Aquasub Engineering, Coimbatore V. ACIT, Coimbatore

ITA 929/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3966 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 11-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SUBRAMANIAM
• Keywords: Rule of consistency
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.929/MDS/2016 ' (' / ASSESSMENT YEAR : 2011-12 M/S AQUASUB ENGINEERING, POST BOX 5803, TUDIYALUR POST, COIMBATORE 641 034. PAN : AADFA 8028 P V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE III, COIMBATORE. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI S. SUBRAMANIAM, FCA ,-*+ . / / RESPONDENT BY : MS. VIJAYALAKSHMI, CIT 0 . 1$ / DATE OF HEARING : 08.05.2017 2!( . 1$ / DATE OF PRONOUNCEMENT : 27.07.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX-2, COIMBAT ORE, DATED 29.02.2016, FOR THE ASSESSMENT YEAR 2011-12. 2. SHRI S. SUBRAMANIAM, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER COMP LETED THE 2 I.T.A. NO.929/MDS/16 ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX A CT, 1961 (IN SHORT 'THE ACT') TREATING THE ASSESSEE AS FIRM. HO WEVER, PRINCIPAL COMMISSIONER, IN EXERCISE OF POWER UNDER SECTION 26 3 OF THE ACT, FOUND THAT HUF OR TRUST CANNOT BE A PARTNER IN THE PARTNERSHIP FIRM, HENCE, THE ASSESSEE HAS TO BE TREATED AS ASSOCIATIO N OF PERSONS. 3. REFERRING TO THE ORDER OF THIS TRIBUNAL IN I.T.A . NO.1959MDS/2016 DATED 03.02.2017, THE LD. REPRESENT ATIVE FOR THE ASSESSEE SUBMITTED THAT A MEMBER NOMINATED BY HUF C AN BE A PARTNER IN THE PARTNERSHIP FIRM. THIS TRIBUNAL PLA CING ITS RELIANCE IN THE JUDGMENT OF APEX COURT IN RASHIK LAL & CO. V. C IT (1998) 229 ITR 458, FOUND THAT AN INDIVIDUAL COPARCENER OF HUF CAN BE A PARTNER IN REPRESENTATIVE CAPACITY IN THE PARTNERSH IP FIRM. ACCORDING TO THE LD. REPRESENTATIVE, THE TRIBUNAL HAS ALSO PL ACED ITS RELIANCE ON THE JUDGMENT OF APEX COURT IN CIT V. BAGYALAKSHM I & CO. (1965) 55 ITR 660. THEREFORE, ACCORDING TO THE LD. REPRES ENTATIVE, THE PRINCIPAL COMMISSIONER IS NOT JUSTIFIED IN TREATING THE ASSESSEE AS ASSOCIATION OF PERSONS. 4. ON THE CONTRARY, MS. VIJAYALAKSHMI, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT A HUF OR TRUST CANNO T BECOME A PARTNER IN THE PARTNERSHIP FIRM. IN THIS CASE, THE HUF AND TRUST WERE 3 I.T.A. NO.929/MDS/16 TAKEN AS PARTNER, THEREFORE, IT CANNOT BE TREATED A S A VALID PARTNERSHIP FIRM. HENCE, IT HAS TO BE ASSESSED ONL Y AS ASSOCIATION OF PERSONS AND NOT AS FIRM, THEREFORE, PROVISIONS O F SECTION 40(B) OF THE ACT IS SQUARELY APPLICABLE. ACCORDING TO THE L D. D.R., SINCE THE ASSESSING OFFICER HAS TREATED THE ASSESSEE AS FIRM, THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF REVENUE, THEREFORE, THE PRINCIPAL COMMISSIONER HAS RIGHTLY EXERCISED HIS REVISIONAL POWER UNDER SECTION 263 OF THE ACT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE ARISES FOR CONSIDERATION BEFORE THIS TRIBUNAL IS WHETHER T HE ASSESSEE HAS TO BE ASSESSED EITHER AS FIRM OR ASSOCIATION OF PER SONS. THIS WAS CONSIDERED BY THIS TRIBUNAL IN I.T.A. NO.1959/MDS/2 016 IN THE ASSESSEE'S OWN CASE, FOR ASSESSMENT YEAR 2012-13. THIS TRIBUNAL AFTER CONSIDERING THE CONSTITUTION OF PARTNERSHIP F IRM AND JUDGMENTS OF APEX COURT IN RASHIK LAL & CO. (SUPRA) AND BAGYA LAKSHMI & CO. (SUPRA), FOUND THAT INDIVIDUAL COPARCENER OR AN IND IVIDUAL TRUSTEE CAN BE A PARTNER IN THE REPRESENTATIVE CAPACITY IN A PA RTNERSHIP FIRM. IN THE CASE BEFORE US, AS FOUND BY THE TRIBUNAL FOR AS SESSMENT YEAR 2012-13, THE COPARCENER AND TRUSTEE ARE PARTNERS ON LY IN 4 I.T.A. NO.929/MDS/16 REPRESENTATIVE CAPACITY, THEREFORE, THE PARTNERSHIP FIRM WAS VALIDLY CONSTITUTED. IN FACT, THE TRIBUNAL OBSERVED AS FOL LOWS:- 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS CAREFULLY. THE QUESTION BEFORE US IS W HETHER THE PARTNERSHIP WAS ONE FORMED BETWEEN THE HUF AND TWO TRUSTEES OR BETWEEN THREE INDIVIDUALS. ONE MORE QUESTION AL SO ARISES WHETHER A VALID PARTNERSHIP COULD BE FORMED BETWEEN THREE PERSONS IN REPRESENTATIVE CAPACITY. RELEVANT CLAUS ES IN PARTNERSHIP DEED IN THE CASE OF AQUA SUB ENGINEERIN G READ AS UNDER:- THIS DEED OF PARTNERSHIP ENTERED THIS TWENTY FOURTH DAY OF MAY, ONE THOUSAND NINE HUNDRED AND NINETY AMONG: (1) MR. R. KUMARAVELU, SON OF LATE MR. R. RAMASWAMY, AGED ABOUT 37 YEARS, RESIDING AT 703, AVANASH I ROAD, COIMBATORE, HEREINAFTER CALLED THE PARTY OF THE FIRST PART; (2) MRS. HOMAI KUMARAVELU, WIFE OF MR. R. KUMARAVELU, AGED ABOUT 28 YEARS, RESIDING AT 703, AVANA SHI ROAD, COIMBATORE, HEREINAFTER CALLED THE PARTY OF SECOND PART; (3) DR.H.S. ADENWALLA, SON OF LATE SORAB HIRJI ADENWALLA, AGED ABOUT 59 YEARS, RESIDING AT JUBILEE M ISSION HOSPITAL, TRICHUR HEREINAFTER CALLED THE PARTY OF THIRD PART; AND (4) MRS. DAMAYANTI RAMACHANDRAN, WIFE OF LATE MR. R. RAMACHANDRAN, AGED ABOUT 43 YEARS, RESID ING AT 16 A.T.D STREET, RACE COURSE, COIMBATORE, HEREINAFTE R CALLED THE PARTY OF THE FOURTY PART 8. SIMILAR IS THE WORDINGS IN THE CASE OF AQUA PUMP INDUSTRIES ALSO. THE ASSESSING OFFICER HAD CONSIDE RED THESE FIRMS TO HAVE BEEN FORMED BETWEEN THESE PERSONS IN THEIR 5 I.T.A. NO.929/MDS/16 REPRESENTATIVE CAPACITY AND NOT IN THEIR INDIVIDUAL CAPACITY, CONSIDERING THE FOLLOWING CLAUSE APPEARING IN PAGE 2 OF THE PARTNERSHIP DEED. THE SAID CLAUSE IS REPRODUCED HE REUNDER:- WHEREAS, THE PARTIES HERETO OF THE SECOND AND THIRD PARTS ARE PARTNERS IN A REPRESENTATIVE CAPACI TIES RESPECTIVELY, REPRESENTING THE CHRYSANTHEMUM TRUST, AND THE MARIGOLD TRUST, BEING TRUSTS EVIDENCED BY TWO INDENTURES OF TRUST DATED THE TWENTYFIFTH DAY OF FEBRUARY, ONE THOUSAND NINE HUNDRED AND NINETY. WHEREAS, MR. R. KUMARAVELU THE PARTY HERETO OF THE FIRST PART REPRESENTS THE HINDU UNDIVIDED FAMIL Y CONSISTING OF HIMSELF, HIS WIFE AND MINOR DAUGHTER, OF WHICH HINDU UNDIVIDED FAMILY HE IS AT PRESENT THE KARTHA. 9. IN OUR OPINION, THE ABOVE CLAUSE WOULD NOT IPSO FACTO CONVERT PARTNERSHIP FIRM AS ONE ENTERED BETWEEN TWO TRUSTS AND AN HUF. THIS IS BECAUSE OF THE REASON THAT IN THE FIRST PART OF PARTNERSHIP WHERE THE DESCRIPTION OF PARTIES ARE GI VEN, IT IS NEVER STATED THAT THE PARTIES WERE REPRESENTING ANY TRUST OR HUF. EVEN IF WE TAKE THAT SHRI R. KUMARAVELU WAS REPRESENTING AN HUF, BY VIRTUE OF JUDGMENT OF APEX COURT IN THE CASE OF RASHIK LAL & CO. (SUPRA), HE COULD ALSO BE CONSIDERED AS A PARTNER IN HIS INDIVIDUAL CAPACITY. PARA 13 O F THE JUDGMENT OF APEX COURT IS REPRODUCED HEREUNDER:- A HINDU UNDIVIDED FAMILY CANNOT BE IN A BETTER POSITION THAN A FIRM IN THE SCHEME OF THE PARTNERSH IP ACT. THE REASONS THAT LED THIS COURT TO HOLD THAT A FIRM CANNOT JOIN A PARTNERSHIP WITH ANOTHER INDIVIDUAL WILL APPLY WITH EQUAL FORCE TO A HINDU UNDIVIDED FAMILY. IN LAW, A HINDU UNDIVIDED FAMILY CAN NEVER BE A PARTNER OF A PARTNERSHIP FIRM. EVEN IF A PERSON NOMINATED BY THE HINDU UNDIVIDED FAMILY JOINS A PARTNERSHIP, THE PARTNERSHIP WILL BE BETWEEN THE NOMINATED PERSON AN D THE OTHER PARTNERS OF THE FIRM. HAVING REGARD TO TH E DEFINITION OF PARTNERSHIP AND PARTNERS AND IN V IEW OF THE PRINCIPLE LAID DOWN IN DULICHANDS CASE [1956] 29 ITR 535 (SC), IT IS NOT POSSIBLE TO HOLD THAT A HINDU UNDI VIDED 6 I.T.A. NO.929/MDS/16 FAMILY BEING A FLUCTUATING BODY OF INDIVIDUALS, CAN ENTER INTO A PARTNERSHIP WITH OTHER INDIVIDUAL PARTNERS. IT CANNOT DO INDIRECTLY WHAT IT CANNOT DO DIRECTLY. IF THE KARTA OR ANY OTHER MEMBER OF A HINDU UNDIVIDED FAMI LY JOINS A PARTNERSHIP, HE CAN DO SO ONLY AS AN INDIVI DUAL. HIS RIGHTS AND OBLIGATIONS VIS-A-VIS OTHER PARTNERS ARE DETERMINED BY THE PARTNERSHIP ACT AND NOT BY HINDU LAW. 10. WHAT THEIR LORDSHIP HELD IS THAT EVEN IF A PERS ON NOMINATED BY A HUF JOINS A PARTNERSHIP, THE PARTNER SHIP COULD BE DEEMED AS ONE BETWEEN SUCH NOMINATED PERSON AND OTHER PARTNERS OF THE FIRM. THE APEX COURT DID NOT HOLD THAT SUCH PARTNERSHIP WOULD ONLY BE AN ASSOCIATION OF PERSONS . IN ANY CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEES WERE GRANTED THE STATUS OF REGISTERED FIRM BY VIRTUE OF PROVISIONS O F SECTION 185(1) OF THE ACT SINCE ASSESSMENT YEAR 1991-92. THE POSI TION CONTINUED FOR A PERIOD OF TWENTY YEARS AND IT WAS A FTER SUCH TWENTY YEARS, THE ASSESSING OFFICER ATTEMPTED TO DI STURB THIS. WHEN A SET OF FACTS WHICH PERMEATES FROM EARLIER YE ARS, IS CONSISTENTLY THE SAME, IT WOULD NOT BE APPROPRIATE TO DISTURB THE CONCLUSIONS REACHED BASED ON SUCH FACTS. NO DOUBT, RULE OF RES JUDICATA MAY NOT BE APPLICABLE TO THE INCOME-TAX PROCEEDING S, BUT THE RULE OF CONSISTENCY DEMANDS THAT A POSITION CONSISTENTLY TAKEN SHALL NOT BE DISTURBED UNLESS THERE WERE SIGN IFICANT CHANGE IN FACTS. INSOFAR AS RELIANCE PLACED ON SEC TION 40(B) OF THE ACT BY THE A.O. IS CONCERNED, THERE IS NOTHING IN THAT SECTION TO CONCLUDE THAT A PARTNERSHIP COULD NOT BE FORMED BY A KARTA OF AN HUF IN HIS INDIVIDUAL CAPACITY WITH OTHER PERSON S. THE SAME, IN OUR OPINION, WOULD ALSO APPLY WHERE AN IND IVIDUAL WHO JOINS PARTNERSHIP IN A REPRESENTATIVE CAPACITY. IT CAN ALWAYS BE CONSIDERED THAT HE WAS DOING SO IN HIS INDIVIDUAL C APACITY. THIS POSITION HAS BEEN REITERATED BY HON'BLE APEX COURT IN THE CASE OF BAGYALAKSHMI & CO. (SUPRA), WHICH HAS ALSO BEEN RELIED ON BY THE LD. CIT(APPEALS). CONSIDERING THE FACTS OF THE CASE, WE ARE INCLINED TO UPHOLD THE ORDERS OF THE CIT(APPEAL S). THE APPEALS OF THE REVENUE STAND DISMISSED. 11. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE T O UPHOLD THE ORDER THE PRINCIPAL COMMISSIONER. THE ORDER OF THE PRINCIPAL COMMISSIONER IS QUASHED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 7 I.T.A. NO.929/MDS/16 ORDER PRONOUNCED ON 27 TH JULY, 2017 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 27 TH JULY, 2017. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. PRINCIPAL CIT-2, COIMBATORE 5. 68 ,1 /DR 6. 9' : /GF.