The Income tax Officer, Jalandhar V. Smt. Mala Tandon, Jalandhar

ITA 319/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5824 (ITAT-AMRITSAR)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 06-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y K SUD
• Section: 80IB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.L. KARWA, VICE PRESIDENT AND SH. MEHAR SINGH, ACCOUNTANT MEMBER I.T.A. NO.319(ASR)/2010 ASSESSMENT YEAR:2006-07 PAN :ABNPT2401J THE INCOME-TAX OFFICER, VS. SMT. MALA TANDON WARD 1(2), JALANDHAR. W/O SH. ROHIT TANDON, JALANDHAR. (APPELLANT) (RESPONDENT) DEPARTMENT BY:SH. TARSEM LAL, DR ASSESSEE BY: SH. Y.K. SUD, CA ORDER PER MEHAR SINGH, AM, THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTE D AGAINST THE ORDER OF CIT(A), JALANDHAR, DATED 29.04.2010, PASSED UND ER SECTION 250(6) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER REFERRED TO IN S HORT THE ACT) FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), HAS ERRED IN LAW IN DELETING THE ADDITION O F RS.13,78,601/- AND RS.48,000/- MADE ON ACCOUNT OF I NTEREST ON CAPITAL AND REMUNERATION FROM M/S. DYNAMECH. 1.1. WHILE DOING SO, THE LD. CIT(A), FAILED TO APPR ECIATE THAT: I) AO IS ENABLED TO ALTER THE PROFIT OR INCOME DURI NG THE ASSESSMENT PROCEEDINGS. II) IT IS A FACT THAT INTEREST AND REMUNERATION HAD TO BE PROVIDED TO ALL THE PARTNERS AT THE RATE AND AMOUNT 2 OUTLINED IN THE PARTNERSHIP DEED. IF THE CONTESTS O F THE PARTNERSHIP DEED ARE BLUNTLY IGNORED THEN SANCTITY OF THE PARTNERSHIP DEED IS ERODED. NO INTEREST OR REMUNER ATION HAS BEEN RECEIVED BY THE ASSESSEE IN EARLIER YEARS DOES NOT MEAN THAT THE SAME CANNOT BE BROUGHT TO THE TAX DURING THE YEAR UNDER CONSIDERATION. III) INCOME CAN ARISE TO THE ASSESSEE ON RECEIPTS B ASIS OR ON ACCRUAL BASIS. INCOME RECEIVED ON ACCRUAL BASIS IS A DEEMING PROVISION. THEREFORE, AS PER THE PARTNERSHI P DEED THE SAID INTEREST AND REMUNERATION ACCRUED TO THE A SSESSEE DURING THE YEAR UNDER CONSIDERATION. AO WAS RIGHT I N TAXING IT AS INCOME OF THE ASSESSEE FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION. 2. THAT, IT IS PRAYED THAT THE ORDER OF THE CIT(A) BE SET- ASIDE AND THAT OF THE A.O. RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT IN THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD R ECEIVED A SUM OF RS.43,81,102/- AS HER 50% SHARE OF PROFIT IN THE FI RM M/S. DYNAMECH. HOWEVER, THE FIRM HAD NOT PAID ANY INTEREST TO THE PARTNERS THOUGH THE PARTNERSHIP DEED PROVIDED FOR SUCH PAYMENT OF INTER EST @ 18% PER ANNUM. THE AO ALSO NOTICED THAT THE PARTNERSHIP DEED OF M/ S. DYNAMECH PROVIDED FOR PAYMENT OF REMUNERATION OF RS.48,000/- PER ANNU M TO EACH OF THE PARTNERS, BUT NO SUCH REMUNERATION HAD BEEN PAID BY M/S. DYNAMECH. THE AO WAS OF THE OPINION THAT M/S. DYNAMECH HAD NOT PR OVIDED THE INTEREST AND REMUNERATION TO THE PARTNERS SO AS TO CLAIM HI GHER DEDUCTION U/S 80IB ON ITS PROFITS. THE AO GAVE A SHOW CAUSE NOTICE TO THE ASSESSEE. ON CONSIDERING THE REPLY OF THE ASSESSEE IT WAS HELD T HAT THE ASSESSEE HAD INCREASED ITS PROFIT BY NOT DEBITING THE INTEREST A ND REMUNERATION PAID TO THE PARTNERS AND AFTER INVOKING THE PROVISIONS OF SECTI ON 80IA(10) OF THE ACT, THE PROFIT AND GAINS OF THE FIRM HAD BEEN RECOMPUTED FO R THE PURPOSE OF 3 DEDUCTION U/S 80IB OF THE ACT. THE AO, THEREFORE, HELD THAT INTEREST ON CAPITAL AMOUNTING TO RS.13,78,601/- AND REMUNERATIO N OF R.48,000/- WAS THE INCOME OF THE ASSESSEE AND ADDED THE SAME TO HER TO TAL INCOME. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL WITH THE CI T(A), WHO ALLOWED THE APPEAL OF THE ASSESSEE. NOW AGGRIEVED WITH THE ORDE R OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. DR, RELIED ON THE ORDER OF THE ASSESSI NG OFFICER. 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, RELIED ON THE ORDER OF THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE HIM. 6. WE HAVE HEARD BOTH THE PARTIES AND GIVEN OUR THO UGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, EXAMINED THE FACTS OF THE CASE, EVIDENCE AND MATERIAL PLACED ON RECORD AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. A CAREFUL PERUSAL OF THE IMPUGNED APPELLATE ORDER CLEARLY REVEALS THAT THE LD. CIT(A), HAS CONSIDERED AND ADJUDICATED THE ISSUE, IN QUESTION, IN GREATER DETAIL, AFTER APPRECIATION OF THE EVIDENCES AND MATERIAL ON RECORD, AS ALSO THE LEGAL AND FACTUAL POSITION OF THE CASE. NE EDLESS TO SAY THAT THE IMPUGNED APPELLATE ORDER IS WELL REASONED AND BASED ON THE COGENT AND CREDIBLE MATERIAL AND FACTS OF THE CASE. HOWEVER, I T WOULD PERTINENT TO REPRODUCE THE RELEVANT PART OF THE DECISION OF THE CIT(A), FOR THE PURPOSE OF PROPER APPRECIATION OF THE SAME: 3.4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS CARE FULLY. AN IDENTICAL ISSUE HAS BEEN DECIDED IN THE CASE OF ROHIT TANDON , HUSBAND OF THE APPELLANT, THE OTHER PARTNER IN M/S. DYNAMECH HOLDI NG 50% SHARE IN THE PARTNERSHIP FIRM FOR THE ASSESSMENT YEAR 2006-0 7. IN THAT CASE ALSO, THE AO HAD ADDED THE INTEREST PAYABLE ON THE CAPITA L OF SH. ROHIT 4 TANDON AND REMUNERATION PAYABLE TO SH. ROHIT TANDON TO THE TOTAL INCOME OF THE ASSESSEE, I HAVE ADJUDICATED THAT APP EAL VIDE ORDER DATED 14.7.2009 IN APPEAL NO.591/08-09/CIT(A)/JAL AND HAV E DELETED SIMILAR ADDITIONS AS UNDER: 9.5 I HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. CLAUSE 4 AND 5 OF THE PARTNERSHIP DEED PROVIDING FOR INTER EST ON CAPITAL AND SALARY ARE AS UNDER: 4. THE CAPITAL OF THE PARTNERS IS AS PER THEIR RES PECTIVE ACCOUNTS IN THE BOOKS OF THE PARTNERSHIP. THE PART NERS SHALL BE ENTITLED TO INTEREST ON THEIR CAPITAL @ 18 % PER ANNUM OR AT SUCH OTHER RATE OR RATES AS THE PARTNER S MAY AT THE END OF EACH FINANCIAL YEAR MUTUALLY SETTLED SUB JECT TO THE MAXIMUM AMOUNT ADMISSIBLE UNDER THE INCOME-TAX ACT, 1961. 5. BOTH THE PARTNERS SHALL DILIGENTLY ATTEND TO THE BUSINESS OF THE PARTNERSHIP AND CARRY ON THE SAME F OR THEIR GREATEST COMMON ADVANTAGE. BOTH THE WORKING PARTNERS SHALL BE ENTITLED TO A REMUNERATION OF RS. 48,000/- PER ANNUM EACH OR AT SUCH OTHER RATE OR RATES AS TH E PARTNERS MAY AT THE END OF EACH FINANCIAL YEAR, MUT UALLY SETTLE SUBJECT TO THE MAXIMUM AMOUNT ADMISSIBLE UND ER THE INCOME-TAX ACT, 1961. 9.6. THE AFORESAID CLAUSES OF THE PARTNERSHIP DEED ARE CLEARLY ENABLING CLAUSES SINCE THE WORD USED IN BOTH THE CL AUSES ARE THE PARTNERS SHALL BE ENTITLED. THIS SHOWS THAT THE PARTNERS WERE ENTITLED TO GET INTEREST ON THE CAPITAL AND TO DRAW REMUNERATION FOR THEIR SERVICES WITHOUT BINDING THE M TO DO SO. THIS, IN MY OPINION, IS NOT A MANDATORY PROVISION I N THE PARTNERSHIP DEED WHICH WOULD BE WORDED LIKE THE P ARTNERS SHALL BE PROVIDED/GIVEN.. FURTHER, IT IS ALSO MEN TIONED IN BOTH THESE CLAUSES, THAT THE RATE OR RATES OF INTER EST AND THE REMUNERATION WOULD BE MUTUALLY SETTLED BY THE PARTN ERS AT THE END OF EACH FINANCIAL YEAR. NOW, A PARTNERSHIP, BY ITS VERY NAME AND AS PER THE PROVISIONS OF PARTNERSHIP ACT IS BY WILL OF THE PARTNERS. THERE ARE ONLY TWO PARTNERS IN THIS FIRM, BOTH HAVING EQUAL SHARES. THE ACCOUNTS DRAWN UP AT THE END OF T HE YEAR REVEAL THAT NO INTEREST ON THE CAPITAL OR REMUNERAT ION TO THE PARTNERS HAS BEEN PROVIDED IN THE ACCOUNTS OF THE F IRM 5 M/S.DYNAMECH. THIS ACT BY ITSELF SIGNIFIES THAT THE PARTNERS HAVE AGREED NOT TO PROVIDE INTEREST ON THEIR CAPITA L OR TO CHARGE REMUNERATION FOR THEIR SERVICES. IN MY OPINION, THE TERMS OF THE PARTNERSHIP DEED DO NOT SIGNIFY THAT INTEREST ON CA PITAL AND REMUNERATION TO PARTNERS HAD NECESSARILY TO BE PROV IDED IN THE ACCOUNT OF M/S. DYNAMECH.. 9.7. THE AO HAS DRAWN SUPPORT FROM THE PROVISIONS O F SECTION 80IA(10). THIS SUB-SECTION PROVIDES THAT WHERE THE AFFAIRS BETWEEN THE ELIGIBLE BUSINESS AND ANY OTHER PERSON IS SO ARRANGED THAT MORE THAN ORDINARY PROFITS ARISE TO T HE ASSESSEE, THE AO SHALL, IN COMPUTING THE PROFIT AND GAINS OF SUCH AN ELIGIBLE PROFITS FOR THE PURPOSES OF DEDUCTION UNDE R THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY TAK EN TO HAVE BEEN DERIVED THEREFROM. THUS SUB-SECTION HAS BEEN M ADE APPLICABLE TO SECTION 80IB BY VIRTUE OF SUB-SECTIO N (13) OF SECTION 80IB. HOWEVER, THIS SUB-SECTION ONLY ENABLE S, THE AO TO EFFECT THE PROFIT OF THE UNDERTAKING CLAIMING DE DUCTION U/S 80IB, WHICH IS M/S. DYNAMECH IN THIS CASE. THIS DOE S NOT ENABLE THE AO TO ALTER THE PROFITS OR THE INCOME OF THE OTHER PERSON REFERRED TO IN THIS SUB-SECTION. IT IS A FAC T THAT THE ASSESSEE HAS NOT RECEIVED INTEREST AND REMUNERATION FROM M/S. DYNAMECH. AS NOTED EARLIER, THE TERMS OF PARTNERSHI P DEED ARE NOT SO WORDED SO AS TO MAKE PAYMENT OF INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS AS MANDATORY. IT IS ALSO N OT REBUTTED BY THE AO THAT NO INTEREST OR REMUNERATION HAS BEEN RE CEIVED BY THE APPELLANT IN EARLIER YEARS ALSO. THIS INCOME HA S NOT ACCRUED OR ARISEN TO THE ASSESSEE. I, THEREFORE, HOLD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION ON ACCOUNT OF INTE REST ON CAPITAL IN M/S. DYNAMECH AND REMUNERATION RECEIVABLE FROM M /S. DYNAMECH. THIS GROUND OF APPEAL IS ALLOWED. 3.5. FOLLOWING THE DECISION IN THE CASE OF SH. ROHI T TANDON (SUPRA), GROUND NO.3 OF APPEAL IS ALLOWED. 6.1. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIR MITY IN THE FINDINGS OF THE CIT(A), AS THE SAME ARE BASED ON PROPER APPREC IATION OF THE LEGAL AND 6 FACTUAL POSITION OF THE CASE. ACCORDINGLY, THIS APP EAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 14TH JUNE, 2011. SD/- SD/- (H.L. KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 14TH JUNE, 2011 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE: SMT. MALA TANDON W/O SH. ROHIT TANDON , JALANDHAR. 2. THE ITO 1(2), JLR. 3. THE CIT(A),JLR. 4. THE CIT,JLR. 5. THE SR DR TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.