ASST CIT 16(3), MUMBAI V. WADIA GHANDY & CO., MUMBAI

ITA 3400/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0104 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: PARTH DESAI; MILLIN DATT ANI
• Keywords: Depreciation; Diversion of income; Revised return
• Section: 143(3); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM ./ I.T.A. NO. 3400/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) ASST. CIT - 16(3) , ROOM NO.446, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS. WADIA GHANDY & CO., N. M. WADIA BUILDING, 2 ND FLOOR, 123, M. G. ROAD, FORT, MUMBAI - 400 001 ./ ./ PAN/GIR NO. AAAFW 1081 H ( REVENUE ) : ( ASSESSEE ) & ./ I.T.A. NO. 2835/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) WADIA GHANDY & CO., MUMBAI - 400 001 / VS. JT. CIT, CIRCLE 16(3), MUMBAI - 400 020 ( ASSESSEE ) : ( REVENUE ) REVENUE BY : SHRI RAM TIWARI ASSESSEE BY : SHRI MILLIN DATT ANI & SHRI PARTH DESAI / DATE OF HEARING : 04.01.2018 / DATE OF PRONOUNCEMENT : 01.03 .2018 / O R D E R PER S HAMIM YAHYA , A. M.: THESE ARE CROSS APPEALS BY THE ASSESSEE AND R EVENUE ARISING OUT OF THE ORDER OF LD . COMMISSIONER OF INCOME TAX (APPEALS) DATED 26.02.2016, PERTAINING TO ASSESSMENT YEAR 2011 - 12 . 2 ITA NO S . 3400 & 2835/MUM/2016 WADIA GHANDY & CO. A SSESSEE'S APPEAL : 2. T HE GROUNDS OF APPEAL READ AS UNDER : 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE ASSESSING OFFIC ERS ACTION OF DISALLOWANCE OF DEPRECATION ON TENANCY RIGHTS OF RS.6,44,920/ - . 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT TENANCY RIGHTS WERE A FORM OF LICENSE. R EVENUES APPEAL : 3. T HE GROUNDS OF APPEAL READ AS UNDER : 1. O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. AMOUNTING TO RS.1,49,27,137/ - ON ACCOUNT OF PAYMENTS MADE TO THE LEGAL HEIRS OF THE DECEASED PARTNER AND DISALLOWANCE OF PAYMENT MADE TO RETIRED PARTNER AMOUNTING TO RS.2,27,70,651/ - . 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. T HE BRIEF FACTS OF THE CASE ARE AS UNDER : THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM OF PRACTICING ADVOCATES, SOLICITORS AND NOTARIES. ITS SOURCE OF INCOME CONSISTS OF INCOME FROM PROFESSION. IT FILED ITS ORIGINAL RETURN OF INCOME FOR ASSESSMENT YEAR 2011 - 12 ON 30.09.2011 DECLARI NG TOTAL INCOME OF RS.24,02,02,163/ - AND REVISED RETURN OF INCOME ON 30.03.2013 DECLARING TOTAL INCOME OF RS.23,94,80,668/ - , WHICH WAS PROCESSED U/S. 143(1) OF THE ACT. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 28.03.2014 DETERMINING TOTAL INC OME AT RS.27,77,98,380/ - BY DISALLOWING PAYMENT MADE TO RETIRED/DECEASED PARTNER OF RS.3,76,97,788/ - AND DEPRECATION ON TENANCY RIGHTS OF RS.6,44,920/ - . 3 ITA NO S . 3400 & 2835/MUM/2016 WADIA GHANDY & CO. 5. A GAINST THE ABOVE ORDER OF THE ASSESSING OFFICER , THE APPEAL WAS PREFERRED BEFORE THE LD. COMMISSIO NER OF INCOME TAX (APPEALS). O N THE ISSUE OF PAYMENT MADE TO LEGAL HEIRS OF THE DECEASED PA RTNER, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) REFERRED TO EARLIER ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR ASSESSMENT YEAR 201 0 - 11 AND DELETED THE ADDITION. 6. AS REGARDS THE PAYMENT TO RETIRED PARTNERS , THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWED ITAT'S ORDER IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR S 2007 - 08 AND 2009 - 10, W H ERE THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE . THE LD . COMMISSIONER OF INCOME TAX (APPEAL) REFERRED TO ITAT ORDER AND HELD AS UNDER : IN THOSE APPEALS, THE GROUNDS RAISED BY THE APPELLANT WERE AS UNDER: - AS REGARD ADDITION OF PAYMENT TO RETIRED PARTNER 4. THE LD.CIT(A) ERRED IN CONFIRMING ADDITION OF PAY MENT MADE TO A RETIRED PARTNER OF RS.3,68,45,176/ - IN TERMS OF THE PARTNERSHIP DEED. 5. THE LD.CIT(A) FAILED TO APPRECIATE THAT SUCH PAYMENT WAS DIVERTED BY OVERRIDING TITLE. 6. THE LD.CIT(A) WAS WRONG IN HOLDING THAT SUCH PAYMENT MADE TO PERSONS OTHER THA N WORKING PARTNER IS NOT ELIGIBLE FOR DEDUCTION FROM INCOME OF THE FIRM. 7. THE LD.CIT(A) ERRED IN HOLDING THAT PAYMENT MADE TO PERSON OTHER THAN WORKING PARTNERS AND WERE ON THE NATURE OF INCENTIVE AND THAT THIS WAS NOT AN EXAMPLE OF DIVERSION OF INCOME B Y OVERRIDING TITLE. AFTER DISCUSSING THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE DEPARTMENT AND THE APPELLANT, THE HONBLE ITAT DECIDED AS UNDER: 17. IN THIS REGARD, APROPOS THE APPLICABILITY OR OTHERWISE OF SECTION 40(B) OF THE ACT TO THE FACTS OF THE YEAR UNDER CONSIDERATION, IT CANNOT BE DISPUTED THAT THE AMOUNT IN QUESTION IS NOT AT ALL INCOME OF THE FIRM, HAVING BEEN DIVERTED BY THE OVERRIDING TITLE OF THE CHARGE STIPULATED BY THE RELEVANT CLAUSES OF THE PARTNERSHIP DEED [DISCUSSED IN DETAIL WH ILE DEALING WITH THIS ISSUE IN ITA NO. 1014/M/2013 (INFRA)]. THEREFORE, THE CONDITION OF RENDERING OF SERVICES, AS ENVISAGED BY THE PROVISIONS OF SECTION 40(B) OF THE ACT, DOES NOT COME INTO PLAY AS THE COMMON LAW CONCEPT OF DIVERSION OF INCOME BY OVERRIDI NG TITLE EXISTS REGARDLESS OF THE 4 ITA NO S . 3400 & 2835/MUM/2016 WADIA GHANDY & CO. AMENDMENT BROUGHT IN BY THE LEGISLATURE IN THE PROVISIONS OF SECTION 40(B) OF THE ACT. MOREOVER, IN V. G. BHUTA (SUPRA), THE PAYMENT WAS OPTIONAL, WHICH IS NOT SO HEREIN, HAVING BEEN CIRCUMSCRIBED BY THE MANDATORY CLAUSE S OF THE PARTNERSHIP DEED. 18. FOR THE ABOVE DISCUSSION, WE DO NOT FIND THE ORDER OF THE LD. CIT(A) ON THIS ISSUE TO BE SUSTAINABLE IN THE EYE OF LAW. THE SAME IS, AS SUCH SET ASIDE. GROUND NOS. 4 TO 7 TAKEN BY THE ASSESSEE ARE, ACCORDINGLY, ACCEPTED. SINCE THE FACTS ARE SIMILAR, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE ITAT, THE A.O. IS DIRECTED TO ALLOW THE PAYMENT MADE TO THE RETIRED PARTNER. IN THE RESULT, THE GROUND IS ALLOWED. 7. AS REGARDS THE ISSUE OF DISALLOWANCE OF DEPRECATI ON , THE LD. COMMISSIONER OF INCOME TAX (APPEALS) F OLLOWED THE ITAT ORDER IN ASSESSEE'S OWN CASE WHEREIN THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. HENCE , THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER : 6.1 I HAVE CAREFULLY CONSIDERED THE FACT S OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE VARIOUS DECISIONS RELIED UPON BY THE A.O. AND THE LD. AR. THE HONBLE ITAT VIDE ITS ORDER ITA NO. 7324 & 1014/MUM/2013 DATED 07.10.2015, FOR A.YS. 2007 - 08 AND 2009 - 10 HAS DECI DED THE ISSUE AGAINST THE APPELLANT. THE RELEVANT PART OF THE ORDER IS REPRODUCED AS BELOW: - 10. SINCE THE TRIBUNAL HAS CONSISTENTLY DECIDED THIS ISSUE AGAINST THE ASSESSEE OVER THE YEARS AND NONE OF THE ORDERS OF THE TRIBUNAL HAS BEEN SHOWN TO HAVE