ACIT, Chandigarh V. M/s Assam Tea House, Chandigarh

ITA 759/CHANDI/2011

• Counselvise Citation: 75921514 RSA 2011
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-12-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 21-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Business income
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 759/CHD/2011 ASSESSMENT YEAR: 2008-09 THE ACIT, VS M/S ASSAM TEA HOUSE CIRCLE 5(1), CHANDIGARH CHANDIGARH PAN NO. AAGFA6141C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K. SAINI RESPONDENT BY : SHRI TEJ MOHAN SINGH DATE OF HEARING : 27.12.2011 DATE OF PRONOUNCEMENT : 27.12.2011 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A), CHANDIGARH DATED 16.5.2011 RELATING TO ASSE SSMENT 2008-09. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 51,01,510/- ON ACCOUNT OF NON DEDUC TION OF TDS ON COMMISSION PAID TO PARTNERS. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE HAD PAID SALES COMMISSION @ 2% TO THE PARTNERS AMOUNTING TO RS. 51,01,510/- IN ACCORDANCE WITH THE TERMS OF PARTNERSHIP DEED (CLAU SE 15) AND SECTION 40(B) READ WITH SECTION 28(V) OF THE INCOME TAX ACT , 1961 (IN SHORT 'THE ACT'). THE ASSESSING OFFICER REQUIRED TO THE ASSES SEE TO SUBMIT EVIDENCE OF TDS ON COMMISSION TO PARTNERS AND THE ASSESSEE H AD SUBMITTED THAT THE PROVISIONS OF TDS ARE NOT APPLICABLE IN RESPECT OF COMMISSION / REMUNERATION / BONUS / SALARY/ INTEREST ETC. PAID T O THE PARTNERS OF A FIRM AS IT WAS MERELY AN ALLOCATION OF PROFIT TO BE ASSESSE D IN THE CASE OF FIRM OR ITS PARTNERS. THE ASSESSING OFFICER WAS NOT SATISF IED WITH THE SUBMISSION OF THE ASSESSEE AND MADE ADDITION OF RS. 51,01,510/ -. 4. ON APPEAL, THE CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEE CASE FOR ASSESSMENT YEARS 2006-07 AND 2007 -08 DELETED THE ADDITION AND HENCE THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE ORD ER DATED 24.5.2010 IN ITA NO. 1107/CHD/2009 IN ASSESSEES CASE RELATING T O ASSESSMENT YEAR 2006-07. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER:- 3. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF COMMISSION PAID TO PARTNERS. THE ASSESSEE IS A DEA LER IN TEA. THE ASSESSING OFFICER FROM THE PERUSAL OF PROFIT AND LOSS ACCOUNT NOTED THAT THE ASSESSEE HAD PAID COMMISSION TO THE PARTNERS AMOUNTING TO RS. 44,87,159/-. THE ASSESSING OFFICER WAS OF THE VIE W THAT TDS WAS TO BE DEDUCTED ON THE SAID COMMISSION PAID TO THE PARTNERS. THE PLEA OF THE ASSESSEE BEFO RE 3 THE ASSESSING OFFICER WAS THAT THE PROVISIONS OF TD S ARE NOT ATTRACTED AS THE AMOUNT OF COMMISSION / REMUNERATION / BONUS / SALARY ETC. PAID TO THE PART NERS OF A FIRM ARE MERELY AN ALLOCATION OF PROFITS TO BE ASSESSED EITHER IN THE CASE OF THE FIRM OR IN THE H ANDS OF THE PARTNERS. THE ASSESSING OFFICER INVOKING TH E PROVISIONS OF EXPLANATION BELOW SECTION 194H OF THE INCOME TAX ACT HELD THE ASSESSEE LIABLE TO DEDUCT T DS ON THE PAYMENT OF COMMISSION. IN VIEW OF NON DEDUCTION OF TDS ON THE AFORESAID PAYMENT TO THE PARTNERS, THE PROVISIONS OF SECTION 40(A)(IA) OF TH E ACT WERE HELD APPLICABLE AND THE SAID AMOUNT WAS DISALLOWED BY ASSESSING OFFICER. THE CIT(A) NOTED THE RELEVANT CLAUSES OF THE PARTNERSHIP DEED UNDER WHICH IN ADDITION TO THE SALARY PAID TO THE PARTNER S, IT WAS PROVIDED THAT COMMISSION AT THE RATE 2% OF THE TOTAL SALES OF THE YEAR SHALL BE PAID TO THE PARTNE RS. THE PROFIT AND LOSS AND AFTER ADJUSTING OF SALARY AND COMMISSION TO THE WORKING PARTNERS WAS TO BE DIVIDE D IN THE RATIO OF 50% EACH. THE CIT(A) HELD THAT THE PARTNER AND THE FIRM WERE NOT SEPARATE ASSESSEES AN D IT CANNOT BE SAID THAT THEY ARE ACTING ON BEHALF O F THE FIRM BECAUSE THEY THEMSELVES CONSTITUTES A PARTNERS HIP FIRM. THE CIT(A) THUS HELD THAT THE PROVISIONS OF SECTION 194H OF THE ACT ARE NOT APPLICABLE. THE CIT(A) FURTHER HELD THAT THE COMMISSION ALLOCATED T O EACH PARTNER WAS DECLARED BY THE SAID PARTNER IN TH EIR INDIVIDUAL RETURNS OF INCOME AND DUE TAXES WERE PAI D THEREON. RELYING ON THE RATIO LAID BY THE HON'BLE SUPREME COURT IN HINDUSTAN COCA COLA BEVERAGES PVT. LTD VS. CIT 293 ITR 226 (SC), IT WAS HELD TAXES C OULD NOT BE RECOVERED FROM THE DEDUCTOR ASSESSEE SINCE T HE SAID TAXES HAD BEEN PAID BY THE PARTNERS ON THE COMMISSION INCOME AND AS SUCH ASSESSEE WAS NOT ASSESSEE IN DEFAULT U/S 194H OF THE ACT. 4. SMT. SUNITA PURI, APPEARED FOR THE REVENUE AND SHRI TEJ MOHAN SINGH APPEARED FOR THE ASSESSEE AND PUT FORWARD THEIR CONTENTIONS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE IS PARTNERSHIP FIRM CONSTITUTED VIDE ARTICLES OF PARTNERSHIP DEED DATED IST DAY OF APRIL, 2005. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF THE RESALE OF TEA, ETC AS PER CLAUSE (3 ) OF THE PARTNERSHIP DEED. AS PER CLAUSE 14, INTEREST AT THE RATE OF 12% IS TO BE PAID ON THE RESPECTIVE CAPITAL INVESTMENT OF EACH OF THE PARTNER. AS PER CLAUSE 15, REMUNERATION IS PAYABLE TO THE WORKING PARTNER OF T HE ASSESSEE FIRM. AS PER CLAUSE 16, IN ADDITION TO TH E SALARY PAYABLE, EACH OF THE PARTNERS IS ENTITLED TO 4 COMMISSION AT THE RATE OF 2% ON TOTAL SALES OF THE YEAR. AS PER CLAUSE 17, AFTER ADJUSTMENT OF SALARY, COMMISSION, REMUNERATION OR BONUS TO THE WORKING PARTNERS, PROFITS OF LOSS FOR THE YEAR IS TO BE APPORTIONED AMONGST THE TWO PARTNERS IN THE RATIO O F 50% EACH. 6. THE FINANCE ACT, 1992 W.E.F. 1.4.1993 HAD AMENDED THE PROVISIONS WITH REGARD TO THE ASSESSMEN T OF A FIRM U/S 184 OF THE ACT. IT HAS BEEN PROVIDED THAT A FIRM SHALL BE ASSESSED AS A FIRM FOR THE PURPOSE OF THIS ACT, IF (I) THE PARTNERSHIP IS EVIDENCED BY AN INSTRUMENT AND (II) THE INDIVIDUAL SHARES OF THE PARTNERS ARE SPECIFIED IN THAT INSTRUMENT. CLAUSE (B) UNDER SECTION 40 WAS ALSO SUBSTITUTED BY THE FINANC E ACT, 1992 W.E.F. 1.4.1993 UNDER WHICH IT HAD BEEN PROVIDED THAT WHERE THE TERMS OF PARTNERSHIP DEED PROVIDE FOR THE PAYMENT OF SALARY, BONUS, COMMISSIO N OR REMUNERATION, BY WHATEVER NAME CALLED, AND THE SAME IS PAID TO ANY WORKING PARTNERS THEN SUCH PAYMENTS IS TO BE ALLOWED AS AN EXPENDITURE SUBJECT TO THE FULFILLMENT OF THE CONDITIONS LAID UNDER THE SA ID SUB SECTION. THE PROVISIONS OF CLAUSE (V) TO SECTIO N 28 WAS INSERTED BY THE FINANCE ACT, 1992 W.E.F. 1.4.19 93 WHICH PROVIDES THAT WHERE ANY BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED, IS PAID TO AN Y WORKING PARTNERS THE SAME WOULD BE CHARGEABLE TO TA X UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS, IN THE HANDS OF THE PARTNER. READING THE PROVISIONS OF T HE ACT IN CONJUNCTION, WE FIND THAT AFTER THE AMENDMEN TS MADE BY THE FINANCE ACT, 1992 W.E.F. 1.4.1993, THE PROVISIONS REGULATING THE ASSESSMENT OF THE FIRM AN D THE PROVISION OF INTEREST, SALARY, BONUS, COMMISSIO N ETC TO THE PARTNERS UNDERWENT A CHANGE. AFTER THE AMENDMENT, THE SAID PAYMENTS BEING MADE TO THE PARTNERS OF A FIRM ARE ALLOWABLE AS A DEDUCTION IN THE HANDS OF THE FIRM AND ARE CHARGEABLE AS PROFIT AND GAINS OF THE BUSINESS IN THE HANDS OF THE PARTNERS. BEFORE THE AFORESAID AMENDMENT, NO SUCH DEDUCTION WAS ALLOWED. 7. UNDER THE PRE AMENDED PROVISIONS REGARDING THE ASSESSMENT OF FIRM, THE SALARY IF ANY PAID TO THE PARTNER/S WAS NOT ALLOWED AS A DEDUCTION FROM THE PROFITS OF BUSINESS BECAUSE OF THE ESTABLISHED PRIN CIPLE THAT PARTNERSHIP IS A CERTAIN RELATION BETWEEN PERSONS, THE PRODUCT OF AGREEMENT TO SHARE THE PROF ITS OF A BUSINESS. FIRM IS AS COLLECTIVE NOUN, A COMPENDIOUS EXPRESSION TO DESIGNATE AN ENTITY, NOT A PERSON. THE SAID PROPOSITION WAS ELUCIDATED BY THE HON'BLE SUPREME COURT IN CIT VS. R.M. CHIDAMBARAM 5 PILLAY [1977] 106 ITR 292 (SC), WHEREIN IT WAS FURT HER HELD AS UNDER:- A FIRM IS NOT A LEGAL PERSON EVEN THOUGH IT HAS SOME ATTRIBUTES OF PERSONALITY. IN INCOME-TAX LAW A FIRM IS A UNIT OF ASSESSMENT, BY SPECIAL PROVISIONS, BUT IS NOT A FULL PERSON. 8. IN VIEW OF THE PROPOSITION LAID DOWN BY VARIOUS COURTS INCLUDING HON'BLE SUPREME COURT THAT FIRM IS ONLY A UNIT OF ASSESSMENT AND NOT A LEGAL PERSON, T HERE CANNOT BE A CONTRACT OF SERVICE BETWEEN A FIRM AND ANY OF ITS PARTNERS. IN THE FACTS OF THE PRESENT CASE, THE COMMISSION WAS PAID TO THE PARTNERS OF THE ASSESSEE FIRM AS PER THE CONVENANTS IN THE PARTNERSHIP DEED I.E. AN AGREEMENT BETWEEN THE PARTNERSHIP FIRM AND ITS PARTNERS, WHICH ARE NOT TWO DISTINCT PERSONS. THE INVOKING OF PROVISIONS OF SECTION 194H OF THE ACT I N A CASE WHERE THE PARTNERSHIP FIRM HAD PAID COMMISSION TO ITS PARTNERS, BY WAY OF REMUNERATION, IS NOT VAL ID, AS THE SAID PROVISIONS ARE ATTRACTED WHEREIN, ANY PERS ON PAYS COMMISSION TO THE PAYEE, WHO IS A DISTINCT IDENTITY. HOWEVER, IN THE CASE OF A FIRM AND ITS PARTNERS, THE SAID DISTINCTION IN THE IDENTITIES DO ES NOT EXIST. IN THE ABSENCE OF A CONTRACT BETWEEN TWO ENTITIES, THE PROVISIONS OF SECTION 194H ARE NOT ATTRACTED. ACCORDINGLY, WE HOLD THAT WHERE THE ASSESSEE FIRM HAD PAID COMMISSION AS REMUNERATION T O ITS PARTNER/S IN TERMS OF THE PARTNERSHIP DEED, ALLOWABILITY OF WHICH IS REGULATED UNDER THE PROVIS ION OF SECTION 40(B) OF THE ACT, THERE IS NO MERIT IN H OLDING THAT THE SAID COMMISSION PAYMENT IS REGULATED BY TH E PROVISIONS OF SECTION 194H OF THE ACT, AS THERE IS NO REQUIREMENT TO DEDUCT TAX OUT OF SUCH PAYMENTS OF COMMISSION BY THE ASSESSEE FIRM TO ITS PARTNERS. TH E NON DEDUCTION OF TAX IN SUCH CASES WOULD NOT ATTRAC T THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHI CH IS ANY CASE ARE APPLICABLE TO THE DEDUCTION CLAIMED U/ S 30 TO 38 OF THE ACT. IN THE INSTANT CASE BEFORE U S, THE DEDUCTION ON ACCOUNT OF COMMISSION PAID TO THE PARTNERS BY THE ASSESSEE FIRM IS GOVERNED BY THE PROVISIONS OF SECTION 40(B) OF THE ACT IN THE HANDS OF THE FIRM AND THE SAME IS INCLUDIBLE AS INCOME IN TH E HANDS OF THE PARTNER IN VIEW OF PROVISIONS OF SECTI ON 28 (V ) OF THE ACT. WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 6 6. WE ALSO FIND THAT SIMILAR FINDINGS HAVE BEEN GIV EN BY THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 IN THE CASE OF ASSESSEE IN ITA NO. 1210/CHD/2010 ORDER DATED 29.11.2010. WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2007-08, THE TRIBUNAL HAS FOLLOWED ITS EARLIER ORDE R PASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2006-07. THERE IS NO CHANG E IN FACTS AND THEREFORE, RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL REFERRED TO ABOVE PASSED IN ASSESSEES CASE, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND HENCE THE SAME IS DISMISSED. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF DECEMBER, 2011. SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 27 TH DECEMBER, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR