M.Chandra, CHENNAI V. ACIT, CHENNAI

ITA 587/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8723 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 20-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 14-03-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Section: 14A; 15

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! , ' #$ BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO. 587/MDS/2016 / ASSESSMENT YEAR : 2011-12 SMT. M. CHANDRA, NO.14, PETERS ROAD, ROYAPETAH, CHENNAI 600 014. PAN ADEPC9042R ( /APPELLANT) VS THE ASSISTANT COMMISSIONER OF INCOME-TAX, NON-CORPORATE CIRCLE-11, CHENNAI. ( /RESPONDENT) / APPELLANT BY : NONE / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT / DATE OF HEARING : 20.07.2016 ! / DATE OF PRONOUNCEMENT: 22.07.2016 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DA TED 4.12.2015. - - ITA 587/16 2 2. WHEN THE MATTER WAS CALLED ON FOR HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE IN SPITE OF ISSU E OF NOTICE. HENCE, WE PROCEED TO DISPOSE OFF THIS APPEAL, AFTER HEARING THE LD. DR. 3. THE CLAIM OF THE ASSESSEE IN THIS APPEAL IS THA T THE INTEREST PAID ON BORROWED FUNDS WHICH IS USED FOR INVESTMENT IN PARTNERSHIP FIRM TO BE ALLOWED AS DED UCTION WHILE COMPUTING THE INCOME OF THE ASSESSEE. IN OUR OPINION, INVESTMENT IN THE FIRM WAS MADE TO EARN SHARE OF PR OFIT, WHICH IS ASSESSABLE UNDER THE HEAD BUSINESS BUT W HICH IS NOW EXEMPT BY VIRTUE OF S. 10(2A). THIS SHARE OF INCOME IS NO LONGER PART OF THE TOTAL INCOME OF THE ASSESSEE. VARIOUS P ROVISIONS OF THE ACT FROM S. 15 TO S. 59 PRESCRIBE HOW THE EXPEN DITURE IS TO BE ALLOWED. THESE EXPENDITURE HAVE TO BE ALLOWED WITH REFERENCE TO INCOME, IN EARNING OF WHICH SUCH EXPENDITURE HAS BE EN WHOLLY AND SOLELY INCURRED. THUS, THE EXPENDITURE INCURRED TO EARN SHARE OF PROFIT FROM THE FIRM CAN ONLY BE CONSIDERED FOR ALLOWABILITY UNDER THE HEAD BUSINESS AND ALSO UNDER THE SAME S OURCE, I.E., SHARE PROFIT FROM THE FIRM. SEC. 14 AMPLY CLARIFI ES THE SCHEME - - ITA 587/16 3 AND INTENTION OF THE LEGISLATURE. THERE COULD BE NO SUCH INTENTION OF THE LEGISLATURE TO ALLOW EXPENDITURE RELATING TO INCOME NOT FORMING PART OF TOTAL INCOME. AN EXPENDITURE CAN BE ALLOWED IF IT IS SPENT TO EARN THE INCOME. SEC. 14A PROVIDES FOR DISALLOWANCE OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IT IS ASSESSEES OWN TOTAL INCOME THAT IS TO BE SEEN FOR APPLYING THE PROVISIONS OF S. 14A AND NOT THAT OF SOMEBODY ELSE. ADMITTEDLY BY VIRTUE OF S. 10(2A) SH ARE INCOME IS NOT INCLUDIBLE/INCLUDED IN TOTAL INCOME OF AN ASSES SEE PARTNER. IN OTHER WORDS BY VIRTUE OF S. 10(2A) IT DOES NOT FORM PART OF THE TOTAL INCOME OF PARTNER AND, THEREFORE, THE EXPENDI TURE INCURRED BY THE PARTNER IN EARNING THAT INCOME WOULD NOT BE ALLOWABLE. THE SHARE INCOME IS NOW EXEMPT UNDER S. 10(2A); THE REFORE AS A CONSEQUENCE THEREOF, INTEREST PAID ON BORROWED CAPI TAL INVESTED IN THE FIRM TO EARN SUCH SHARE INCOME COULD NOT BE ALLOWED. IT CANNOT BE ALLOWED AGAINST ANY OTHER INCOME BECAUSE BORROWED CAPITAL WAS NOT UTILISED FOR EARNING ANY OTHER INCO ME. THIS IS WHAT IS THE SCHEME OF ACT EVEN WITHOUT S. 14A. THE ARGUMENT OF THE COUNSEL FOR ASSESSEE THAT FIRM IS TAXED AND THE REFORE INCOME COMING INTO THE HANDS OF THE PARTNER IS ALSO CLAIME D TO HAVE - - ITA 587/16 4 BEEN TAXED IS NOT TENABLE BECAUSE CHARGE OF TAX IS NOT ON INCOME BUT ON THE PERSON. THE FIRM AND PARTNERS ARE TWO DISTINCT ENTITIES ON WHICH TAX IS CHARGED AS PER S. 2(31). E VEN OTHERWISE, PROVISION OF S. 10(2A) IS APPLICABLE ONLY ON THE PA RTNER. THE PROVISION OF THIS SECTION CANNOT BE MADE REDUNDANT BY GIVING SUCH AN INTERPRETATION. THE FACT THAT LEGISLATURE H AS THOUGHT IT FIT TO CONSIDER THE TAXABILITY OF SHARE IN THE HANDS OF THE PARTNER SEPARATELY AND INDEPENDENTLY CLEARLY SHOWS THAT ASS ESSABILITY OF INCOME IN THE HANDS OF FIRM AND IN THE HANDS OF THE PARTNERS HAVE TO BE VIEWED INDEPENDENTLY. EARLIER TO S. 10(2 A), THE TAX HAD TO BE LEVIED ON THE FIRM AS WELL AS ON THE PART NERS. MERELY BECAUSE TAX HAS BEEN LEVIED ON THE FIRM, THE TAXABI LITY OF SHARE OF INCOME IN THE HANDS OF PARTNER COULD NOT BE IGNORED AS IT IS THE LEGISLATIVE INTENT, WHICH HAS TO PREVAIL. EARLIER I T WANTED TO TAX THE SAME INCOME ONCE IN THE HANDS OF THE FIRM AND THEN AS SHARE IN THE HANDS OF PARTNER. SUBSEQUENTLY, S. 10(2A) HAS L AID DOWN DIFFERENT LEGISLATIVE INTENT. SHARE OF PROFITS TAXE D IN THE HANDS OF THE FIRM WOULD NOT BE TAXABLE IN THE HANDS OF PARTN ER. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT BY VIRTUE OF FI RM HAVING BEEN TAXED PARTNER IS ALSO TAXED IS REJECTED. OUR ABOVE VIEW IS - - ITA 587/16 5 FORTIFIED BY THE JUDGMENT OF THE SUPREME COURT IN T HE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. VS. C IT (1997) 227 ITR 172 (SC). 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 22 ND OF JULY, 2016 AT CHENNAI. SD/- SD/- ( ' . . ' . #$ ) ( % & ' ( ) ) N.R.S.GANESAN * )+,-./0-1223-04* 5 67 /JUDICIAL MEMBER 6789::2;.<-.<=>?@>0 %5 /CHENNAI, A6 /DATED, THE 22 ND JULY, 2016. MPO* 6$ BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E)* /CIT(A) 4. E /CIT 5. CF# G /DR 6. #HI /GF.