ITO 19(3)(1), MUMBAI V. BANDRA ICE & COLD STORAGE CO., MUMBAI

ITA 3263/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0996 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Surrender of tenancy right

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NOS.3263 & 3431/MUM/2012 ASSESSMENT YEARS-2007-08 & 2008-09 INCOME TAX OFFICER-19(3)(1), ROOM NO.307, 3 RD FLOOR, PIRAMAL CHAMBERS, PAREL, LALBAUG, MUMBAI-400012 / VS. M/S BANDRA ICE & COLD STORAGE CO, C/O-RAGI ICE & COLD STORAGE, GODOWN NO.3, 166, SASOON DOCK, MUMBAI-400005 ( / REVENUE) ( !' # /ASSESSEE) P.A. NO. AAAFB4888K / REVENUE BY DR. YOGESH KAMAT-DR !' # / ASSESSEE BY SHRI PRAKASH PANDIT $ % & # ' / DATE OF HEARING : 02/07/2015 & # ' / DATE OF ORDER: 04/08/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) BOTH THESE APPEAL ARE BY THE REVENUE AGAINST THE ORDERS DATED 28/02/2012 OF THE LD. FIRST APPELLATE M/S BANDRA ICE & COLD STORAGE CO. ITA NO.3263 & 3431/MUM/2012 2 AUTHORITY, MUMBAI, FOR A.Y. 2007-08 AND 2008-09 RESPECTIVELY. 2. FIRST, WE SHALL TAKE UP APPEAL IN ITA NO.3263/MUM/2012 (A.Y. 2007-08), WHEREIN, THE GROUN D RAISED BY THE REVENUE, PERTAINS TO DELETING THE DISALLOWANCE OF REMUNERATION TO THE PARTNERS EXCLUD ING THE SUM OF RS.21,61,005/- FROM THE BOOK PROFIT AND FURT HER FAILED TO APPRECIATE THE WORD BUSINESS DEFINED IN S ECTION 2(13) OF THE ACT AND ALSO RESTRICTIONS IMPOSED U/S 40(B)(V) OF THE ACT. 2.1. DURING HEARING OF THIS APPEAL, THE LD. DR, DR . YOGESH KAMAT, CONTENDED THAT THE LD. COMMISSIONER O F INCOME TAX (APPEALS) WHILE GRANTING RELIEF TO THE A SSESSEE IGNORED THE FACT THAT THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE IS MANUFACTURING AND SALE OF ICE AND ALSO RUNNING OF COLD STORAGE AND NOT THE BUSINESS OF MONEY LANDI NG SO AS TO TREAT THE INTEREST INCOME AS BUSINESS INCOME. IT WAS ALSO CONTENDED THAT SECTION 2(13) WAS ALSO NOT CONS IDERED WHILE ADJUDICATED UPON THE DEFINITION OF BUSINESS A ND ALSO THE RESTRICTIONS IMPOSED U/S 40(B)(V) OF THE ACT. ON THE OTHER HAND, SHRI PRAKASH PANDIT, LD. COUNSEL FOR TH E ASSESSEE, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY CONTENDING THAT THE ISSUE IS COVE RED BY THE DECISION OF THE TRIBUNAL FROM JAIPUR BENCH IN S .P. EQUIPMENT AND SERVICES VS ACIT (ITA NO.464/JP/2007 : (2010) 128 TTJ (JP) 68 ORDER DATED 30/09/2009. RELI ANCE WAS ALSO PLACED UPON THE DECISION FROM CALCUTTA HIG H M/S BANDRA ICE & COLD STORAGE CO. ITA NO.3263 & 3431/MUM/2012 3 COURT IN MD. SERAJUDDIAN & BROTHERS VS CIT ORDER D ATED 17/05/2012, SURESH A. SHROF & COMPANY VS JCIT (20 13) 140 ITD 1 FROM THE MUMBAI BENCH OF THE TRIBUNAL AND ALLEN CARRIER INSTITUTION VS ADDL. CIT (2011) 141 T TJ (JP) 492. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, THAT THE ASSESSEE IS PARTNERSHIP FIRM ENGAGE D IN THE BUSINESS OF SALE OF ICE AND ALSO RUNNING A COLD STO RAGE. THE ASSESSEE DECLARED ITS INCOME FROM BUSINESS. THE AS SESSEE ALSO RECEIVED AN AMOUNT OF RS.75 LAKHS FROM THE TEN T BUSINESS OUT OF THE TOTAL OF RS.4.50 CRORES TOWARDS SURRENDER OF TENANCY RIGHT. THE TENANCY RIGHT WAS TO BE SURRENDER TO M/S PRIDE DEVELOPERS PVT. LTD. FOR A CONSIDERATION OF RS.4.50 CRORES. FURTHER, THE ASSE SSING OFFICER, FROM THE PROFIT & LOSS ACCOUNT OF THE ASSE SSEE, OBSERVED THAT THE ASSESSEE CREDITED AN AMOUNT OF RS.4,71,663/- UNDER THE HEAD INTEREST ON FD WITH BA NK OF INDIA, RS.16,80,142/- AS INTEREST FRO PRIDE DEVELOP ERS PVT. LTD., INTEREST OF RS.9,000/- FROM FDS FROM RELIANCE . THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE INTEREST ON FDS WITH BANK OF INDIA, FROM PRIDE DEVELOPERS AN D RELAINCE MAY NOT BE ASSESSED AS INCOME FROM OTHER SOURCES. THE ASSESSEE OBJECTED VIDE REPLY DATED 08/12/2009 BY CLAIMING THAT THE MAIN BUSINESS ACTIV ITY OF THE ASSESSEE IS MANUFACTURING AND SALE OF ICE AND R UNNING OR COLD STORAGE. THE ASSESSING OFFICER REWORKED TH E BOOK M/S BANDRA ICE & COLD STORAGE CO. ITA NO.3263 & 3431/MUM/2012 4 PROFIT OF THE ASSESSEE BY HOLDING THAT THE INCOME W AS FROM OTHER SOURCES. 2.3. THE AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY, WH EREIN, VARIOUS CASE LAWS WERE DISCUSSED INCLUDING THE CASE S CITED BEFORE US AND FINALLY DIRECTED THE ASSESSING OFFICE R TO EXCLUDE THE SUM OF RS.21,61,005/- TO EXCLUDE FORM T HE BOOK PROFIT AND THEN WORKED OUT THE REMUNERATION TO THE PARTNERS. 2.4. THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEF ORE THIS TRIBUNAL. IF THE OBSERVATION MADE IN THE ASSE SSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME , CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RES PECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT BROADLY THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) OBSERVED THAT THE INTEREST INCOME FROM VARIOUS PERSONS/COMPANIES IS INCOME FROM OTHER SOURCES, WHE REAS, THE CLAIM OF THE ASSESSEE IS THAT SINCE THE ASSESSE E IS IN THE BUSINESS OF MANUFACTURING AND SALE OF ICE AND A LSO RUNNING OF COLD STORAGE, SO IT IS A BUSINESS INCOME . THE ASSESSING OFFICER HELD THAT SUCH INTEREST INCOME AR E TO BE DEDUCTED FROM THE BOOK PROFIT, AS COMPUTED BY THE ASSESSEE AND THEN THE RESULTANT FIGURE OF REMUNERAT ION IS TO BE WORKED OUT FOR THE PARTNERS. BY DOING SO THE ASSESSING OFFICER FOUND THAT THE REMUNERATION PAYAB LE TO THE PARTNERS WORKS OUT TO RS.2,78,279/- AS AGAINST M/S BANDRA ICE & COLD STORAGE CO. ITA NO.3263 & 3431/MUM/2012 5 RS.11,33,542/-, WORKED OUT BY THE ASSESSEE AND FURT HER THE PROFIT HAS TO BE COMPUTED IN THE MANNER LAID DO WN UNDER CHAPTER IV D. WE ARE REPRODUCING HEREUNDER A DECISION FROM THE COORDINATE BENCH FROM RAJKOT TRIB UNAL IN ACIT VS SETH BROTHERS (2006) 99 TTJ/RAJKOT 189. 'SEC. 40(B) CONTAINS PROVISIONS WITH REGARD TO REST RICTING THE ALLOWANCE OF DEDUCTION ON ACCOUNT OF REMUNERATION T O PARTNERS. THE SECTION ADOPTS THE NET PROFIT AS SHOWN IN THE P &L A/C. OF THE FIRM AS THE BASIS FOR ALLOWING SUCH DEDUCTION. ALLO WABILITY OF DEDUCTION OF REMUNERATION IS DEPENDENT ON PROVISION S IN THE PARTNERSHIP DEED AS WELL AS ON THE NET PROFIT AS SH OWN IN THE P&L AI C. IT IS IN CONSONANCE WITH THE PROVISIONS OF TH E IT ACT AS WELL AS THE PROVISIONS OF THE INDIAN PARTNERSHIP ACT THAT F OR ASSESSMENT OF INCOME FROM OTHER SOURCES WHICH ARE ASSESSABLE U NDER OTHER HEADS ARE ALSO EMBEDDED IN SUCH (NET PROFIT'. IN OR DER TO ENSURE THAT THE FIGURE OF (NET PROFIT' IS NOT ARTIFICIALLY REDUCED BY CLAIMING DEDUCTION FAR IN EXCESS OF LIMITS PERMISSI BLE U/ S. 30 TO 43D, S. 40(B) REQUIRES THAT (NET PROFIT' IS WORKED OUT IN ACCORDANCE WITH CHAPTER IVD. THE WORDS (BOOK PROFIT ' HAVE BEEN DEFINED FOR THIS PURPOSE IN EXPLN. 3 AS (NET PROFIT ' AS SHOWN IN THE P&L A/C. FOR, THE RELEVANT PREVIOUS YEAR. THIS BRIN GS NOT ONLY THE INCOME COMPUTED UNDER THE HEAD (BUSINESS' BUT THE ( NET PROFIT' AS SHOWN IN THE P&L A/C. TO THE CENTRE STAGE OF S. 40( B). THIS DEFINITION IS, NO DOUBT, FURTHER QUALIFIED BY THE W ORDS 'COMPUTED IN THE MANNER LAD DOWN IN CHAPTER IV-D'. THESE QUAL IFYING WORDS HAVE BEEN ADVISEDLY USED IN ORDER TO ENSURE THAT IN ADMISSIBLE OR EXCESSIVE CLAIMS RELATING TO INCOME TO BE COMPUTED UNDER THE HEAD (BUSINESS' WHICH ARE EMBEDDED IN THE BOOK PROF IT ARE EXCLUDED FROM THE BASE FOR LIMITING REMUNERATION TO PARTNERS. PRIMA FACIE, UNDER S. 40(B) THE LEGISLATURE DID NOT AUTHORIZE M/S BANDRA ICE & COLD STORAGE CO. ITA NO.3263 & 3431/MUM/2012 6 EXCLUSION OF NON-BUSINESS RECEIPTS AND EXPENDITURE RECORDED IN THE P&L A/C. THE LEGISLATURE KNEW THAT IN THE SCHEM E OF THE IT ACT, THE WHOLE INCOME OF THE FIRM UNDER DIFFERENT H EADS IS LIABLE TO BE ASSESSED IN THE HANDS OF THE FIRM AND THAT REMUN ERATION TO PARTNERS DEBITED TO P&L AI C. CANNOT BE BROKEN DOWN INTO DIFFERENT COMPONENTS, TO BE ALLOCATED TO THE INCOME COMPUTED UNDER DIFFERENT HEADS. SUCH EXERCISE FOR BREAKING D OWN REMUNERATION TO PARTNER WITH RESPECT TO DIFFERENT I NCOME EARNED BY THE PARTNERSHIP FIRM HAS NOT BEEN SPELT OUT ANYW HERE IN THE STATUTE. THERE IS ALSO NO DISPUTE TO THE LEGAL POSI TION THAT WHATEVER INCOME IS RECEIVED BY THE PARTNER FROM THE FIRM IN THE NAME OF INTEREST, SALARY, BONUS, COMMISSION OR REMU NERATION BY WHATEVER NAME CALLED IS CHARGEABLE TO INCOME-TAX UN DER THE LEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION' U/ S. 28(V). SUCH REMUNERATION RECEIVED BY PARTNER IS NEITHER EXEMPT NOR ENTITLED TO ANY KIND OF DEDUCTION WHILE COMPUTING TOTAL INCO ME OF THE PARTNER IN HIS INDIVIDUAL HANDS. SUCH REMUNERATION IS ALLOWED TO THE PARTNER FOR ACTIVELY PARTICIPATING IN THE CONDU CT OF FIRM'S BUSINESS AND THEREBY PUTTING THE CAPITAL AND OTHER FUNDS OF FIRM FOR COMMERCIAL EXPLOITATION. THE PROFIT EARNED BY F IRM THROUGH SUCH COMMERCIAL EXPLOITATION OF ITS RESOURCES IS CR EDITED TO THE P&L AI C. AND PARTNER IS MADE ENTITLED TO REMUNERAT ION AS PER THE CLEAR STIPULATIONS IN THE PARTNERSHIP DEED. IN VIEW OF THE ABOVE DISCUSSION AND KEEPING TRI VIEW THE LEGISLATIVE INT ENT FOR PROVIDING REMUNERATION TO ACTIVE PARTNERS WHO HAVE CONTRIBUTED THEIR EFFORTS IN EARNING DIFFERENT INCOME CREDITED IN THE P&L A/C. OF THE FIRM, THE NATURE OF INCOME EMBEDDED IN THE N ET PROFIT AS APPEARING IN THE P&L AI C. IN THE INSTANT CASE, WHI CH ARE AS PER OBJECT CLAUSE OF THE PARTNERSHIP DEED ARE ENTITLED TO BE TAKEN INTO CONSIDERATION FOR ALLOWING DEDUCTION ON ACCOUNT OF REMUNERATION M/S BANDRA ICE & COLD STORAGE CO. ITA NO.3263 & 3431/MUM/2012 7 TO PARTNERS WITHOUT EXCLUDING INTEREST INCOME ON DE POSIT FROM BANK, WHICH HAS FORMED PART OF THE BOOK PROFIT. ' SIMILARLY, IN ALLEN CAREER INSTITUTION VS ADDL.CIT, THE JAIPUR BENCH OF THE TRIBUNAL HELD THAT BOOK PROFIT MEANS NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT INCLUD ING THE INTEREST ON BANK FDS ETC- INTEREST INCOME CANNOT BE EXCLUDED WHILE COMPUTING BOOK PROFIT. THE RATIO LA ID DOWN IN DEEPA AGRO INDUSTRIES VS ITO THE BANGALORE BENCH OF THE TRIBUNAL EVEN HELD THAT CASH CREDIT OF THE APPELLAN T WERE FORMING PART OF BOOK PROFIT. IN VIEW OF THE ABOVE, AND JUDICIAL PRONOUNCEMENT RELIED UPON BY THE ASSESSEE BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS WEL L AS BEFORE US, WE FIND NO INFIRMITY IN THE IMPUGNED ORD ER, IT IS AFFIRMED. 3. NOW, WE SHALL TAKE UP ITA NO.3431/M/2012, A.Y.20 08- 09, WHEREIN, IDENTICAL GROUND HAS BEEN RAISED BY TH E REVENUE. THE LD. REPRESENTATIVES FROM BOTH SIDES, CONTENDED THAT THE ISSUES AND THE FACTS ARE IDENTIC AL TO A.Y. 2007-08. IN VIEW OF THE ASSERTION, FROM BOTH SIDES , WE HAVE ALREADY DEALT WITH IDENTICAL GROUNDS/IDENTICAL FACT S WHILE DELIBERATING UPON THE ISSUES FOR A.Y. 2007-08. THER EFORE, FOLLOWING THE SAME REASONING, WE FIND MERIT IN THE CONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESS EE. THE DECISION IN SURESH A. SHROFF & COMPANY VS JCIT 140 ITD 1, WHEREIN, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASS ESSEE. THE RATIO LAID DOWN IN MD. SERAJUDDIN & BROS. VS CI T (SUPRA) SUPPORTS OUR VIEW, THUS, WE FIND NO INFIRMITY IN TH E M/S BANDRA ICE & COLD STORAGE CO. ITA NO.3263 & 3431/MUM/2012 8 CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). FINALLY, BOTH THE APPEALS OF THE REVENUE ARE, THERE FORE, DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN T HE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 02/07/2015. SD/- SD/- ( RAJENDRA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ( DATED : 04/08/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 $ 1# ( *+ ) / THE CIT, MUMBAI. 4. 0 0 $ 1# / CIT(A)- , MUMBAI 5. 34 .# , 0 *+' * 5 , $ % / DR, ITAT, MUMBAI 6. 6! 7% / GUARD FILE. / BY ORDER, /3+# .# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI