TaxTMI 
TaxTMI 
2009 (7) TMI 860
X X X X Extracts X X X X
X X X X Extracts X X X X
....year under consideration. The return was processed under s. 143(1)(a) on 23rd Feb., 1999. The assessee is trading in stocks and shares and acting as brokers in the course of broking activity for and on behalf of traders, investors to buy, sell, transfer and otherwise dispose of the shares, stocks, securities and certificates etc. The assessee's partnership firm was constituted by two partnership firms namely M/s Esquire Stocks & Shares and M/s Hemavathi Finance Corporation. Both the partners are partnership concerns and not partners in their individual capacity. According to the AO, partnership firms cannot become a partner in another partnership firm. Therefore, the status of the assessee though was adopted as partnership firm while processing assessment under s. 143(1) the status was treated as partnership firm-AOP in the opened proceedings, hence he held that interest allowed on capital of the partners at Rs. 2,61,964 applying provisions of s. 40(b)(ii) and 40(b)(v) was required to be disallowed and the deductions were also not allowed in computing the total income of the partnership firm-AOP. He held that relief allowed to the assessee being interest on capital of partners has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....He also relied on the decision of the Hon'ble Supreme Court in the case of Dulichand Laxminarayan vs. CIT (1956) 29 ITR 535 (SC) for the proposition that a firm cannot be partner in another firm. Hence, assessee's contention that the assessee is a firm consisting of the partners of two other firms was rejected by the AO. The assessee approached the first appellate authority. 6.1 The view taken by the AO was confirmed by the learned CIT(A) on reiteration of the submissions made before the AO observing as under: "On a reading of the decision cited, I find that there is no such ratio emerging as contended by the assessee and the facts of that case were entirely different from the present case. In view of the forgoing, the status taken by the AO in the assessment order is confirmed. The appeal is dismissed on this issue." Aggrieved by the above order, assessee is in appeal before the Tribunal. 7. The assessee's representative invited our attention to paper book at p. 18 which is the partnership deed and submitted that the perusal of the partnership deed will show that all the partners of both the partners signed individually in the partnership deed. The learned counsel for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n support of the above contention the assessee's representative referred the decision of Hon'ble Bombay High Court in the case of Chhotalal Devchand. This was the case wherein three parties agreed to form a partnership firm. The parties were two firms, one firm of four partners, the other of two partners and an individual. The deed was signed by all the seven individuals. Capital was to be contributed equally by the three parties and the profit or loss was also to be shared equally by three parties. Subsequently, there was change in constitution of the partnership due to the death of one individual and a fresh partnership deed was executed and application for registration was made under s. 2(2A), which was rejected. The rejection was on the grounds that (a) it was not a valid partnership, as it was constituted of two firms and an individual, (b) in the books of the partnership the profits were credited not to the names of each in the constituents individual but only to the names of the firms and (c) the deed of partnership did not specify the share of each of the individuals constituting the two firms. The Hon'ble High Court held that the rejection of application of registration wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ple reason that there is no case for the Revenue that any new material has come to its possession which was not there at the time of original assessment proceedings. But the case was reopened by the AO for the reason, that. the decision of the Hon'ble Supreme Court, which was applicable, was not considered at the time of framing the assessment, as it was not brought to the notice of the AO. The Hon'ble High Court held that reopening is bad in law, as no new material had come into existence, though Revenue justified the reopening on the ground that the AO has applied mistaken law. 7.4 Assessee's representative further submitted that the AO has erred in law in making the assessment/reassessment on it in the status of partnership firm-AOP. Sec. 2(31) defines the term 'person' to include, inter alia, a firm and an AOP, or a BOI, whether incorporated or not. An assessment can be made on an assessee in anyone of the status provided for in s. 2(31). The IT Act nowhere provides for an assessment in the status of partnership firm-AOP. Hence, the assessment is bad in law. 7.5 He further submitted that the partnership deed dt. 25th Nov., 1996 by which the firm constituted has been regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....77) 107 ITR 361 (Bom). 7.7 The assessee's representative submitted though the assessee challenged the reopening vide ground No. 1, that CIT(A) has not dealt with the point at all. Counsel also brought our attention to the paper book page Nos. 41 to 47 copy of the note on the decisions relied and filed before the CIT(A) and at page No. 48 copy of the note on the decisions on the issue of legality of partnership firms entering into partnership but the CIT(A) has not dealt with the reopening point. 7.8 The assessee's representative submitted that even if the matter is restored back to the file of the AO, he requested the Bench to give specific finding whether the assessee is a firm or not. 8. In reply to the above, the learned Departmental Representative submitted that perusal of the assessment record will show that the AO issued the notice under s. 148 after properly recording the reasons for his belief that income chargeable to tax has escaped assessment and necessary approval from the concerned authority has been obtained before issuing such notice. The assessee has filed the return in the status of partnership and so the notice was issued in the status of firm. The assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce, it was held that application is liable to be rejected. The registration was not granted. Not so, in the instant case of the assessee since all the individual partners had singed the deed, hence, this decision is distinguishable on facts. 9.2 We find the decision relied upon by the assessee's representative in the case of Kylasa Sarabhaiah supports the case of the assessee. In this case there were three major partners in firm A in which four minors were admitted to the benefits of the partnership. Its profits were to be shared equally between the seven members, whereas losses were to be shared by minor partners equally. A larger firm B was constituted with five partners. In B partnership firm, A was described as the first partner and its members were collectively shown as having a share 6 Annas 9 paise in the profits of the larger firm. Since the deed of partnership of firm B was singed by all the major partners of firm A, their Lordships held that B firm was entitled to be registered under s. 26A of the IT Act 1922. 9.3 Coming to the instant case of the assessee there is no case even for the Revenue that all the partners of both the firms were not the signatories of the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case of the assessee, whereas in the very same case the Hon'ble High Court explained and distinguished the decision in the case of Dulichand Laxminarayan. Hence, we are of the view that refusal of reassessment by the Revenue authorities is not justified. 9.5 in the case relied upon by the assessee's representative submitted in the case of Century Enka Ltd., the Hon'ble Calcutta High Court held that relevant facts were admittedly and already available before the Revenue authorities and on that basis the assessment was completed, then the reopening on the basis of a decision that was already existing at that point of time which was held to be ignorance of law could not be a ground for initiating reassessment proceedings. However, we are not inclined to accept the above contention of assessee's representative on this line, in view of the decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh & Ors. (1979) 118 ITR 326 (SC) that "There is no presumption that everyone knows the law. It is often said that everyone is presumed to know the law, but that is not a correct statute: there is no such maxim known to the law." ....