HAMID A MOOCHHALA, MUMBAI V. ACIT 11(2), MUMBAI

ITA 2218/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8166 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 17-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI RAJENDRA SINGH, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 2218/MUM/2010 ASSESSMENT YEAR: 2006-07 HAMID A MOOCHHALA, APPELLANT C/O WADIA GHANDY & CO., N.M. WADIA BLDG., 123, M.G. ROAD, FORT, MUMBAI 400 001. (PAN AAHPM 5681 G) VS. ASST. COMMISSIONER OF INCOME TAX, RESPONDENT AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI 400 020. APPELLANT BY : MR. DEEPAK SHAH RESPONDENT BY : MR. SHRAVAN KUMAR ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- 3, MUMBAI, PASSED ON 22/02/2010 FOR THE ASS ESSMENT YEAR 2006-07 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMI NG DISALLOWANCE OF RS. 3,88,852/- OUT OF EXPENSES OF R S. 3,95,482/- CLAIMED BY YOUR APPELLANT AGAINST HIS INTEREST AND REMUNERATION FROM A PARTNERSHIP FIRM IN WHICH HE WAS A PARTNER. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 14A OF THE ACT, WERE NOT APPLICABLE TO THE CASE OF YOUR APPELLANT. 3. WITHOUT PREJUDICE TO THE FOREGOING, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT NO PART OF THE EXPENSES COULD BE AT TRIBUTED TO THE EARNING OF SHARE OF PROFIT FROM THE PARTNERSHIP FIR M. ITA NO. 2218/M/2010 HAMID V. MOOCHHALA 2 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE U/S 14A COMPUTED WITHOUT CONSIDERING INTEREST FROM THE PARTNERSHIP FIRM AS A PART OF TAXABLE INCOME EARNED FROM FIRM. 5. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE ISSUE REGARDING INTEREST PAID BY FIRM WAS NOT COVERED IN THE GROUNDS OF APPEAL. 6. YOUR APPELLANT PRAYS THAT THE DISALLOWANCE OF RS . 3,88,852/- MADE BY THE LEARNED AO, OUT OF EXPENSES CLAIMED BY YOUR APPELLANT, BE DELETED. 2. BRIEFLY FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CLAIMED RS. 3,51,90,706/- AS EXEMPT INCOME U/S 10(2A) OF THE AC T IN RESPECT OF SHARE OF PROFIT FROM FIRMS M/S WADIA GHANDY & CO. ( MUMBAI) AND M/S WADIA GHANDY & CO. WHERE ASSESSEE WAS A PARTNER. AG AINST THE SAID SHARES, THE ASSESSEE CLAIMED VARIOUS EXPENSES TO TH E TUNE OF RS. 4,03,482/-. THE AO TREATED PROFESSIONAL FEES OF RS. 8,000/- AS ALLOWABLE EXPENDITURE. AS REGARDS INTEREST INCOME O F RS. 8,72,700/-, AO HELD THAT THE SAME WAS ON CAPITAL DEPLOYED BY TH E ASSESSEE AND DID NOT WARRANT ANY EXPENDITURE. AO ALSO OBSERVED T HAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE AGAINST INTEREST AND R EMUNERATION INCOME WHICH WAS INCORRECT AND, THEREFORE, CALCULAT ED DISALLOWANCE U/S 14A AT RS. 3,88,852/-. ON APPEAL, THE CIT(A) CO NFIRMED THE ACTION OF THE AO FOLLOWING THE SPECIAL BENCH TRIBUNAL OF T HE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. & OTHERS. AGGRIE VED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT THE ISSUE UNDER CONSIDERATION IS COVERED BY VA RIOUS DECISIONS OF ITAT INCLUDING THE DECISION IN THE CASE OF SHRI SUD HIR KAPADIA IN ITA NO. 7888/M/03 FOR AY 2000-01 VIDE ORDER DATED 26 TH FEBRUARY, 2007. 4. ON THE OTHER HAND, THE LEARNED DR HAS NOT CONTRO VERTED THE FACTS AVAILABLE ON RECORD. ITA NO. 2218/M/2010 HAMID V. MOOCHHALA 3 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ITAT IN THE CA SE OF SUDHIR KAPADIA (SUPRA) HELD AS UNDER:- 5. WHEN WE EXAMINE THE ISSUE IN THE LIGHT OF THE AB OVE JUDGMENT AND DECISIONS, WE FIGHT THAT THE CLAIM MAD E BY THE ASSESSEE IS ACCEPTABLE IN LAW. THE SUPREME COURT IN THE CASE OF CIT, MADRAS VS. R.M. CHIDAMBARAM PILLAI HAS HELD TH AT SALARY PAID TO A PARTNER RETAINS THE SAME CHARACTER AS INC OME OF THE FIRM. THIS LEADS US TO THE NEXT STEP: I..E THE SHAR E OF PROFITS RECEIVED BY THE PARTNER FROM THE FIRM RETAINS THE S AME CHARACTER OF THE INCOME OF THE FIRM: I.E. THE SHARE INCOME RE TAINS THE CHARACTER OF BUSINESS INCOME. THE SAID BUSINESS INC OME IS EXEMPT FROM THE LEVY OF TAX ONLY IN THE HANDS OF TH E ASSESSEE; BUT IT IS TAXABLE IN THE HANDS OF THE FIRM. THE ASSESSE E PARTNER GETS ITS SHARE OF PROFIT FROM THE FIRM AFTER FIRM HAS BE EN SUBJECTED TO TAX IN ITS HANDS. THEREFORE, IT IS NOT POSSIBLE TO HOLD THE VIEW THAT THE SHARE INCOME IN THE HANDS OF A PARTNER IS ALL T OGETHER TAX FREE; ON THE OTHER HAND THE SHARE IS TAX SUFFERED I NCOME IN THE HANDS OF THE FIRM. THEREFORE, SECT. 14A IS NOT APPL ICABLE IN THAT CASE. THE SHARE INCOME OF THE FIRM IS EXEMPT FROM T HE TAX U/S 10(2A), NOT IN THE ABSOLUTE SENSE. IT IS ONLY TO AV OID DOUBLE TAXATION; ONCE IN THE HANDS OF THE FIRM AND SECONDL Y IN THE HANDS OF THE PARTNER. THEREFORE, WE FIND THAT THE PROVISI ONS OF SECTION 14A WOULD NOT APPLY TO THE ASSESSEE/PARTNER AND IT IS NOT NECESSARY FOR THE ASSESSING AUTHORITY TO DISALLOW T HE PROPORTIONATE EXPENDITURE FROM THE CLAIM OF THE ASS ESSEE. THEREFORE, THE DISALLOWANCE OF RS. 3,09,792/- IS DE LETED AND THE AO IS DIRECTED TO ALLOW RS. 3,95,500/- CLAIMED BY T HE ASSESEE. THIS FINDING IS FORTIFIED BY THE FACT THAT THE ASSE SSEE PARTNER IS NOT ALLOWED TO CLAIM ANY CONVEYANCE EXPENDITURE FRO M THE FIRM AS PROVIDED IN THE PARTNERSHIP DEED. 6. SINCE THE FACTS OF THE CASE ARE IDENTICAL TO THA T OF THE CASE DECIDED BY THE ITAT IN THE CASE OF SUDHIR KAPADIA, WE RESPECTFULLY FOLLOW THE DECISION OF THE ITAT AND, THEREFORE, THE DISALLOWANCE OF RS. 3,88,852/- OUT OF EXPENSES CLAIMED BY THE ASSESSEE IS DELETED. ITA NO. 2218/M/2010 HAMID V. MOOCHHALA 4 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEBRUARY, 2011. SD/- SD/- (RAJENDRA SINGH) (V. DU RGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 25 TH FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, H BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV