TaxTMI 
TaxTMI 
2024 (3) TMI 1005
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....uld also be applicable in case of a partnership firm constituted solely of the individuals who in their individual capacity are entitled to exemption u/s 10(26) of the Income Tax Act, 1961. 2. The captioned four appeals for different assessment years have been filed by two assessees who are partnership firms, running hotel business. The assessee M/s Hotel Centre Point, a partnership firm having Shri Prabhat Dey Sawyan and Mr. Walamphang Roy as its parners who are uterine brothers has filed ITA No.348/GTY/2018, ITA No.349/GTY/2018 & ITA No.350/GTY/2018, whereas, assessee M/s RI-Kynjai Serenity By The Lake, a partnership firm having Shri Prabhat Dey Sawyan & Mrs. Lalparliani Sawyan as its parners, who are husband and wife has filed ITA No.351/GTY/2018. The facts and issues involved in all the appeals are identical. ITA No.348/GTY/2018 is taken lead case for the purpose of narration of facts. ITA No.348/GTY/2018 for A.Y 2013-14: 3. The assessee partnership firm during the relevant year has been running hotel business under the name and style of M/s Hotel Centre Point at Shillong. It consisted of two partners namely Shri Prabhat Dey Sawyan and Mr. Walamphang Roy, both the partners a....
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....joint income is assessable in the status of BOI (Body of Individuals). According to him, decision of the Hon'ble Gauhati High Court in Mahari & Sons (supra) is not applicable in case where joint income of members of scheduled tribe is to be assessed in the status of Partnership Firm. He also noted that the Hon'ble Supreme Court in the case of Commissioner of Customs (Import) v. Dilip Kumar & Co. (2018) 9 SCC 1 has held that where there is an ambiguity in exemption notification or provision, the benefit of ambiguity will go to Revenue/Government. He, therefore, upheld the order of the Assessing Officer. 5. On second appeal, the Gauhati Division Bench of the Tribunal vide its order dated 13.09.2019 upheld the order of the CIT(A) observing as under: "17. We have given our thoughtful consideration to the foregoing rival contentions. Relevant case record(s) as well as various judicial precedents quoted during the course of hearing stand perused. We wish to make clear first of all that there is no dispute between the parties about the basic relevant facts. This assessee is a partnership firm consisting to two partners having equally share. The members of Khasi tribe entitled for 10(26....
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....tion of his income derived from "any source in the area" and also "income from dividend or interest on securities." It transpires from a perusal of the above statutory provision that the legislature has not only granted exemption income of "any person" only but also it applies the impugned benefit in case of a member of Scheduled Tribe" only. 19. Hon'ble apex court has also been settling the relevant principles of interpretation to be adopted in case of taxation laws from time to time. Their lordships latest constitution bench's decision in M/s Dilip Kumar and Company & Ors. (supra) holds that "every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provision the benefit must go in favour of a subject / assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue / State". Their lordships yet another decision in Raghunath Rai Bareza vs. PNB (2007) 135 Company Cases 163 (SC) holds that it is the cardinal rule of interpretation that words used by the legislature are ....
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....wn exclusive use, but by Ka Khaddu for the benefit of the entire family, which in the case of Khasis, is matriarchal in form. Even the self-occupied property of a male Khasi, if acquired before marriage, and if he dies before getting married, goes to his mother or "Kur". The earnings of the male are regarded as part of the family earnings and are placed by him at the disposal of the mother. Even if he keeps some income for himself, on his death, his mother or her nearest female kur, takes it. After marriage, the Khasi husband goes to live in the house of the mother of his wife or in the house of his wife. Before the wife has a child, the husband uses sufficient part of is own earnings for the maintenance of his wife, the surplus or a portion of this surplus, he my give to his kurs. After the birth of the child, husband and wife work and earn jointly for the child. The husband works with his wife on the land, or is engaged in the trade with the capital supplied by her. The earnings of the male in such a situation cannot be distinguished from those of his wife. The individual property is thus not the norm in the Khasi society. It is, of course, not to suggest that a Khasi male cann....
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....9;ble apex court's recent constitution bench judgment (supra). Whilst observing so, we are very much conscious of the fact that hon'ble Gauhati high court had acted as hon'ble jurisdictional high court as well till March 2013 when hon'ble Meghalaya high court at Shillong came to be established after suitable amendments in the "Constitution of India and North-Eastern Areas (Reorganisation) Acts of 1971. Be that as it may, their lordships of the hon'ble apex court have settled the law how that the benefit of doubt in relation to an exemption provision in a tax law goes in favour the Revenue / State and not to the taxpayer anymore. We follow the same to hold that the assessee's arguments that a partnership firm is "a member of a scheduled tribe" is not liable to be accepted. We also make it clear that this is going by their lordships foregoing landmark decision(s), there is no scope left for us hold that there is any scope of intendment in the impugned statutory provision stretching the impugned exemption to a partnership firm as a member of Scheduled Tribe under Article 366 Constitution of India. 22. The assessee's next argument that sec. 13 of the Gen....
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....parative analysis of all these exemption provisions is that sec. 10(26) pre-possess "any person" who is also a member of a Scheduled Tribe as against sec. 10(26A) and 10(26AAA) applicable in case of specified categories of person respectively. We also involve the doctrine of necessary implication in this backdrop that what is implied in the statute is as much a part thereof as that what is expressed. We thus find no infirmity in the CIT(A)'s lower appellate order upholding the Assessing Officer's action that the assessee is not entitled for the exemption benefit u/s. 10(26) of the Act. 25. Coming to various judicial precedents quoted at the assessee's behest (supra), we find that none of these deals with an instant of interpretation of an exemption provision in tax laws. Their lordships determine inter-play between a partnership firm and its partners' compendious structure, former's formation and joint business carried out the former's name followed by distributing profits. There can be no dispute about the law settled therein. The same; however, does not apply in issue of sec. 10(26) exemption before us in view of our foregoing detailed discussion. We acc....
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....y seeks to claim a benefit of an exemption, it must fall within the class or classes of persons to whom the exemption has been extended and that an exemption clause cannot be charitably interpreted to enlarge the scope thereof and confer benefits on others not specifically intended to be covered by the same. In such regard, the Tribunal has held in the order impugned that when Section 10(26) refers to an individual being a member of a relevant scheduled tribe and the income of such person accruing in one of the notified areas, the benefit under such exemption could not be extended to persons other than individuals who are defined in the statute as such other persons cannot be regarded as individuals within the restricted meaning of that word in Section 10(26) of the Act. 5. In such context, both the Tribunal in the order impugned and the Department in course of the present appeals, have referred to Section 2(31) of the Act and Section 184 thereof. The order impugned has also reasoned that since an individual has to be seen distinct from a partnership firm in view of Section 2(31) of the Act, when an assessee is an association of persons belonging to the same scheduled tribe where....
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....to tread with extreme care and caution. A body that deals with a particular type of matters on an everyday basis would be expected to have greater command over the law applicable in the field and a Constitutional Court would not interfere with a view expressed on interpretation unless it appears to be grossly inappropriate and almost outlandish. 11. Balancing both sides - the fact that the dictum in Mahari & Sons has held the field for three decades and the recognition that the order impugned has been rendered by a specialised tribunal - it is deemed fit and proper to remand the matter before the Appellate Tribunal with a request to the President of the Tribunal to constitute a larger bench without including either member who was a party to the order impugned, for the consideration of the entire gamut of the matter. The President is requested to ensure that a larger ench of at least three members is constituted within a month of the receipt of an authenticated copy of this order with a request to the relevant bench to dispose of the legal issue which has arisen as expeditiously as possible and, preferably, within three months of the first sitting of such bench. ..... 13. None....
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....ration Convent 2021 SCC Online SC 151 wherein the Hon'ble Supreme Court has explained that there is a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. That, the Hon'ble Supreme Court in Mother Superior (supra) has laid down that while applying rule of interpretation one has to distinguish exemption provisions generally on the one hand and on the other hand exemption provisions which have a beneficial purpose. In case of general exemption provision the rule of strict interpretation will apply. However, in case of beneficial exemption provision, liberal rule of construction shall apply and if any ambiguity arises in construction, such ambiguity must be in favour of that which is exempted. (vii) That the object and purpose of section 10(26) of the Act is to ensure growth, progress and economic development of the scheduled tribe areas. That the Hon'ble Supreme Court in Income-tax Officer v. N. Takin Roy Rymbai [1976] 103 ITR 82 (SC), has also held so. (viii) That the only difference in the present matters and the facts in the case of Mahari & Sons (supra) is that in Mahari & Sons joint income was of group of members of Sch....
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....ous form of indicating partners thereof and not a legal entity. Partners are collectively called firm. The partnership firm and the partners are one and same in the eye of law including Income-tax Act. Reliance has been placed on the following case laws: i) ITO v. Arunagiri Chettiar (1996) 220 ITR 232 (SC) / 1996 (9) SCC 33 ii) Dulichand Laxminarayan v CIT (1956) 29 ITR 535 (SC) (Larger Bench) - iii) CIT v. R. M. Chidambram Pillai (1977) 106 ITR 292 (SC)/1977 AIR 489: iv) CIT v. Ramniklal Kothari (1969) 74 ITR 57 (SC) v) N. Khadervali Saheb and another v. N. Gudu Sahib (Decd.) and others [2003] 261 ITR 1 (SC)(Larger Bench) vi) CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj): vii) CIT v. V. Sivakumar [2013] 354 ITR 9 (Mad): viii) CIT v. Muthoot Financiers [2015] 371 ITR 408 (Delhi) ix) Malabar Fisheries Co. v. CIT (1979) 120 ITR 49 (SC). . (xv) That had 'Firm' or 'AOP' or 'BOI' been a legal entity separate and independent from the partners or members constituting the same, there would not have been any need to enact separately provisions of section 45(3) and 45(4) of the Act read with section 9B of the Act. If such an unincorporated body would have....
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....n entity distinct from its partners, but that is so only for the purposes of assessment." 9. The sum and substance of the entire argument of the ld. AR of the assessee is that a partnership firm is not a juristic or legal person distinct from its partners, rather, it is the collective or compendious name of the partners who have joined together to carry on some activities with the object of earning income. It has been submitted that the partners in the firm were related to each other and both the partners belong to Khasi tribe whose income was exempt u/s 10(26) of the Income Tax Act. That the dictum of the decision of the Hon'ble Guwahati High Court in the case of "Mahari & Sons (supra)" as propounded in the case of the "family" is squarely applicable in the case of the assessee partnership firm also. Further that the exemption is granted u/s 10(26) of the Act to the Khasi tribe residing in the specified area with the object and purpose of growth progress and economic development of the Scheduled Tribes residing in a backward area. The provisions of Section 10(26) of the Act for particular community and area should be interpreted liberally. 10. The ld. DR, on the other hand, has ....
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....firm" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009); (ii) "partner" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include,- (a) any person who, being a minor, has been admitted to the benefits of partnership; and (b) a partner of a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009); (iii) "partnership" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009); 15. Section 4 of the 'Indian Partnership Act, 1932' inter-alia defines 'Partnership' and 'Firm' as under: "Section 4 : DEFINITION OF "PARTNERSHIP", "PARTNER", "FIRM" AND "FIRM NAME". 'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individuall....
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....y Partnership, however, the special provisions of the Income Tax Act do not differentiate between a Partnership Firm as defined under the Indian Partnership Act, 1932 and Limited Liability Partnership firm ( LLP) as defined under Limited Liability Partnership Act, 2008 (6 of 2009). The inclusion of the Limited Liability partnership into the definition of firm makes it clear that a firm is separate assessable legal entity and it does not distinguish between a body corporate or not. 18. Under the Income Tax Act, a partnership firm is a separate and distinct "person" assessable to Income Tax. There are separate provisions relating to the rate of Income Tax, deduction and allowances etc. in relation to a firm as compared to an individual. The benefits in the shape of deductions or exemptions available to an individual are not transferrable or inter-changeable to the firm nor the vice versa. The firm in general law may not be treated as a separate juristic person, however, under the Income Tax Act, it is assessable as a separate and distinct juristic person. The Income Tax Act is a special legislation, therefore, the interpretation given in general law cannot be imported when the speci....
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.... with the registrar of the firms. Section 69 prescribes effect of non-registration of the firm. As per section 69 (1), no partner can sue for a right, arising out from a contract or conferred by the Act, against the firm or any other partner unless the firm is registered and the person suing in shown in the register of firms as partner. As per sub-section (2), no suit can be brought by or on behalf of a firm to enforce a right arising from a contract against a third party unless the firm is registered. Sub-section (3) prescribes that the aforesaid disabilities shall not affect the enforcement of any right to sue in case of a dissolved firm. Section 70 makes it punishable to give false particulars in respect of registration of firms. Further, as per Order 30 Rule 1 of the Civil Procedure Code, a firm can sue or be sued in its name. When the aforesaid provision of the Partnership Act 1932 are read together with the relevant provisions of the Income Tax Act and The Code of Civil procedure, it leaves no doubt in our mind that for the purpose of Income tax Act, a partnership firm is a separate assessable legal entity which has can sue or be sued in its own name, can hold properties, and....