BEEN EITHER REVERSED OR STAYED ON APPEAL, RESPECTFULLY FOLLOWING THE SAID EARLIER TRIBUNAL ORDERS, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. REFERENCE IN THIS REGARD IS MADE TO THE TRIBUNAL ORDER IN THE ASSESSEES CASE FOR TH E ASSESSMENT YEARS 2006 - 07 & 2007 - 08, THE TRIBUNAL HAS HELD AS FOLLOWS: 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE HAS FAIRLY AND COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2003 - 04 & 2004 - 05 VIDE ITS ORDER DATED 29 TH OCT., 2009 PASSED IN ITA NOS. 355 & 356/MUM/2008 WHEREIN THE ORDERS OF THE LEARNED CIT(APPEALS) CONFIRMIN G THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEPRECIATION ON TENANCY RIGHTS WAS 5 ITA NO S . 3400 & 2835/MUM/2016 WADIA GHANDY & CO. UPHELD BY THE TRIBUNAL. AS THE ISSUE INVOLVED IN THE YEARS UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE ADMITTEDLY SIMIL AR TO ASSESSMENT YEARS 2003 - 04 & 2004 - 05, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 (SUPRA) AND UPHOLD THE IMPUGNED ORDERS OF THE LEARNED CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT O F DEPRECIATION MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE ON TENANCY RIGHTS. THE APPELLANT VIDE ITS SUBMISSION DATED 29.04.2015 IN GROUND II(G) HAS ALSO ACCEPTED THAT THE SAID DEPRECIATION HAS BEEN DISALLOWED FROM ASSESSMENT YEAR 2003 - 04 ONWARDS AND THE COMMISSIONER (APPEALS) & TRIBUNAL HAVE UPHELD SUCH DISALLOWANCE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ITAT, THE GROUND OF THE APPELLANT IS DISMISSED. 8. AGAINST THE ABOVE ORDER , THE ASSESSEE AND R EVENUE ARE IN CROSS APPEAL . 9. W E HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. IT WAS CONTENDED THAT ON THE ISSUES HEREINABOVE HAVE ALREADY BEEN DECIDED BY THE ITAT. AS REGARDS THE ASSESSEES APPEAL WE FIND THE ISSUE OF DEPRECATION OF TENANCY RIGHTS HAS BEEN DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE ITAT ORDER IN ASSESSEES OWN CASE. H ENCE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). HENCE, WE UPHOLD THE SAME. HENCE, THE APPEAL BY THE ASSESSEE STANDS DIS MISSED. 10. AS REGARDS, T HE REVENUES APPEAL WE FIND THAT, AS REGARDS PAYMENT TO RETIRED PARTNERS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FOLLOWED THE ITAT ORDER IN ASSESSEES OWN CASE. NO CASE HAS BEEN MADE OUT THAT THIS HAS BEEN REVERSED BY T HE HONBLE HIGH COURT. AS REGARDS THE ISSUE OF PAYMENT TO LEGAL HEIRS OF DECEASED PARTNERS, THE SAME WAS ALSO CONSIDERED BY THE ITAT IN ASSESSEES OWN CASE IN ITA NO. 1014/MUM/2013 FOR ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 07.10.2015. THE 6 ITA NO S . 3400 & 2835/MUM/2016 WADIA GHANDY & CO. TRIBUNAL HAS E LABORATELY C ONSIDERED THE ISSUE IN PARA 26 TO PARA 61 BY REFERRING EX TEN SIVELY TO PARTNERSHIP DEED ON VARIOUS CASE LAWS AND THERE AFTER H ELD THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. SINCE THE ABOVE HAS NOT BEEN REVERSED BY THE HONBLE HIG H COURT, WE FOLLOW THE SAME AND UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 11. IN THE RESULT, THE APPEAL BY THE ASSESSEE AS WELL AS BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.03.2018 SD/ - SD/ - ( RAM LAL NEGI ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 01.03.2018 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI