCTION FROM THE BUSINESS INCOME OF THE FIRM. IF A CLAIM IS MADE BY A PARTNER THAT HE IS REPRESENTING AN HUF OR ANY OTHER BODY OF PERSONS THEN THE POSITION IN LAW WILL NOT B E ANY DIFFERENT. THE HUF IS NOT AND CANNOT BE A PARTNER IN A PARTNERSHIP FIRM. THE REMUNERATION OR THE COMMISSION THAT IS PAID TO THE PARTNER CANNOT BE CLAIMED TO BE A REMUNERATION OR COMMISSIO N PAID TO THE HUF. THE PARTNER MAY BE ACCOUNTABLE TO THE FAMILY FOR THE MONIES RECEIVED B Y HIM FROM THE PARTNERSHIP. BUT IN THE ASSESSMENT OF THE FIRM, THE PARTNER CANNOT BE HEARD TO SAY THAT HE HAS NOT RECEIVED THE COMMISSION AS A PARTNER OF THE FIRM BUT IN A DIFFER ENT CAPACITY. 10. WE WERE REFERRED TO TWO DECISIONS OF THIS COURT ON THIS POINT, BRIJ MOHAN DAS LAXMAN DAS V. CIT (1997) 223 ITR 825 AND SUWALAL ANANDILAL JAIN V . COMMISSIONER OF INCOME TAX, (1997) 224 ITR 753. BOTH THE CASES DEALT WITH PAYMENT OF INTER EST TO A PARTNER WHO HAD JOINED THE FIRM IN A REPRESENTATIVE CAPACITY. SECTION 40(B) PROHIBITS DE DUCTION ON ACCOUNT OF PAYMENT OF INTEREST, SALARY, BONUS OR REMUNERATION BY A FIRM TO ANY PART NER OF THE FIRM. EXPLANATION II WAS ADDED TO SECTION 40(B) SPECIFICALLY PROVIDING THAT WHERE AN INDIVIDUAL WAS A PARTNER IN A FIRM IN A REPRESENTATIVE CAPACITY FOR AND ON BEHALF OF ANY OT HER PERSON, THE INTEREST PAID BY THE FIRM TO SUCH INDIVIDUAL SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CLAUSE (B) OF SECTION 40. 11. THIS COURT HELD THAT IN VIEW OF THIS EXPLANATIO N, WHEN A KARTA OF AN HUF HAD JOINED A FIRM REPRESENTING HIS HUF AND HAD MADE DEPOSITS IN THE F IRM IN HIS INDIVIDUAL CAPACITY, THE INTEREST PAID TO HIM COULD NOT BE DISALLOWED BY REASON OF TH E EXPLANATION II ADDED TO SECTION 40(B) OF INCOME TAX ACT, 1961. IT WAS FURTHER HELD THAT THE EXPLANATION WAS ONLY CLARIFICATORY . IT IS DIFFICULT TO AGREE WITH THAT PROPOSITION BECAUSE TH E EXPLANATION WAS ADDED BY THE TAXATION LAWS (AMENDMENT) ACT, 1984 WITH EFFECT FROM 1.4.1985, I. E., FROM THE ASSESSMENT YEAR 1985-86. BY ADDING THE EXPLANATION, THE LEGISLATURE ALTERED THE LAW PROSPECTIVELY ON AND FROM 1.4.1985. IF WHAT WAS CONTAINED IN THE EXPLANATION WAS ALREADY T HE LAW IN FORCE, THEN GIVING EFFECT TO THE EXPLANATION FROM 1.4.1985 DOES NOT MAKE ANY SENSE. 12. HOWEVER, IN THE CASE BEFORE US, NO QUESTION OF PAYMENT OF ANY INTEREST IS INVOLVED. A COMMISSION WAS PAID BY THE FIRM FOR THE SERVICES RE NDERED BY THE PARTNER. SUCH COMMISSION CANNOT BE PAID BECAUSE OF THE PROVISIONS OF SECTION 13 OF THE PARTNERSHIP ACT IN THE ABSENCE OF A SPECIAL CONTRACT. EVEN IF A SPECIAL CONTRACT EXISTS , SECTION 40(B) OF THE INCOME TAX ACT PROHIBITS ALLOWANCE OF SUCH COMMISSION AS DEDUCTION FROM THE BUSINESS INCOME OF THE FIRM. ITA NO.1648/CHNY/2019 :- 9 -: 13. THE ARGUMENT THAT RASHIKLAL HAD JOINED THE FIRM RASHIKLAL & COMPANY NOT AS AN INDIVIDUAL BUT IN A REPRESENTATIVE CAPACITY OVERLOOKS THE FACT THAT THE PARTNERSHIP RASHIKLAL & COMPANY IS A COMPENDIOUS WAY TO DESCRIBE THE INDIVIDUALS WHO ARE PARTNERS OF THE FIRM. THE OTHER PARTNERS OF THE FIRM HAVE A CONTRACTUAL RELATIONSHIP WITH RASHI KLAL ONLY. SECTION 40(B) CATEGORICALLY DISALLOWS ANY DEDUCTION OF PAYMENT OF COMMISSION TO A PARTNER . 14. THE POSITION OF A PERSON BELONGING TO AN HUF WH O HAS JOINED A FIRM ON BEHALF OF THE FAMILY HAS BEEN EXPLAINED IN MULLA'S HINDU LAW, SIXTEENTH EDITION, PAGE 265: 'NOT ALL MEMBERS OF THE JOINT FAMILY, BUT ONLY SUCH OF ITS MEMBERS AS HAVE, IN FACT, ENTERED INTO PARTNERSHIP WITH THE STRANGER, BECOME PARTNERS. THE MANAGER, NO DOUBT, IS ACCOUNTABLE TO THE FAMILY, BUT THE PARTNERSHIP IS EXCLUSIVELY ONE BETW EEN THE CONTRACTING MEMBERS INCLUDING THE MANAGER AND THE STRANGER. SUCH A PARTNERSHIP WOULD BE GOVERNED BY THE PROVISIONS OF THE INDIAN PARTNERSHIP ACT, 1932, WITH THE RESULT THAT IF THE MANAGER DIED, THE PARTNERSHIP WOULD BE DISSOLVED ON HIS DEATH.' UNDER THE INCOME TAX ACT, 1961, 'FIRM', 'PARTNER' AND 'PARTNERSHIP' HAVE BEEN GIVEN THE SAME MEANING AS ASSIGNED TO THEM IN THE PARTNERSHIP ACT. BUT THE EXPRESSION 'PARTNER' HAS BEEN EXTENDED TO INCLUDE ANY PERSON WHO, BEING A MINOR, HAS BEEN ADMITTED TO THE BENEFITS OF A PARTNERSHIP. THEREFORE, THERE IS NO SCOPE FOR ANY A RGUMENT THAT EVEN THOUGH UNDER THE INDIAN PARTNERSHIP ACT, AN HUF NOT BEING A 'PERSON' CANNOT BE A PARTNER, BUT THE PAYMENT OF COMMISSION TO THE NOMINEE PARTNER WILL TANTAMOUNT T O PAYMENT TO THE HUF AND THEREFORE, SUCH PAYMENT WILL NOT COME WITHIN THE MISCHIEF OF SECTIO N 13 OF THE PARTNERSHIP ACT OR SECTION 40(B) OF THE INCOME TAX ACT. TO REPEAT WHAT HAS BEEN STAT ED IN MULLA'S HINDU LAW, ONLY THE MEMBERS WHO HAVE ENTERED INTO PARTNERSHIP ARE TO BE REGARDE D AS PARTNERS. THE POSITION OF THE OTHER MEMBERS IS NO HIGHER THAN SUB-PARTNERSHIP. 15. THE APPLICATION FOR REGISTRATION OF A FIRM HAS TO BE MADE UNDER SECTION 184 OF THE INCOME TAX ACT. IT IS SPECIFICALLY PROVIDED THAT: (1) THE PARTNERSHIP MUST BE EVIDENCED BY AN INSTRUM ENT IN WRITING; (2) THE INDIVIDUAL SHARES OF PARTNERS MUST BE SPECI FIED IN THAT INSTRUMENT; (3) THE APPLICATION FOR REGISTRATION SHALL HE SIGNE D BY ALL THE PARTNERS. THE VERY FACT THAT INDIVIDUAL SHARES OF THE PARTNER S HAVE TO BE SPECIFIED AND THAT SUCH PARTNERS MUST PERSONALLY SIGN THE PARTNERSHIP DEED AND ALSO THE APPLICATION FOR REGISTRATION GO TO SHOW THAT EVEN IF A PERSON JOINS A FIRM AS A REPRESENTAT IVE OF AN HUF OR ANY OTHER BODY OR ASSOCIATION, WITHIN THE FIRM HIS POSITION IS THAT OF AN INDIVIDU AL. HE MAY HAVE AN AGREEMENT WITH A THIRD PARTY TO DIVIDE THE PROFITS RECEIVED FROM THE FIRM, BUT T HAT AGREEMENT DOES NOT BIND THE FIRM NOR DOES IT ALTER THE POSITION OF THE PARTNERS UNDER THE PAR TNERSHIP ACT OR THE INCOME TAX ACT. THIS ASPECT OF THE MATTER WAS EXPLAINED BY SUBBA RAO, J. (AS HI S LORDSHIP, THEN WAS) IN THE CASE OF COMMISSIONER OF INCOME TAX V. BAGYALAKSHMI & CO., ( 1965)55 ITR 660(SC) IN THE FOLLOWING WORDS : 'A PARTNERSHIP IS A CREATURE OF CONTRACT. UNDER HI NDU LAW A JOINT FAMILY IS ONE OF STATUS AND RIGHT TO PARTITION IS ONE OF ITS INCIDENTS. THE INC OME-TAX LAW GIVES THE INCOME-TAX OFFICER A POWER TO ASSESS THE INCOME OF A PERSON IN THE MANNER PROV IDED BY THE ACT. EXCEPT WHERE THERE IS A SPECIFIC PROVISION OF THE INCOME-TAX ACT WHICH DERO GATES FROM ANY OTHER STATUTORY LAW OR PERSONAL LAW, THE PROVISION WILL HAVE TO BE CONSIDE RED IN THE LIGHT OF THE RELEVANT BRANCHES OF LAW. A CONTRACT OF PARTNERSHIP HAS NO CONCERN WITH THE O BLIGATION OF THE PARTNERS TO OTHERS IN RESPECT OF THEIR SHARES OF PROFIT IN THE PARTNERSHIP. IT ON LY REGULATES THE RIGHTS AND LIABILITIES OF THE PARTNERS. A PARTNER MAY BE THE KARTA OF A JOINT HIN DU FAMILY; HE MAY BE A TRUSTEE; HE MAY ENTER INTO A SUB-PARTNERSHIP WITH OTHERS; HE MAY, UNDER A N AGREEMENT, EXPRESS OR IMPLIED, BE THE REPRESENTATIVE OF A GROUP OF PERSONS; HE MAY BE A B ENAMIDAR FOR ANOTHER. IN ALL SUCH CASES HE OCCUPIES A DUAL POSITION. QUA THE PARTNERSHIP, HE F UNCTIONS IN HIS PERSONAL CAPACITY; QUA THE THIRD PARTIES, IN HIS REPRESENTATIVE CAPACITY. THE THIRD PARTIES, WHOM ONE OF THE PARTNERS REPRESENTS, CANNOT ENFORCE THEIR RIGHTS AGAINST THE OTHER PARTN ERS NOR THE OTHER PARTNERS CAN DO SO AGAINST THE SAID THIRD PARTIES.' THIS JUDGMENT GIVEN BY A BENCH OF THREE JUDGES OF THIS COURT IS A COMPLETE ANSWER TO THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE. A. PAR TNER DOES NOT ACT IN A REPRESENTATIVE CAPACITY IN THE PARTNERSHIP. HE FUNCTIONS IN HIS PE RSONAL CAPACITY LIKE ANY OTHER PARTNER. THE PROVISIONS OF THE PARTNERSHIP ACT AND THE INCOME TA X ACT RELATING TO PARTNERS AND PARTNERSHIP ITA NO.1648/CHNY/2019 :- 10 -: FIRMS WILL APPLY IN FULL FORCE IN RESPECT OF SUCH A PARTNER. IF ANY REMUNERATION IS PAID OR A COMMISSION IS GIVEN TO A PARTNER BY A PARTNERSHIP F IRM, SECTION 40(B) WILL APPLY EVEN IF THE PARTNER HAS JOINED THE FIRM AS A NOMINEE OF AN HUF. THE HINDU UNDIVIDED FAMILY OR ITS REPRESENTATIVE DOES NOT HAVE ANY SPECIAL STATUS IN THE PARTNERSHIP ACT. ALTHOUGH THE PARTNERSHIP FIRM IS NOT A LEGAL ENTITY, IT HAS BEEN TREATED AS AN INDEPENDENT UNIT OF ASSESSMENT UNDER THE INCOME TAX ACT. THE ASSESSMENT OF A FIRM WILL HAVE TO BE MADE STRICTLY IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT. THE LAW HAS TO BE TAKEN AS IT IS. SECTION 40(B) APPLIES TO CERTAIN PAYMENTS MADE BY A FIRM TO ITS PARTNERS. NE ITHER THE FIRM NOR ITS PARTNERS CAN EVADE THE TAX LAW ON THE PRETEXT THAT ALTHOUGH IN LAW HE IS A PARTNER BUT IN REALITY HE IS NOT SO. HE MAY HAVE TO HAND OVER THE MONEY TO SOMEBODY ELSE. THAT MAY BE HIS POSITION QUA A THIRD PARTY. BUT THE FIRM HAS NOTHING TO DO WITH IT. IT HAS PAID THE COMMISSION TO ONE OF ITS PARTNERS. IT CANNOT GET ANY DEDUCTION IN ITS ASSESSMENT FOR THAT PAYMEN T BECAUSE OF SECTION 40(B) OF THE ACT EXPRESSLY PROHIBITS SUCH DEDUCTION. 16. THE BASIC PRINCIPLE THAT A FIRM IS A COMPENDIOU S MODE OF DESCRIBING THE PERSONS CONSTITUTING THE FIRM MUST NOT BE OVERLOOKED. IT IS THE INDIVIDU ALS CONSTITUTING THE FIRM WHO ARE ITS PARTNERS. THE PARTNER MAY BE UNDER AN OBLIGATION TO HAND OVER THE MONIES RECEIVED BY HIM TO SOMEBODY ELSE BY VIRTUE OF A SUB- CONTRACT OR ANY OTHER ARRA NGEMENT. THAT WILL NOT CHANGE THE CHARACTER OF THE PAYMENT BY THE FIRM TO ITS PARTNER OR THE STATU S OF THE PARTNER IN THE FIRM. THE FIRM IS NOT ENTITLED TO GET ANY DEDUCTION ON ACCOUNT OF PAYMENT OF COMMISSION TO A PARTNER MERELY BECAUSE THE PARTNER HAS AN OBLIGATION TO SHARE THE MONEY WI TH SOMEBODY ELSE. SO FAR AS THE FIRM WAS CONCERNED, THE COMMISSION WAS PAID TO ONE OF THE PA RTNERS IN HIS PERSONAL CAPACITY. THE PROVISIONS RELATING TO ASSESSMENT OF THE FIRM S HOULD NOT BE CONSTRUED IN A WAY TO DEFEAT ITS OBJECT. SECTION 40(B) FORBIDS DEDUCTION OF ANY AMOU NT PAID BY WAY OF COMMISSION TO A PARTNER. IN THE INSTANT CASE, RASHIKLAL IS A PARTNER OF THE FIRM RASHIKLAL AND COMPANY. THE COMMISSION RECEIVED BY HIM FROM THE PARTNERSHIP FIRM CANNOT BE ALLOWED AS A DEDUCTION FROM THE BUSINESS INCOME OF THE PARTNERSHIP. 17. THE APPEALS, THEREFORE, FAILS AND ARE DISMISSED WITH NO ORDER AS TO COSTS. WE HAVE OBSERVED THAT THE AO HAS NOT MADE ANY INQU IRY , VERIFICATIONS AND INVESTIGATION AS TO WHETHER HUF I S PARTNER OF THE ASSESSEE FIRM OR KARTA IS PARTNER OF THE ASSESSEE F IRM REPRESENTING HUF. THE AO HAS ALLOWED DEDUCTION OF INTEREST EXPENDITU RE OF ` 18,03,077/- PAID TO M/S ASHOK KUMAR FOMRA (HUF) AS REVENUE EXP ENSES ON ADVANCES TO THE TUNE OF ` 1,70,12,818/- APPEARING IN BOOKS OF ACCOUNTS OF THE ASSESSEE HAVING BEEN RECEIVED FROM SAID HUF, WITHOU T GOING INTO ASPECT THAT HUF CANNOT BE PARTNER IN PARTNERSHIP FIRM AS P ER RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF RASHIK LAL & C O.(SUPRA). IT IS NOT INQUIRED , VERIFIED OR INVESTIGATED BY THE AO WHETH ER MR ASHOK KUMAR FOMRA IS PARTNER IN ASSESSEE FIRM IN HIS INDIVIDUAL CAPACITY ALBEIT REPRESENTING HUF OR HUF IS PARTNER IN ASSESSEE FIRM . THIS FACT FINDING HAS ITA NO.1648/CHNY/2019 :- 11 -: TO BE RECORDED BY THE AO TO ADJUDICATE DISPUTE BETW EEN RIVAL PARTIES. KEEPING IN VIEW ENTIRE FACTUAL MATRIX OF THE CASE B EFORE US , IN OUR CONSIDERED VIEW, THE LD.PCIT HAS RIGHTLY INVOKED HI S REVISIONARY POWERS UNDER PROVISIONS OF SEC.263 OF THE 1961 ACT AND RIG HTLY CANCELLED ASSESSMENT ORDER DATED 24.11.2016 PASSED BY THE AO U/S 143(3) BY HOLDING THE SAME TO BE ERRONEOUS SO FAR AS IS PREJU DICIAL TO THE INTEREST OF REVENUE AS THE AO DID NOT MADE ANY INQUIRY ,VERIFI CATIONS AND INVESTIGATION BEFORE ALLOWING INTEREST PAYMENTS PA ID TO HUF AS BUSINESS DEDUCTIONS. THUS, IN OUR CONSIDERED VIEW, THE LD.P CIT HAS RIGHTLY INVOKED EXTRAORDINARY REVISIONARY POWERS AS ARE ENSHRINED I N SECTION 263 OF THE 1961 ACT AS NO INQUIRY , VERIFICATIONS AND IVESTIIG ATIONS WERE MADE BY THE AO BEFORE ALLOWING DEDUCTION OF INTEREST EXPENDITUR E PAYMENTS TO HUF. IT IS NOT BROUGHT ON RECORD BY THE AO WHETHER KARTA IS PARTNER IN HIS INDIVIDUAL CAPACITY ALBEIT REPRESENTING HUF OR INST EAD HUF IS PARTNER IN THE ASSESSEE FIRM DIRECTLY . AS WE HAVE SEEN ABOVE VIDE HONBLE SUPREME COURT JUDGMENT IN RASHIK LAL & COMPANY(SUPRA), IT WILL HAVE SIGNIFICANT BEARING ON ALLOWABILITY OF CLAIM OF AFORESAID EXPEN SES AS BUSINESS DEDUCTION KEEPING IN VIEW PROVISION OF SECTION 40(B ) OF THE 1961 ACT AS WELL WHETHER THE ASSESSEE FIRM LOSES ITS STATUS AS PARTNERSHIP AS RIGHTLY HELD BY LEARNED PCIT. IT IS PERTINENT TO MENTION H ERE THAT AT THIS STAGE THAT SEC.263 OF THE 1961 WAS AMENDED, WHEREIN, EXPL ANATION 2 WAS INSERTED BY FINANCE ACT, 2015, W.E.F. 01.06.2015 A ND IF THE ASSESSMENT ORDER IS PASSED BY THE AO WITHOUT MAKING ANY INQUIR IES OR VERIFICATIONS WHICH SHOULD HAVE BEEN MADE, THE SAID ORDER SHALL B E DEEMED TO BE ITA NO.1648/CHNY/2019 :- 12 -: ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE CALLING FOR REVISIONARY INTERVENTION BY LEARNED PCIT. THUS, IN OUR CONSIDERED VIEW, THE REVISIONARY ORDER DATED 24.11.2016 PASSED BY LD .PCIT U/S 263 OF THE 1961 ACT DESERVES TO BE UPHELD AND THE APPEAL OF TH E ASSESSEE STANDS DISMISSED. THE ASSESSEE FAILS IN ITS APPEAL FILED WITH THE TRIBUNAL. WE ORDER ACCORDINGLY. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 1648/CHNY/2019 FOR AY: 2014-15 STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE 24 TH OCTOBER, 2019, IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' ) ( RAMIT KOCHAR ) /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 24 TH OCTOBER, 2019. TLN . ,'3 43 /COPY TO: 1. + /APPELLANT 4. 5 /CIT 2. ,-+ /RESPONDENT 5. 3 , /DR 3. 5 ( ) /CIT(A) 6. ( /GF