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....ven two firms consisting of exactly same partners, carrying on different businesses could not be treated as a single partnership firm for the purpose of sales tax assessment on turnover of both the businesses. The Hon'ble Supreme Court referring to the decision in the case of "Watson & Everitt v. Blunden [1933] 18 TC 402(CA)" which has been further approved by the House of Lords in "CIT v. Gibbs [1942] 10 ITR 121 (Suppl.)" has held that what is that for the purposes of assessment to tax the income of the partnership firm has to be assessed in the hands of the firm as a single unit, the firm itself being treated as an assessable entity separate and distinct from the partners constituting it. The firm is an assessable unit separate and distinct from the individual partners, who as individuals constitute assessable units separate and distinct from the firm. The relevant part of the decision of the Hon'ble Supreme Court in the case of "Dy. Commissioner of Sales Tax vs. K. Kelukutty" (supra) is reproduced as under: "8. As long ago as Watson & Everitt v. Blunden [1933] 18 TC 402(CA), Romer, L.J. said that for taxing purposes 'a partnership firm is treated as an entity distinct from....
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....her in law there is only one partnership firm or two partnership firms, that the next question arises: whether the turnover is assessable in the hands of the partnership firm as a taxable entity separate and distinct from the partners? There is first a decision under the law of partnership; thereafter, the second question arises, the question as to assessment under the tax law. It is clear, therefore, that reference must be made first to the partnership law. 11. The Indian Partnership Act, 1932 ('the Act') has, by section 4 of the Act, defined a 'partnership' as 'the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all'. The section declares further that the persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm'. The components of the definition of 'partnership', and, therefore, of 'a firm' consist of (a) persons, (b) a. business carried on by all of them or any of them acting for all, and (c) an agreement between those persons to carry on such business and to share its profits. It is the re....
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....rm are distinct assessable entities, while the firm as such is a separate and distinct unit for purposes of assessment. Sections 26, 48 and 55 of the Act fully bear out this position. These provisions of the Act go to show that the technical view of the nature of a partnership under English law or Indian law cannot be taken in applying the law of income tax." 22. The hon'ble Calcutta High Court in the case of Prodip Kumar Bothra v. Commissioner of Income-tax, Kolkata [2012] 18 taxmann.com 177 (Calcutta)has held as under : "17. As pointed out by a Division Bench of this Court in the case of Sarvamangala Properties Ltd. (supra), under the Indian Partnership Act, a firm is an entity known to law and is capable of acquiring and owning property, both moveable and immoveable, and under the law of income tax in India, a firm owning a property would be liable to taxation. It was further pointed out that under the Indian Income Tax Act, 1922, a firm is a person liable to tax as the owner of the property and under Section 9 thereof, in case of property owned by firm, the same is to be treated as the property of the firm and not of its partners. The same principles have been maintained in ....
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....tinct assessable entity. Though under the partnership law a firm is not a legal entity but only consists of individual partners for the time being, for tax law, income-tax as well as sales-tax, it is a legal entity. If that be so, on dissolution, the firm ceases to be a legal entity. Thereafter, on principle, unless there is a statutory provision permitting the assessment of a dissolved firm, there is no -longer any scope for assessing the firm which ceased to have a legal existence. ....unless there is an express provision, no assessment can be made on a firm which has lost its character as an assessable entity. ..........There is, therefore, a lacuna in the Act, which was filled up later on by an amending Act; but the said Amending Act, it is conceded, is not retrospective in operation." The Hon'ble Supreme Court has also categorically held that the question of statutory power of assessing a dissolved firm with the liability of the partners thereof to pay tax so assessed on the firm before dissolution cannot be mixed up. 24. The Ld. Counsel for the assessee, referring to the above observation of the hon'ble Supreme Court in his written submissions has contended that " the abo....
