The ITO, Ward-1, Tenali V. M/s Sai Balaji Bar & Restaurant, Tenali

ITA 259/VIZ/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6908 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Question of law; Tax effect
• Section: 15

Judgement Text

ITA NO 259 OF 2010 SAI BALAJI BAR & RESTAURANT TE NALI PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.259/VIZAG/2010 ASSESSMENT YEAR:2006-07 ITO WARD-1, TENALI VS. M/S SAI BALAJI BAR & RESTAURANT, TENALI (APPELLANT) (RESPONDENT) PAN NO:AAIFS 3492 G DEPARTMENT BY: SHRI D.S. SUNDER SINGH, SR.DR ASSESSEE BY: NONE ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 29.01.2010 PASSED BY LEARNED CIT(A), GUNTUR AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. THE NOTICE OF HEARING WAS SERVED TO THE ASSESSEE THROUGH THE DEPARTMENT AND THE SAME WAS AC KNOWLEDGED BY THE ASSESSEE ALSO. STILL THE ASSESSEE DID NOT APPEAR FO R THE HEARING AND HENCE WE PROCEED TO HEAR THE APPEAL EX-PARTE, QUA THE ASS ESSEE. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: (I) THAT THE APPEAL IS FILED IN VIEW OF EXCEPTIONAL TYPE OF CASES NOTIFIED IRRESPECTIVE OF TAX EFFECT LIMITS PRESCRIBED AS PER CBDT CIRCULAR NO.2/2005, DATED 24/10/2005 READ WITH A.P.H.CS DECISION IN CIT V A. RAAJENDRA PRASAD (2008) 299 ITR 227 (AP), SINCE SUBSTANTIAL QUESTION OF LAW OF RECURRING NATURE IN SIMILAR CASES TO THE ASSESSEE INVOLVED FOR CONSIDERATION OF THE HON'BLE ITAT (II) THE CIT (A) ERRED BOTH UNDER LAW AND ON FACTS OF TH E ASSESSEES CASE THAT AFTER 01-4-1993, THE APEX COUR TS DECISION IN CIT V RANGILA RAM 254 ITR 230 IS NOT APPLICABLE. (III) THE CIT (A) ERRED UNDER LAW THAT THE CONCEPT OF FIR MS DEFINITION UNDER SECTION 2(23) OF THE IT ACT, 1961 DETERMINING THE LEGAL AND ILLEGAL FIRM AFTER 1-4-19 93 HAS NO SIGNIFICANCE. ITA NO 259 OF 2010 SAI BALAJI BAR & RESTAURANT TE NALI PAGE 2 OF 4 (IV) THE CIT (A) ERRED IN PASSING ORDER TO ALLOW THE INT EREST AND REMUNERATION TO PARTNERS OF THE FIRM IN SPITE O F THE AO'S FINDING THAT THE STATUS OF THE FIRM IS FIRM B UT NOT TREATED AS FIRM. (V) THE CIT (A) GUNTUR ERRED IN HOLDING THE ASSESSEES STATUS AS PARTNERSHIP FIRM LEGALLY VALID. (VI) ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING. THE SHORT ISSUE IS WHETHER THE LEARNED CIT (A) IS J USTIFIED IN HOLDING THAT THE ASSESSEE IS TO BE TREATED AS PARTNERSHIP FIRM AND CONSEQUENTLY THE ASSESSEES CLAIM TOWARDS INTEREST AND REMUNERATION PAYABLE TO THE PARTNERS ARE TO BE ALLOWED. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE APPELLANT IS ENGAGED IN THE PURCHASE AND SALE OF LIQUOR AND HAD FILED ITS RETURN IN THE STATUS OF FIRM, COMPRISING OF SEVEN PARTNERS. THE O FFICIAL LIQUOR LICENSE HOLDER WAS ONE OF THE PARTNERS OF THE FIRM. THE ASS ESSING OFFICER FOUND THAT APART FROM RUNNING A BAR, THE APPELLANT CARRIED ON NO OTHER BUSINESS ACTIVITY, ALTHOUGH IT WAS TERMED AS A BAR & RESTAU RANT. THE ASSESSING OFFICER HELD THAT THE PROFITS OF THE APPELLANT WERE THEREFORE GENERATED ONLY OUT OF PURCHASE AND SALE OF LIQUOR, THE LICENSE FOR WHICH WAS HELD BY AN INDIVIDUAL PARTNER AND WHICH WAS NON-TRANSFERABLE A S PER THE EXCISE RULES. THE ASSESSING OFFICER RELIED ON THE SUPREME COURT D ECISION IN THE CASE OF M/S CIT VS. RANGILA RAM & OTHERS (254 ITR 230) TO HOLD THAT SINCE THE LIQUOR LICENSE WAS NOT TRANSFERABLE, A FIRM CARRYIN G ON SUCH ACTIVITY WAS DOING SO WITHOUT A VALID LICENSE, AND COULD THEREFO RE NOT BE REGISTERED. THIS DECISION WAS RENDERED PRIOR TO THE AMENDMENT MADE I N SEC.184/185 OF THE ACT VIDE THE FINANCE ACT, 1992. HOWEVER, THE ASSESS ING OFFICER HELD THAT THE DECISION WAS STILL VALID FOR THE POST-AMENDMENT SCE NARIO. HE HELD THAT SINCE THE PARTNERSHIP WAS CONSTITUTED IN DEFIANCE OF ONE OF THE CONDITIONS LAID DOWN BY THE LICENSING AUTHORITY, THE CONSTITUTION O F THE FIRM ITSELF BECOMES NULL AND VOID, THEREBY MAKING THE INSTRUMENT OF PAR TNERSHIP A VOID ONE. HE THEREFORE, DISALLOWED THE APPELLANTS CLAIM TO INTE REST OF RS.1,78,330/- ON PARTNERS CAPITAL AND REMUNERATION OF RS.1,00,000/- PAID TO ITS PARTNERS. ITA NO 259 OF 2010 SAI BALAJI BAR & RESTAURANT TE NALI PAGE 3 OF 4 4. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE LEARNED CIT (A) AND THE FIRST APPELLATE AUTHORITY, BY FOLLOWING THE DECISION DATED 10.07.2006 OF ITAT VIZAG BENCH (SMC) IN THE CASE OF ITO VS. SRI SAI WINES, VIJAYAWADA IN ITA NO.139/VIZAG/2000 FOR THE ASSESSMENT YEAR 2000-01 ALLOWED THE APPEAL OF THE ASSESSEE BY HOLD ING THAT THE ASSESSEE IS TO BE ASSESSED UNDER THE STATUS OF PARTNERSHIP FIR M AND THE INTEREST AND REMUNERATION PAYABLE TO THE PARTNERS ARE TO BE ALLO WED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRE SENTATIVE AND ALSO PERUSED THE RECORD. IT WAS BROUGHT TO OUR NOTICE TH AT THE HON'BLE JURISDICTIONAL ANDHRA PRADESH HIGH COURT, VIDE ITS ORDER DATED 09-09-2010 IN THE CASE OF CIT VS. M/S SWARNA BAR RESTAURANT AND O THERS HAVE SET ASIDE THE ORDERS PASSED BY THE TRIBUNAL IN HOLDING THAT T HE ASSESSEES THEREIN WERE ENTITLED TO BE ASSESSED AS PARTNERSHIP FIRMS A ND THE CONSEQUENTIAL BENEFITS OF PAYMENT OF SALARIES, INTEREST ON CAPITA L OF PARTNERS ETC. ARE TO BE ALLOWED. THE RELEVANT OBSERVATIONS OF