2012 (9) TMI 1205

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....n on Car of Rs. 85,643/- b) Interest on Car Loan Rs. 17,466/- c) Repairs and Insurance of Car of Rs. 21,917/- on the ground that assessee has partly derived exempted income u/s 10(2A) being Profits & Gains of Profession. 2. The Ld. CIT(A) erred in applying the provisions of Section 14A of the Income Tax Act, 1961, and working out the disallowance in proportion of the exempt income. The claims of above deduction be allowed in full. 3. The Ld. CIT(A) erred on facts and in law in invoking the provisions of section 14A which was never invoked by the A.O. and in making proportionate disallowance. 4. The disallowance confirmed by the CIT(A) is not justified either on facts and on law, the same....

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....y apportioning them in the ratio of exempt to taxable income by applying provisions of section 14A of the Act on the share income from the firm which is exempt from tax u/s. 10(2A) of the Act?" The Hon'ble Special Bench has held as under: "7. We have given careful consideration to various cases relied upon by the contesting parties. These cases inter-alia show that a firm can validly enter into an agreement with a partner regarding purchase and sale of assets etc. [Kaluram Puranmal; Chase Trading Co.]. Further it has been held that whenever the field is occupied by the tax law, the provision contained therein will become applicable, but where the field is left vacant, we will have to take assistance from the provisions contained....

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....ar as share income is concerned, the field is occupied by the tax law, as it is enacted that the share income shall not form part of total income of the partners. Therefore, in view of this specific provision and the fact that the firm and partners are separately assessable entities, it will be difficult to hold that the share income is not excluded from the total income of the partner because the firm has already been taxed thereon. When section 10(2A) speaks of its exclusion from the total income, it means, the total income of the person whose case is under consideration. The instant case is that of the partner and therefore what is to be examined is whether the share income is excluded from his total income. The answer is obviously in th....