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....f the assessee firm is to be treated as exempt because of the individual status of the partners, therefore the above decision of the hon'ble supreme court is squarely applicable in this case. The ld. Counsel for the assessee has also placed reliance on another decision of the hon'ble Supreme Court dated May 07, 1996 in the case of Arunagiri Chettiar (supra) wherein it has been observed, "It is true that under the Income- tax law a firm is treated as an entity distinct from its partners, but that is so only for the purposes of assessment." The issue before us is also relating to the assessment of a firm under Income Tax Act, hence, the said decision of the hon'ble supreme court is also squarely applicable. 25. Even under the Negotiable Instruments Act, a firm is treated at par with a company. In explanation to section 141 of the Negotiable Instruments Act it is provided that " "company" means any body corporate and includes a firm or other association of individuals; and director", in relation to a firm, means a partner in the firm". The hon'ble Supreme court in S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan (2023) 10 SCC] i has held that for the purpose of Section 141 of ....
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....fits of the firm can be held to be the joint property of the family. There is no obligation on the partners being related or to say members of the same family to contribute the profits to the other family members or any other obligation towards them. The hon'ble Meghalaya High Court, in Mohari & Sons case (Supra) has discussed the characteristic of a Khasi family as reproduced in para 10A of the order that in Khasi society, ancestral properties are held by Ka Khaddu for the benefit of the entire family, which is matriarchal. Even self-occupied property of a male Khasi, acquired before marriage and if he dies unmarried, goes to his mother or "Kur". A Khasi husband lives in his wife's mother's house or his wife's house after marriage. Before childbirth, the husband uses his earnings for his wife's maintenance, with surplus going to his kurs. After child birth, husband and wife jointly earn for the child, with the husband often working with his wife or using capital provided by her. Individual property isn't the norm; it's the family unit that's emphasized. While a Khasi male can have personal property, it's often disposed of among relatives, highlight....
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....rivileges in the shape of deductions and exemptions have been given to them subject to fulfilment of the prescribed conditions. However, such benefits and privileges are not available to members of such Trusts and societies in their individual Capacity. Even such benefits are not available to all type of trusts, societies or institutions, rather it all depends upon their nature and characteristics e.g. their constitution, , object and purpose, nature of their activities ,nature of business carried on, income threshold and even on application of income also. For different type of AOPs, different criterion is applicable. One or more factors or characteristics as prescribed under the Act may be applicable to different type of AOPs. All AOPs are not seen or taxed with the same yard stick. Different type of AOP are entitled to different type of benefits in the shape of allowances, deductions and exemptions. However, this type of differentiation is not applicable in case of firms. The hon'ble Meghalya High Court in the case Mohari & sons (supra) has considered the peculiar characteristics of 'Khasi Family' and held that exemption is available to it being an AOP of a particular species. H....
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....er the Income Tax Act, HUF has been regarded as separate and distinct entity even from the individual family members of the HUF, however, it is not so regarded in general or civil law. 30. The next contention of the Ld. Counsel that "had 'Firm' or 'AOP' or 'BOI' been a legal entity separate and independent from the partners or members constituting the same, there would not have been any need to enact separately provisions of section 45(3) and 45(4) of the Act read with section 9B of the Act" seems to have no force. Section 9B inserted by the Finance Act, 2021 read with section (45(4) says that where a 'specified person' (partner or member) receives any capital asset or stock in trade or both in connection with the dissolution or reconstitution of a specified entity ( Firm AOP), then any profits and gains arising from transfer of a capital asset or stock in trade shall be chargeable to tax in the hands of the specified entity viz. firm, AOP or BOI. However, the income chargeable to income-tax would be the amount received in excess of the balance in capital account of the recipient partner. The purpose is only to tax the profit element in relation to stock in trade and value of appr....
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....oss/depreciation etc. in case of a partnership firm cannot even be transferred and taken into consideration for the purpose of assessment of income of another partnership firm consisting of same members, what to say of adjustment of the same in the income of the individual. Even if by any reason the Assessing Officer fails to assess the income of a partnership firm or there is an escapement of some income of the partnership firm, such an escaped income cannot be assessed in the hands of the individual at the time of his assessment in the individual capacity despite the fact that the share of profit from the partnership firm is not taxable in the hands of the individual. The proposition of law in general cannot be imported in a fiscal statue where there are special and express provisions relating to such subject-matter. 32. There is a separate proforma of information required in case of firm as compared to an individual. The individual members of the Scheduled Tribe whose income is exempt under the Income Tax Act, are even not supposed to file the Income Tax Return subject to the fulfilment of the relevant conditions as prescribed under law. Though, a firm may consist of partners w....