ITO, Hubli V. M/s. Shakti Farm House, Hubli

ITA 50/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9400 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-08-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 20-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI A. MOHAN ALANKAMONY, AM ITA NO.50(BANG.)/2009 (ASSESSMENT YEAR : 2002-03) THE INCOME-TAX OFFICER, WARD-2(2), HUBLI APPE LLANT VS M/S SHAKTHI FARM HOUSE, HIREPETH, HUBLI RESPONDENT REVENUE BY SMT. JACINTA ZIMIK VASHAI ASSESSEE BY : NONE O R D E R PER SHAILENDRA KUMAR YADAV,JM: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A), HUBLI DATED 13-08-2008 ON THE FOLLOWING GRO UNDS 1. THE CIT(A)ERRED IN TREATING THE STATUS OF THE ASSESSEE AS AOP BY RELYING ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S POORNIMA ENTERPRISES. 2. THE CIT(A) OUGHT TO HAVE CONSIDERED THE FACT T HAT IN ORDER TO ATTRACT SECTION 26 OF THE INCOME-TAX ACT, THE PROPERTY MUST BE OWNED BY TWO OR MORE PERSONS AND THEIR RESPECTIVE SHARES MUST BE DEFINITE AND ASCERTAINABLE. IN THE INSTANT CASE, THE ASSESSEE IS A PARTNERSHIP FIRM AND IT WAS CONSTITUTED IN 1973 WIT H ITA NO.50(B)/09 2 THREE PARTNERS AND THE FIRM M/S SHAKTHI FARM HOUSE, CONSTRUCTED GODOWNS IN THE YEAR 1977 BY TAKING LOAN FROM CENTRAL BANK OF INDIA. THE FIRM STARTED EARNI NG RENTAL INCOME FROM LETTING OUT THESE GODOWNS TO FCI LATER ON TO HINDUSTAN LEVERS LTD., THE ASSESSEE HAS FIL ED ONLY DEED OF DISCONTINUATION OF BUSINESS ON 01-04-1994. THERE IS NO DOCUMENTARY EVIDENCE PROVIDED BY THE ASSESSEE AS PER PARTNERSHIP ACT, THAT THE FIRM IS DISSOLVED. HENCE, THE AO HAS RIGHTLY TREATED THE ST ATUS OF THE ASSESSEE AS FIRM AND THE RENTAL INCOME HAS BE EN ASSESSED IN THE HANDS OF THE FIRM ONLY. 3. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE DECISION OF KARNATAKA HIGH COURT, RELIED U PON IN THE CASE OF M/S POORNIMA ENTERPRISES IS QUITE DISTINGUISHABLE FROM THE ACTS OF THE ASSESSEES CAS E. IN THE CASE OF M/S POORNIMA ENTERPRISES, THE HONBLE H IGH COURT PROCEEDED ON FINDING OF THE TRIBUNAL THAT THE RE IS NO FIRM AT ALL. IT IS WELL SETTLED THAT THE PARTNE RS CANNOT BE SAID TO HAVE DEFINITE AND ASCERTAINABLE SHARE IN REGARD TO THE PROPERTY OF THE FIRM. 4. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT IN THE CASE OF SUNIL SIDHARTHBAI VS CIT (1985 ) 156 ITR 509 HONBLE SUPREME COURT HAS HELD THAT NO PAR TNER HAS DEFINITE AND ASCERTAINABLE SHARE IN THE PARTNER SHIP PROPERTIES OR EVEN IN THE ASSETS OF THE FIRM. HIS ONLY RIGHT TO GET THE SHARE OF THE ASSETS ARISES ONLY AFTER DI SSOLUTION OF THE FIRM, AFTER PAYING ALL THE DEBTS IN ACCORDAN CE WITH THE PROVISIONS OF THE PARTNERSHIP ACT. DURING THE SUBSISTENCE OF THE FIRM, NO PARTNER CAN BE SAID TO HAVE ANY DEFINITE SHARE IN ANY OF THE ASSETS OF THE PART NERSHIP ITA NO.50(B)/09 3 FIRM. IN VIEW OF THE SAID DECISION, THE AO HAS RIGH TLY CONCLUDED THAT THE ASSESSEE FIRM IS NOT ENTITLED TO CLAIM THE STATUS OF AN ASSOCIATION OF PERSONS U/S 26 OF THE IT ACT IN RESPECT OF THE RENTAL INCOME. THE FACTS OF THE CASE CITED ABOVE ARE SQUARELY APPLICABLE TO THE INSTANCE CASE. 5. THE LEARNED CIT(A) SHOULD HAVE CONSIDERED THE F ACT THAT IN ASSESSEES OWN CASE, THE ITAT, BANGALORE BE NCH, BANGALORE IN ITA NOS.629 TO 632/BANG./2003 DATED 06 - 11-2003 HAS OBSERVED THAT IT IS APPARENTLY WITH A VIEW TO OVERRIDE THE PROVISIONS OF SECTION 45(4) OF THE IT ACT, WHEREBY THE PARTNERS REALLY INTENDED TO DISSOLVE TH E FIRM AND DISTRIBUTE THE ASSETS AMONGST THE PARTNERS, THE SAME WILL BE SUBJECTED TO CAPITAL GAIN TAX. THUS, THEY HAVE DEVISED CRAFTY AND IN GENUINE PLAN, WHEREBY ON ONE HAND THEY ANT TO DISCONTINUE THE BUSINESS AND ON OTHER H AND THEY DO NOT WANT TO DISSOLVE THE FIRM. IT IS HELD THAT THE PARTNERS ARE NOT HOLDING THE PROPERTY AS CO-OWNERS, SINCE THE FIRM IS NOT STATED TO BE DISSOLVED. THE FIRM DISCONTINUES TO BE IN EXISTENCE AND ANY INCOME FROM SUCH FROM SUCH PROPERTY OF THE FIRM IS TAXABLE IN T HE HANDS OF THE SO-CALLED FIRM ONLY. THE HONBLE HIGH COURT OF KARNATAKA VIDE ITS ORDER IN ITA NO.92/2004 DATED 16- 08-2008 HAS QUASHED ALL THE ORDER PASSED BY AUTHORI TY BELOW AND REMANDED THE MATTER TO THE FILES OF AO FO R FRESH CONSIDERATION WITHOUT ANY REFERENCE TO THE CA SE OF M/S POORNIMA ENTERPRISES FOR THEIR ASSESSMENT YEARS 1995-96 TO 1998-99 NOT DECIDING THE ISSUE INVOLVED IN ASSESSEES OWN CASE. ITA NO.50(B)/09 4 2. NONE APPEARED ON BEHALF OF THE ASSESSEE. AT T HE OUTSET OF HEARING, LEARNED DR POINTED OUT THAT THE HONBLE JU RISDICTIONAL HIGH COURT IN ITS ORDER IN ITA NO.92/2004 DATED 16-08-2008, HA S QUASHED THE ORDER PASSED BY THE AUTHORITIES BELOW AND REMANDED THE IS SUE TO THE FILE OF AO FOR FRESH CONSIDERATION. IT WAS ALSO POINTED OUT T HAT THE TRIBUNAL IN ASSESSMENT YEARS 1995-96 TO 1998-99 HAS SET ASIDE T HE SIMILAR MATTER TO AO. THE FACTS BEING SAME, SO FOLLOWING THE SAME REA SONING, WE RESTORE THE ISSUE AT HAND TO AO WITH A DIRECTION TO DECIDE THE SAME AS PER FACTS AND LAW AVAILABLE AT THE RELEVANT POINT OF TIME. SINCE WE ARE DISPOSING OF THE ISSUE ON TECHNICAL GROUND, WE ARE REFRAINING FROM M AKING ANY COMMENT ON THE ISSUE AT HAND. 3. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING. (A. MOHAN ALANKAMONY) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: AM * COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) 7. GF(DELHI AR, ITAT, BANGALORE