ITO, Tirunelveli V. M/s. M.K.V.K.Saw Mill, Tirunelveli

ITA 852/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57763 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NOS. 852 AND 853/MDS/2011 ASSESSMENT YEARS: 2006-07 AND 2007-08 THE INCOME TAX OFFICER, WARD I (2), TIRUNELVELI. VS. M/S. M.K.V.K. SAW MILL, 14/1003, MAIN ROAD, PAVOORCHATRAM, TIRUNELVELI DIST. [PAN: AACFM9220G] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB , SR. DR ASSESSEE BY : SHRI G. BASKAR, ADVOCATE DATE OF HEARING : 09.01.2012 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT(A) II, MADURAI PASSED ON 28.02 .2011 IN ASSESSMENT YEARS 2006-07 AND 2007-08. SHRI SHAJI P. JACOB, SR. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI G. BASKAR, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE ONLY GRIEVANCE OF THE REVENUE IN THESE APPE ALS IS THAT THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THERE IS NO SPECIFIC AUTHORIZATION IN THE PARTNERSHIP DEED FOR PAYMENT INTEREST ON CURRENT AC COUNTS AND ALSO THERE IS NO CLAUSE IN THE PARTNERSHIP DEEP THAT ALL THE AMOU NTS STANDING TO THE CREDIT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .852 & 853 852 & 853 852 & 853 852 & 853/ // /M/ M/M/ M/11 1111 11 2 IN ANY ACCOUNT OF THE PARTNERS WILL BE TREATED AS C APITAL BEFORE DELETING THE DISALLOWANCE OF DEDUCTION FOR PAYMENT OF INTEREST O N CAPITAL TO PARTNERS FOR ` .11,70,137/- IN ASSESSMENT YEAR 2006-07 AND ` .12,24,684/- IN ASSESSMENT YEAR 2007-08 MADE BY THE ASSESSING OFFICER. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANCE CASE, THE ASSE SSEE CLAIMED DEDUCTION FOR PAYMENT OF INTEREST ON CAPITAL TO PARTNERS OF ` .11,70,137/- IN ASSESSMENT YEAR 2006-07 AND ` .12,24,684/- IN ASSESSMENT YEAR 2007-08. THE ASSESS ING OFFICER DISALLOWED THE DEDUCTION OF INTEREST PAYMEN T ON THE GROUND THAT THE PARTNERSHIP DEED AUTHORIZES THE PAYMENTS OF INTERES T IN RESPECT OF CAPITAL ACCOUNT ONLY AND NOT IN CURRENT ACCOUNTS AND THAT T HE ASSESSEE DID NOT SATISFY THE REQUIREMENT OF SUB-CLAUSE (IV) OF CLAUS E (B) OF SECTION 40 OF THE ACT. 4. ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE HELD THAT ALL THE AMOUNTS CREDITED TO THE PARTNERS ARE ORDINARILY CAPITAL CONTRIBUTED BY THE PARTNER. HE ALSO OBSERVE D THAT THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF NOVEL DIST RIBUTING ENTERPRISES VS. DCIT (2001) 251 ITR 704(KER.), THE CASE LAW RELIED ON BY THE ASSESSING OFFICER, IT WAS HELD THAT INTEREST PAID ON CURRENT ACCOUNT WAS NOT DEDUCTIBLE AS PARTNERSHIP DEED IN THAT CASE DID NOT AUTHORIZE PAYMENT OF INTEREST ON CURRENT ACCOUNT. THE LD. CIT(A) ALSO OBSERVED THAT THE STATUTORY PROVISION REFERS TO PAYMENT OF INTEREST UNDER THE TERMS OF PA RTNERSHIP AND DOES NOT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .852 & 853 852 & 853 852 & 853 852 & 853/ // /M/ M/M/ M/11 1111 11 3 CONFINE THE INTEREST TO THE CAPITAL ACCOUNT. HE FUR THER OBSERVED THAT AS PER PARTNERSHIP DEED DATED 01.04.2004 CAPITAL FOR ASSE SSEES BUSINESS SHALL BE SUCH SUM THAT STANDS TO THE CREDIT OF THE PARTNERS ACCOUNT FROM TIME TO TIME WHICH SHALL CARRY SIMPLE INTEREST OF 6% P.A. HE, T HEREFORE, HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM INTEREST PAYMENT TO PARTNERS IN RESPECT OF THE CAPITAL ACCOUNT AND CURRENT ACCOUNT AMOUNTS. HENCE, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5. BEING AGGRIEVED BY THIS ORDER, THE REVENUE IS I N APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE SIDES, CONSIDERED MATERI AL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS A RE THAT THE ASSESSEE FIRM PAID INTEREST OF ` .12,240/- IN EACH OF THE ASSESSMENT YEARS 2006-07 A ND 2007-08 IN RESPECT OF CREDIT BALANCE OF CAPITAL OF PARTNERS UNDER CAPITAL ACCOUNT AND ` .11,70,137/- IN ASSESSMENT YEAR 2006-07 AND ` .12,24,687/- FOR THE ASSESSMENT YEAR 2007-08 IN RESPECT OF CREDIT BA LANCE UNDER THE HEAD CURRENT ACCOUNT. THE ASSESSING OFFICER OBSERVING TH AT THE DEED OF PARTNERSHIP ALLOWED INTEREST PAYMENT AT THE RATE OF 6% TO PARTNERS IN RESPECT OF CAPITAL BALANCE DISALLOWED THE CLAIM OF INTEREST PAYMENT OF ` .11,70,137/- IN ASSESSMENT YEAR 2006-07 AND ` .12,24,687/- IN ASSESSMENT YEAR 2007-08 IN RESPECT OF CREDIT BALANCE IN CURRENT ACCOUNT. TH E ASSESSING OFFICER ALSO RELIED UPON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF NOVEL DISTRIBUTING ENTERPRISES VS. DCIT (SUPRA) FOR HIS ABOVE ACTION. 7. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE ON THE GROUND THAT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .852 & 853 852 & 853 852 & 853 852 & 853/ // /M/ M/M/ M/11 1111 11 4 PARTNERSHIP DEED AUTHORIZES PAYMENTS AT THE RATE OF 6% ON THE CREDIT CAPITAL BALANCE OF PARTNERS AND THE PARTNERSHIP DEED ALSO P ROVIDES THAT CREDIT BALANCE OF PARTNERS IN THE BOOKS OF THE FIRM SHALL BE THE CAPITALS OF THE PARTNERS AND THEREFORE, CREDIT BALANCE UNDER BOTH C APITAL ACCOUNT AND CURRENT ACCOUNT WERE CAPITAL OF THE PARTNERS. 8. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND RELIED ON THE DECISION OF THE HONBLE KERALA HIGH COURT CITED ABOVE. 9. ON THE OTHER HAND, THE LD. AR RELIED UPON THE P ARTNERSHIP DEED BY THE ASSESSEE FIRM AND ORDER OF THE LD. CIT(A). 10. WE FIND THAT THE LD. DR COULD NOT POINT OUT AN Y SPECIFIC ERROR IN THE FINDINGS OF THE LD. CIT(A). FURTHER, THE PARTNERSHI P DEED OF THE ASSESSEE FIRM PLACED ON RECORD, WHICH WAS FILED BY THE LD. AR OF THE ASSESSEE DURING THE COURSE OF HEARING ON 09.01.2012 SHOWS THE FOLLOWING : 6. THE CAPITAL FOR THIS BUSINESS SHALL BE SUCH SU M THAT STANDS TO THE CREDIT OF THE PARTNERS ACCOUNT FROM TIME TO TIME WHICH SHALL CARRY SIMPLE INTEREST OF 6%P.A. ON THE BASIS OF THE ABOVE, IT IS OBSERVED THAT THE BALANCE OF PARTNERS UNDER THE HEAD CURRENT ACCOUNT WAS ALSO THE CAPITAL CONTR IBUTION OF THE PARTNERS AND INTEREST ON THE ENTIRE CAPITAL BALANCE WAS AUTH ORIZED BY THE DEED OF THE PARTNERSHIP. WE FIND THAT, IT IS NOT IN DISPUTE THE AMOUNT OF ` .11,70,137/- IN ASSESSMENT YEAR 2006-07 AND ` .12,24,687/- IN ASSESSMENT YEAR 2007-08 IS THE AMOUNT WORKED OUT AT THE RATE OF 6% ON THE CURR ENT ACCOUNT BALANCE. IN I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .852 & 853 852 & 853 852 & 853 852 & 853/ // /M/ M/M/ M/11 1111 11 5 THE ABOVE CIRCUMSTANCES, WE DO NOT FIND ANY ERROR I N THE ORDER OF THE LD. CIT(A). 11. FURTHER, THE DECISION OF THE HONBLE KERALA HI GH COURT IN THE CASE OF NOVEL DISTRIBUTING ENTERPRISES VS. DCIT (SUPRA) IS NOT APPLICABLE ON THE FACTS OF THE INSTANT CASE AS REVENUE HAS BROUGHT NO MATER IAL BEFORE US TO SHOW THAT THE AMOUNT STANDING TO THE CREDIT OF PARTNERS UNDER THE HEAD CURRENT ACCOUNT WERE NOT CAPITAL CONTRIBUTION OF THE PARTNE RS AND IN THE INSTANT CASE, PARTNERSHIP DEED SPECIFICALLY AUTHORIZES PAYMENT OF INTEREST AT THE RATE OF 6% ON CAPITAL WHICH SHALL BE SUCH AMOUNT, WHICH STANDS CREDIT TO THE PARTNERS ACCOUNT FROM TIME TO TIME. WE, THEREFORE, CONFIRM T HE ORDER OF THE LD. CIT(A) AND DISMISS THE GROUNDS OF APPEALS OF THE REVENUE. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 13.01.2012. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 13.01.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.