M/s. Manubhai Narottamdas & CO., Ahmedabad V. The Income Tax Officer, Ward-5(2)(5), Ahmedabad

ITA 2543/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1052 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 17-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P PATHAK
• Assessee Lawyers: M K PATEL
• Section: 40(b)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 2543/AHD/2017 / ASSESSMENT YEAR: 2014-15 M/S.MANUBHAI NAROTTAMDAS & CO. 201, PARISHRAM BUILDING MITHAKHALI SIX ROADS AHMEDABAD. PAN : AACFM 5147 Q VS ITO, WARD-5(2)(5) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI M.K. PATEL, ADVOCATE REVENUE BY : SHRI O.P. PATHAK, SR.DR / DATE OF HEARING : 18/03/2019 /DATE OF PRONOUNCEMENT : 19 / 03/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)- 5, AHMEDABAD DATED 15.9.2017 PASSED FOR THE ASSTT.YEAR 2014-15. 2. SOLE ISSUE INVOLVED IN THE APPEAL IS WHETHER REM UNERATION PAID TO WORKING PARTNER, SHRI SHRIKANT N. JHAVERI HUF AMOUNT ING TO RS.2,03,585/- IS ADMISSIBLE OR NOT UNDER SECTION 40 (B) OF THE INCOME TAX ACT. 3. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. IT HAS BEEN DEMONSTR ATED BEFORE US THAT ITA NO.2546/AHD/2017 - 2 - IDENTICAL DISALLOWANCE WAS MADE IN THE CASE OF THE ASSESSEE FOR THE ASSTT.YEAR 2013-14 AND DISPUTE TRAVELLED UPTO THE T RIBUNAL, AND THE ITAT IN ITA NO.2628/AHD/2016 HAS ALLOWED APPEAL OF THE ASSESSEE AND HELD THAT REMUNERATION PAID TO HUF PARTNER WOULD BE ADMISSIBLE AS DEDUCTION TO THE ASSESSEE. THE DISCUSSION MADE BY THE TRIBUNAL READS AS UNDER: 3. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT EMERGES OUT FROM T HE RECORD THAT THE ASSESSEE IS A PARTNERSHIP FIRM. IT HAS FILED ITS RETURN OF INCOME ELECTRONICALLY ON 18.09.2013 DECLARING TOTAL INCOME AT RS.1,15,700/-, THE ASSESSES HAS CLAIMED DEDUCTION OF RS.1,99,022/- PAI D TO SHRIKANT N. JAVERI HUF. IT WAS CONTENDED THAT SHRIKANT N. JAVERI WAS A KARTA REPRESENTING THEIR RESPECTIVE HUF AND HE WAS A WORKING PARTNER. THE PAYMENT MADE TO HIM IN ACCORDANCE WITH THE PARTNERSHIP DEED AND THE AMOUNTS ARE PAID AS PER THE PROVISION MADE IN THE PARTNER DEED WHICH IS AS PER THE SECTION 40(B) OF THE INCOME TAX ACT. THE LD. ASSESSING OFFIC ER DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND OBSERVE THAT REMUNERATIO N PAID TO HUF IS NOT ALLOWABLE EXPENSES, HE DISALLOWED THE CLAIM OF THE ASSESSEE. 4. THE APPEAL TO THE CIT(A) DID NOT BRING ANY R ELIEF TO THE ASSESSEE. 5. A PERUSAL OF THE RECORD WOULD INDICATE THAT ASS ESSEE HAS MADE REFERENCE OF SEVEN DECISIONS BEFORE THE LEARNED REV ENUE AUTHORITIES BELOW. THE SUBMISSIONS OF THE ASSESSEE HAS BEEN NOT ICED BY THE CIT AS UNDER: 'THE APPELLANT FIRM FILED ITS RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.1,15,700/- IN THE COMPUTATION OF TOTAL INCOME, TOTAL REMUNERATION OF RS.3,98,045/- PAID TO WORKING PARTN ERS WAS CLAIMED AS DEDUCTION WHICH INCLUDED REMUNERATION OF RS.1,99,022/- PAID TO WORKING PARTNER SHRIKANT N JH AVERI WHO IS A PARTNER IN THE FIRM AS KARTA AND MANAGER REPRESENTI NG HIS HINDU UNDIVIDED FAMILY. IN THE ASSESSMENT PROCEEDINGS, TH E LEARNED OFFICER HAS DISALLOWED THE REMUNERATION ON IRRELEVA NT GROUNDS, THOUGH THE QUESTION INVOLVED WAS WHETHER REMUNERATI ON PAID TO WORKING PARTNER WHO IS A PARTNER AS NOMINEE OF HIS HUF IS ALLOWABLE U/S.40(B) OF THE ACT IN THE ASSESSMENT OF THE FIRM. ITA NO.2546/AHD/2017 - 3 - THE LAW ON THIS POINT IS WELL SETTLED BY THE DECISI ON OF THE HONORABLE SUPREME COURT AND FOLLOWED BY HIGH COURT AND TRIBUNALS THAT THE HUF DOES NOT HAVE THE CONTRACTUA L CAPACITY AND THEREFORE, IT IS ONLY THE KARTA OF AN HUF WHO HAS T HE CONTRACTUAL CAPACITY CAN ENTER INTO AN AGREEMENT FORMING THE PA RTNERSHIP ACT. THE PARTNERSHIP ACT DOES NOT RECOGNIZE THE REPRESEN TATIVE CAPACITY OF THE PARTNERS. SO FAR AS THE PARTNERSHIP IS CONCE RNED, IT IS ONLY THE INDIVIDUALS WHO HAVE ENTERED INTO THE AGREEMENT OF PARTNERSHIP ARE PARTNERS AND THEREFORE -WHATEVER REMUNERATION IS PA ID, IT IS PAID INDIVIDUALLY TO PARTNERS AND NOT TO THE ENTITY WHIC H THEY REPRESENT IN THE CASE OF THE APPELLANT FIRM, AS SHRI SHRIKANT N JHAVERI WHO IS ACTIVELY ENGAGED IN THE CONDUCT OF BUSINESS AND THE REMUNERATION PAID TO HIM IS AUTHORIZED BY THE PARTNERSHIP DEED A ND IS IN ACCORDANCE WITH AND WITHIN THE LIMIT PRESCRIBED U/S . 40(B), THE DISALLOWANCE OF RS.1,99,022/- MADE BY THE ASSESSIN G OFFICER IS HAD IN LAW AND REQUIRES TO BE STRUCK DOWN. IN SUPPORT, THE FOLLOWING JUDGMENTS ARE RELIED UPON :- I) RASIKLAL AND CO, VS. CIT, 229 ITR 458(SC) II) COMMISSIONER OF INCOME FAX VS GOLDEN TOUCH, 263 ITR PG 261 III) CTT V/S. JUGAL KISHORE & SONS 347 ITR PG. 0325 IV) ACIT VS GIRIRAJ MINES, ITAT, AHMEDABAD 'A' BE NCH, (2005) / SOT 279 (AHD) V) SMRUTI TRADING CO. VS.ITO,(2001) 70 TTJ (MUM) U4 VI) VANSON KIDS STUFF VS. ATIT, 79 TTJ (DEL) 155 VII) ACIT VS. LAXMI SAILAJI TRADERS, (2005) I SOT 6 08 (HYD) THE HEAD NOTES OF THE ABOVE REFERRED JUDGMENTS ARE ENCLOSED. IN VIEW OF THE ABOVE SUBMISSIONS, YOUR HONOR IS REQ UESTED TO DELETE THE ADDITION OF RS. 1,99,022/- MADE IN THE TOTAL IN COME. ' 6. I FIND THAT IN THE CASE OF CIT VS. JUGAL KISHORE AND SONS HON'BLE ALLAHABAD HIGH COURT HAS CONSIDERED AN IDENTICAL IS SUE THE QUESTION BEFORE THE HON'BLE COURT WAS:- '1. WHETHER THE LEARNED INCOME-TAX APPELLATE TRIBUN AL HAS ERRED IN LAW AND IN FACTS IN IGNORING THE CONATIONS LAID DOWN IN THE PROVISIONS OF SECTION 40(B)(I) OF THE INCOME-TAX ACT, 1961, AND ITA NO.2546/AHD/2017 - 4 - EXPLANATION 4 THERETO WITH REGARD TO THE DISALLOWAN CE OF SALARY PAID TO PARTNERS IN THE HINDU UNDIVIDED FAMILY CAPA CITY.' 7. THE HON'BLE COURT HAS REPLIED THIS QUESTION BY OBSERVING AS UNDER: 17. THUS, WE HOLD THAT THE JUDGMENTS OF THE COMMIS SIONER OF (APPEALS) AND THE INCOME-TAX APPELLATE TRIBUNAL LAY DOWN THE CORRECT LAW. ONCE IT IS HELD THAT A HINDU UNDIVIDED FAMILY CANNOT BE A PARTNER BUT THE KARTA WHICH HE JOINS, IS FOR A LL PURPOSES AN INDIVIDUAL. AS HELD IN THE CASE OF RASHIK LAL AND CO. (1998) 229 ITR 458 (SC), A PARTNER CANNOT BE HEARD TO SAY THAT HE HAS RECEIVED THE COMMISSION AS A PARTNER OF THE FIRM BUT IN A DI FFERENT CAPACITY. THE INCOME, RECEIVED BY A PARTNER IN A FIRM, EVEN T HOUGH AS A KARTA OF A HINDU UNDIVIDED FAMILY, IS AS AN INDIVIDUAL AN D AS A WORKING PARTNER, THEN THE DEDUCTION IS ALLOWABLE. 18. FOR THE AFORESAID REASONS, WE FIND NO MERIT IN THESE APPEALS FILED BY THE REVENUE AND THEY ARE, ACCORDINGLY, DIS MISSED. 8. THUS, A PERUSAL OF THE JUDGMENT WOULD INDICATE TH AT SALARY PAID TO KARTA OF A HUF WHO IS A WORKING PARTNER IN A FIRM W OULD BE ADMISSIBLE AS A DEDUCTION U/S.40(B) OF THE INCOME TAX ACT. I A LLOW THE APPEAL OF THE ASSESSEE AND DELETE THE DISALLOWANCE. 5. SINCE THERE IS NO DISPARITY ON THE FACTS, THEREF ORE, RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT, WE ALLOW THE APPEA L OF THE ASSESSEE AND DELETE THE DISALLOWANCE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH, 2019. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 19/03/2019