HON'BLE HIGH COURT ARE EXTRACTED BELOW: IT IS EVIDENT FROM THE CBDT CIRCULAR NO.636 DATED 31.08.1992 THAT THE PURPOSE, FOR WHICH SECTIONS 184 AND 185 OF THE INCOME TAX ACT WERE AMENDED BY FINANCE ACT 18 OF 1992, IS MAINLY TO AVOID DOUBLE TAXATION ONCE ON TH E FIRM AND AGAIN ON EACH OF THE PARTNERS; TO DO AWAY WITH THE DISTINCTION BETWEEN A REGISTERED AND AN UNREGISTERED PARTNERSHI P; AND TO, HENCEFORTH, TAX THE PARTNERSHIP FIRMS AS A SEPA RATE ENTITY. THE POWER OF THE ASSESSING AUTHORITY TO ASCERTAIN, WHETHER OR NOT THE PARTNERSHIP FIRM HAS BEEN CONSTITUTED IN AC CORDANCE WITH LAW, HAS NOT BEEN TAKEN AWAY, AND THE POWER WH ICH ENURED IN THE ASSESSING AUTHORITY BEFORE AMENDMENT REMAINS UNCHANGED EVEN AFTER THE AMENDMENT OF SECTIONS 184 AND 185 OF THE INCOME TAX ACT, 1961 BY FINANCE ACT 18 O F 1992. THE TRIBUNAL ERRED IN HOLDING THAT, AFTER THE AMEND MENT, THE ASSESSING AUTHORITY NO LONGER HAD THE POWER TO ENQU IRE INTO THE CONSTITUTION OF THE PARTNERSHIP FIRM. AS NOTED HEREINABOVE, SECTION 15 OF THE A.P.EXCISE ACT PROHIBITS ANY PERSON FROM SELLING OR PURCHASING INT OXICATING LIQUOR EXCEPT IN ACCORDANCE WITH THE TERMS AND COND ITIONS OF A LICENSE GRANTED IN THEIR FAVOUR. ADMITTEDLY, A LI CENSE WAS GRANTED ONLY IN FAVOUR AN INDIVIDUAL AND IT IS ONLY HE WHO IS ENTITLED TO CARRY ON BUSINESS IN THE PURCHASE AND S ALE OF ITA NO 259 OF 2010 SAI BALAJI BAR & RESTAURANT TE NALI PAGE 4 OF 4 INTOXICATING LIQUOR AND, AS PROVIDED FOR IN RULE 39 , NO PARTNERSHIP FIRM CAN CARRY ON SUCH BUSINESS SAVE WI TH THE PRIOR PERMISSION OF THE COMMISSIONER OF PROHIBITION AND EXCISE. IT MATERS LITTLE THAT THE PARTNERSHIP FIRM WAS CONSTITUTED PRIOR TO A LICENSE BEING GRANTED, IN FO RM IL 24 IN FAVOUR OF ONE OF THE PARTNERS, SUBSEQUENT TO THE GR ANT OF LICENSE THERE HAS BEEN NO CHANGE IN THE CONSTITUTIO N OF THE PARTNERSHIP FIRM; THE PARTNERSHIP DEED AUTHORISES A NY ONE OF THE PARTNERS TO OBTAIN A LICENSE; AND REQUIRES SUCH A LICENSE TO BE USED BY THE PARTNERSHIP FIRM TO CARRY ON BUSI NESS IN PURCHASE AND SALE OF INTOXICATING LIQUOR. THE ORDERS OF THE TRIBUNAL, ASSAILED BEFORE US IN T HIS BATCH OF APPEALS, ARE SET ASIDE AND THE I.T.T.AS ARE, ACCORD INGLY ALLOWED. 6. BY FOLLOWING THE DECISION OF HON'BLE JURISDI CTIONAL HIGH COURT, WE SET ASIDE THE ORDER OF LEARNED CIT(A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 02-06-2011 COPY TO 1 THE ITO WARD-1, TENALI 2 M/S SAI BALAJI BAR & RESTAURANT, 16-42-7 DR. KOMM URU VULAKKI ROAD, SALIPET, TENALI 3 4. THE CIT GUNTUR THE CIT(A), GUTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM