ITO, Trivandrum V. Karthika Bar & Restaurant, Trivandrum

ITA 667/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64736 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 18-07-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 14-12-2010
• Court: TRIBUNAL
• Department Lawyers: ABHIMANYU SINGH YADAV
• Assessee Lawyers: J KRISHNAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 667/COCH/2010 ASSESSMENT YEAR: 2003-04 THE INCOME TAX OFFICER, WARD- 1(4), TRIVANDRUM VS. M/S. KARTHIKA BAR & RESTAURANT, MAIDANAM, VARKALA,TRIVANDRUM. [PAN:AAFFK 8799R] (REVENUE -APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY SHRI ABHIMANYU SINGH YADAV, JR. DR ASSESSEE BY SHRI J.KRISHNAN, CA DATE OF HEARING 20/07/2012 DATE OF PRONOUNCEMENT 10/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 07-09-2010 PASSED BY THE LD. CIT(A)-I, TRIVANDRUM AND IT RELATES TO T HE ASSESSMENT YEAR2003-04. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL IS WHETH ER THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT THE STATUS OF THE ASSESSEE-FIRM HAS TO BE TREATED AS PARTNERSHIP FIRM FOR THE YEAR UNDER CONSIDERATION. 3. THE FACTS RELATING TO THE SAID ISSUE ARE STATED IN BRIEF. THE ASSESSEE WAS CONSTITUTED AS A PARTNERSHIP FIRM AND IT WAS RUNNIN G A BAR ATTACHED HOTEL AT VARKALA. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION DECLARING A LOSS OF RS.10,56,840/- UNDER THE STATUS PARTNERSHIP FIR M AND THE SAME WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFF ICER NOTICED THAT THE BAR LICENSE WAS STANDING IN THE NAME OF ONE SHRI K.P. KARTHIKEYAN A ND NOT IN THE NAME OF THE ASSESSEE FIRM. ACCORDING TO THE AO, THE LICENSE IS NOT TRAN SFERABLE AS PER THE KERALA ABKARI ACT. I.T.A. NO.667/COCH/2010 2 HENCE HE RE-OPENED THE ASSESSMENT BY ISSUING NOTICE U/S. 148 OF THE ACT IN ORDER TO TREAT THE STATUS OF THE ASSESSEE AS ASSOCIATION OF PERSONS (AOP). THEREAFTER, THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER BY TR EATING THE STATUS OF THE ASSESSEE AS AOP. THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE LD. CIT(A) WHO HELD THAT THE ASSESSEE HAS TO BE TREATED AS A PARTNERSHIP FIR M AND FOR THIS PURPOSE, HE RELIED UPON THE DECISION OF THE INCOME TAX APPELLATE TRIBU NAL DATED 20-08-2007 RENDERED IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 20 00-01 IN I.T.A. NO. 92/COCH/2007. AGGRIEVED, BY THE ORDER OF THE LD. CIT(A), THE REV ENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. CIT(A) HAS NARRATED THE FACTS RELATING TO THE I MPUGNED ISSUE AND ALSO HIS DECISION IN A LUCID WAY AND THE SAME IS EXTRACTED BELOW, FOR TH E SAKE OF CONVENIENCE:- 4. STATUS AS A.O.P .: ACCORDING TO THE ASSESSING OFFICER THE BAR LICENSE WAS IN THE NAME OF SRI. K.P. KARTHIKEYAN AND THE LICENSE IS NOT TRANSFERAB LE AS PER THE KERALA ABKARI ACT, AS SUCH THE CREATION OF A FIRM WITH THE NON TRANSF ERABLE LICENSE IS QUESTIONABLE ACCORDING TO LAW AND HENCE THE STATUS OF THE FIRM IS LIABLE TO BE TREATED AS AN AOP AS HELD IN THE KERALA HIGH COURT DECISION IN T HE CASE OF NARAYANAN & CO. 4.1 ACCORDING TO THE APPELLANT THE FIRST THREE GROUNDS IS WITH REGARD TO FIXING TH E STATUS OF THE ASSESSEE AS ASSOCIATION OF PERSONS A S AGAINST THAT OF PARTNERSHIP FIRM ON THE GROUND THAT THE LICENCE IS IN THE NAME OF SHRI K.P. KARTHIKEYAN AS MANAGING PARTNER OF THE APPELLANT FIRM. THE ASSES SING AUTHORITY HAS NOT PROPERLY APPRECIATED THE FACTS OF THE CASE. THE A PPELLANT IS A FIRM RUNNING A BAR ATTACHED HOTEL. SHRI K.P. KARTHIKEYAN IS THE MANA GING PARTNER OF THE FIRM. THE LICENCE OF THE BAR HOTEL IS GRANTED IN THE NAME OF THE MANAGING PARTNER OF THE FIRM, SHRI K.P. KARTHIKEYAN. WE ENCLOSE THE PHOTO COPY OF THE LICENCE AND THE COPY OF THE PROCEEDINGS OF THE COMMISSIONER OF EXCI SE, TRIVANDRUM DATED 14.7.1998 IN WHICH IT IS CLEARLY STATED THAT THE L ICENCE IS IN THE NAME OF SHRI K.P. KARTHIKEYAN, AS MANAGING PARTNER OF THE FIRM. YOU WILL ALSO KINDLY NOTE THE COMMISSIONER OF EXCISE HAS SUBSEQUENTLY ALLOWED TH E TRANSFER OF THE LICENCE IN THE NAME OF THE NEW MANAGING PARTNER SHRI K.P. IND RABALAN ON 12.4.2005. THESE PROCEEDINGS AMPLY PROVE THAT THE LICENCE IS GRANTED TO THE FIRM KARTHIKA BAR AND RESTAURANT AND THE SAME IS HELD BY THE MAN AGING PARTNER ON BEHALF OF THE FIRM. ACCORDING TO PARTNERSHIP ACT ALSO ANY P ROPERTY OF THE FIRM CAN BE HELD IN THE NAME OF THE FIRM. I.T.A. NO.667/COCH/2010 3 4.2 THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN T HE ASSESSEES OWN CASE HAS CONFIRMED THE STATUS OF THE APPELLANT AS A PARTNER SHIP FIRM IN APPEAL NO. ITA92/COCH/2007 FOR THE A.Y. 2000-01. IN THE CIRC UMSTANCES WE REQUEST YOUR GOODSELF TO FIX THE STATUS OF THE APPELLANT AS THA T OF AS A PARTNERSHIP FIRM . 5. I HAVE CONSIDERED THE SUBMISSIONS AND GONE THRO UGH THE FACTS OF THE CASE. THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN APPEL LANTS OWN CASE HAS CONFIRMED THE STATUS OF THE APPELLANT AS PARTNERSH IP FIRM, AS STATED BY THE APPELLANT IN THE A.Y. 2000-01. RESPECTFULLY FOLLOW ING THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, I HOLD THAT THE STATUS OF THE APPELLANT IS TO BE TREATED AS PARTNERSHIP FIRM FOR THE PURPOSE OF INCOME TAX ASS ESSMENT FOR A.Y. 2003-04 ALSO. APPEAL ON THE GROUND IS ALLOWED . 5. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL IS CONSISTENTLY HOLDING THAT THE STATUS OF THE ASSESSEE SHOULD BE TREATED AS PARTNERSHIP FIRM ONLY. HE FURTHER SUBMITTED THAT THE REVENUE CHALLENGED THE SAID DECISION OF THE ITAT BY FILING APPEAL BEFORE THE HO NBLE KERALA HIGH COURT AND THE HONBLE JURISDICTIONAL HIGH COURT, IN THE ASSESSEE S OWN CASE, HAS UPHELD THE DECISION OF THE ITAT AND ACCORDINGLY, THE APPEALS FILED BY THE REVENUE WAS DISMISSED. THE LD. COUNSEL ALSO FURNISHED A COPY OF THE ORDER OF THE H ONBLE HIGH COURT OF KERALA DATED 29-11-2010 IN THE ASSESSEES OWN CASE. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE HONBLE JURIS DICTIONAL HIGH COURT:- THE CONTENTION OF THE DEPARTMENT IS THAT WHEN FL- 3 LICENCE ISSUED TO AN INDIVIDUAL IS EXPLOITED FOR BUSINESS PURPOSES BY A PARTNERSHIP FIRM CONSTITUTED WITH THE LICENCEE ALONGWITH OTHER INDIVIDUALS AS P ARTNERS, IT SHOULD BE TAKEN AS A TRANSFER OR SUB-RENTING OF LICENCE WHICH IS OBJECT IONABLE UNDER RULE 19. HOWEVER, THE CASE OF THE ASSESSEE FIRMS IS THAT I N EVERY CASE OF CONSTITUTION OF THE FIRM AND CARRYING ON BUSINESS IN LIQUOR IN THE BAR HOTEL BY THE FIRM WITH LICENCE OBTAINED BY ONE OF THE PARTNERS, PRIOR SAN CTION IS OBTAINED FROM THE EXCISE DEPARTMENT AND THE SAME IS APPROVED BY THE EX CISE COMMISSIONER. IN FACT WHENEVER THERE IS CHANGE IN CONSTITUTION OF T HE FIRM, THE SAME IS ALSO APPROVED BY THE EXCISE COMMISSIONER. SO MUCH SO, T HE CONTENTION OF THE ASSESSEE-FIRMS IS THAT THE EXPLOITATION OF LICENCE ISSUED IN THE NAME OF AN INDIVIDUAL BY THE FIRM CONSISTING OF PARTNERS WITH LICENCE AS ONE OF THE PARTNERS IS VERY WELL KNOWN TO THE EXCISE COMMISSIONER AND IT I S WITH HIS KNOWLEDGE AND PERMISSION BUSINESS IS CARRIED ON BY SUCH FIRMS. THERE IS NO DISPUTE ON THIS FACTUAL POSITION BY THE INCOME TAX DEPARTMENT. IF THE PROVISIONS OF THE ABKARI ACT AND RULES ARE GONE INTO, IT IS CLEAR THAT THE LIQUOR BUSINESS IS CLOSELY MONITORED BY THE EXCISE DEPARTMENT AT ALL STAGES IN CLUDING VERIFICATION OF ACCOUNTS. IN FACT, THIS COURT ITSELF HAD OCCASION TO CONSIDER SEVERAL CASES I.T.A. NO.667/COCH/2010 4 PERTAINING TO APPROVAL OF CONSTITUTION AND RECONST ITUTION OF THE FIRMS FOR CARRYING ON BUSINESS WITH THE LICENCE OBTAINED BY ONE OF TH E PARTNERS. ALL THE ASSESSEE- FIRMS IN THIS CASE HAVE BEEN CARRYING ON BUSINESS IN LIQUOR IN THE BAR HOTELS WITH THE LICENCE HELD BY ONE OF THE PARTNERS AND OTHER INDIVIDUAL PARTNERS DO NOT HAVE SEPARATE FL-3 LICENCE. FL-3 LICENCE ISSUED UNDER T HE FOREIGN LIQUOR RULE IS ONLY FOR ONE YEAR AND IT IS RENEWED ON AN YEAR TO YEAR BASIS ON PAYMENT OF SUBSTANTIAL AMOUNT TOWARDS ANNUAL LICENCE FEE. TH E EXCISE COMMISSIONER GRANTED RENEWAL TO ALL THE ASSESSEE-FIRMS KNOWING WELL THAT EACH AND EVERY PARTNER OF THE FIRM DOES NOT HAVE SEPARATE INDIVID UAL LICENCES AND THE FIRM CARRIES ON BUSINESS WITH THE SINGLE LICENCE ISSUED IN THE NAME OF ONE OF THE PARTNERS. SO MUCH SO, THE IRRESISTIBLE CONCLUSION THAT THE BUSINESS IS CARRIED ON BY THE PARTNERSHIP FIRMS WITH LICENCE HELD BY ONLY ONE OF THE PARTNERS IS KNOWN TO THE EXCISE COMMISSIONER AND IS DONE WITH HIS PER MISSION AND APPROVAL. IN VIEW OF THE FACTUAL POSITION, WE HAVE TO NECESSARI LY CONCLUDE THAT THE ASSESSEE- FIRMS ARE CARRYING ON BUSINESS STRICTLY IN ACCORDA NCE WITH RULE 13 OF THE FOREIGN LIQUOR RULES AND CONDITION 13 OF THE FL-3 LICENCE IN AS MUCH AS THE CONSTITUTION OF THE FIRM FOR CARRYING ON BUSINESS IN LIQUOR WIT H THE LICENCE HELD BY ONE OF THE PARTNERS IS A PERMISSIBLE ACTIVITY AND THE FIRMS S O CONSTITUTE ARE GENUINE FIRMS WHICH ARE ENTITLED TO BE ASSESSED IN THE STATUS OF FIRMS AND FOR PERIODS WHEN REGISTRATION IS REQUIRED U/S. 185, THE FIRMS ARE E NTITLED TO BE ASSESSED AS REGISTERED FIRMS SUBJECT TO THEIR SATISFYING OTHER CONDITIONS. WE, THEREFORE, DISMISS ALL THE APPEALS FILED BY THE REVENUE. 6. THE LD A.R ALSO SUBMITTED A COPY OF JURISDIC TIONAL HIGH COURTS ORDER DATED 29-11- 2010 PASSED IN THE CASE OF CIT VS. M/S HOTEL NEW IN DRAPRASTHA, ADOOR, WHICH WAS RENDERED ON IDENTICAL FACTS. IN THAT DECISION, THE REVENUE HAD PLACED RELIANCE ON THE DECISION RENDERED BY THREE MEMBER BENCH OF THE HON BLE SUPREME COURT IN THE CASE OF BIHARILAL JAISWAL AND OTHERS VS. CIT (217 ITR 746) AND THE ASSESSEE RELIED ON THE TWO MEMBER BENCH OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. RANGILA RAM AND OTHERS (254 ITR 230). THE HIGH COURT DID NOT FOUND IT NECESSARY TO CONSIDER THE ABOVE CITED DECISIONS AND THE RELEVANT OBSERVATIONS OF TH E HONBLE HIGH COURT ARE EXTRACTED BELOW:- 3. ON GOING THROUGH THE ABOVE TWO JUDGMENTS OF THE SUPREME COURT, WE FIND THAT DETAILED PROVISIONS OF THE ABKARI ACT AND RULE S ARE NOT STATED IN THE THREE MEMBER DECISION, WHEREAS IN THE LATER DECISION OF T HE TWO MEMBER BENCH, THE PROVISIONS OF HE KERALA ABKARI ACT AND RULES ARE RE FERRED TO AND THE DECISION IS RENDERED IN THE CONTEXT OF THE ABKARI LAWS OF KERAL A. HOWEVER, WE DO NOT THINK THERE IS ANY NEED FOR US TO CONSIDER WHICH OF THE A BOVE TWO DECISIONS SHOULD BE FOLLOWED IN THESE CASES BECAUSE FOR THE REASONS STA TED HEREUNDER WE ARE OF THE VIEW THAT ASSESSEE FIRMS ARE ENTITLED TO REGISTRATI ON UNDER SECTION 185 AND ARE ENTITLED TO BE TREATED AS GENUINE FIRMS WHICH CARRI ED ON LIQUOR BUSINESS IN BAR I.T.A. NO.667/COCH/2010 5 HOTELS IN ACCORDANCE WITH THE PROVISIONS OF HE ABKA RI ACT AND RULES, NO MATTER THE LICENCE WAS OBTAINED ONLY BY ONE OF THE PARTNER S OF THE FIRMS WHICH CARRIED ON THE BUSINESS. IN VIEW OF THE DECISIONS OF THE HONBLE HIGH COURT OF KERALA AND FURTHER THE DECISION RENDERED BY THE LD CIT(A) IS IN ACCORDANCE WITH THE SAID DECISIONS. THE ASSESSEE HAS ALSO FILED A COPY OF A DOCUMENT NAMED HOTEL (REST AURANT) LICENCE, WHERE IN THE RENEWAL OF LICENCE FOR THE FINANCIAL YEAR 2002-03 R ELEVANT TO THE YEAR UNDER CONSIDERATION IS ENDORSED. IN VIEW OF THE ABOVE, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. 7. THE DEPARTMENT HAS ALSO TAKEN A GROUND STATI NG THAT THE ASSESSEE HAS FAILED TO FURNISH EVIDENCE THAT A PARTNERSHIP FIRM EXISTED DU RING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. ON A CAREFUL PERUSAL OF T HE ASSESSMENT ORDER, WE NOTICE THAT THE AO DID NOT MAKE ANY SUCH ADVERSE OBSERVATION. IN FACT, THE AO HAS OBSERVED AS UNDER:- THE BAR LICENSE WAS IN THE NAME OF SRI K.P.KARTHIK EYAN AND HE LICENSE IS NOT TRANSFERABLE AS PER THE KERALA ABKARI ACT, AS SUCH THE CREATION OF A FIRM WITH THE NON TRANSFERABLE LICENSE IS QUESTIONABLE ACCORDING TO LAW AND HENCE THE STATUS OF THE FIRM IS LIABLE TO BE TREATED AS AN AOP AS HELD IN THE KERALA HIGH COURT DECISION IN THE CASE OF NARAYANAN & CO. THESE OBSERVATIONS OF THE AO CLEARLY SHOW THAT THE AO DID NOT DOUBT THE EXISTENCE OF THE FIRM. NEVERTHELESS, THE LD A.R FURNISHED A COP Y OF THE PARTNERSHIP DEED DATED 22- 07-1998 BEFORE US AND SUBMITTED THAT THE SAID COPY WAS ALSO FILED BEFORE THE AO. HENCE, WE DO NOT FIND ANY MERIT IN THE SAID GROUND RAISED BY THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED ACCORDINGLY ON 10- 08-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 10 TH AUGUST, 2012 GJ I.T.A. NO.667/COCH/2010 6 COPY TO: 1. M/S. KARTHIKA BAR & RESTAURANT, MAIDANAM, VARKAL A,TRIVANDRUM. 2. THE INCOME TAX OFFICER, WARD-1(4), TRIVANDRUM 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, TRIVA NDRUM. 4.THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN