TaxTMI 
TaxTMI 
2024 (3) TMI 1005
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....n'ble Gauhati High Court in CIT v Mahari & Sons (1992) 195 ITR 630 (Gau) in context of 'Khasi Family' would 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 Shi....
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....e was earned by him not as individual but as a group of individual comprising the member of his family and such 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 asse....
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.... to him,- It is clear that the specified (a) member of a Scheduled Tribe only; who is covered under Article 366 of the Constitution of India enjoys, exemption 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 anoth....
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....nit of society; the families constitute the clan and the various clans constitute the society. The ancestral properties, as in the present case, are inherited and held not by an individual for her own 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 earnin....
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....come-tax vs. B.R. Constructions (199) 202 ITR 222 (AP) [FB]. We also wish to make it clear that the beneficial interpretation taken recourse to in the above stated decision no more holds the field going by hon'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 ....
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....istrict of Ladakh are admittedly applicable in cases of individual; HUF, firms, association of person and company u/s 6 (1) to (4) and sec. 10(26AAA) deals with an individual only; respectively. The necessary inference that flows from a comparative 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 carrie....
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....ubt would go to the assessee. Several Supreme Court judgments have been read by the Tribunal in the impugned order to lay down the law in such regard. 4. The further ground indicated in the impugned order is that at any rate, it is axiomatic that when a juristic entity 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 Se....
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....ve been relied upon by the Tribunal in the order impugned dated September 13, 2019 to come to a conclusion that the principle enunciated in Mahari & Sons no longer holds the field. 10. At the same time, when Constitutional Courts take up challenges to orders passed by a specialised tribunal, such courts have 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 ....
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....ion notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue. (vi) That the judgment dated July 30, 2018 in Dilip Kumar & Co., (supra) came up for consideration by the Hon'ble Supreme Court on March 01, 2021 in Government of Kerala v. Mother Superior Adoration 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(2....
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....urpose of Income-tax Act so as to facilitate assessment of joint income when earned collectively. The object is not to confer a full-fledged legal personality to such units of assessment. (xiv) That the Hon'ble Supreme Court has repeatedly held in a plethora of decisions that under Income Tax, for purposes other than for process of assessment and powers to be exercised in process of assessment, partnership firm is only a compendious 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): ....
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....rom it. (xix) That there are plethora of decisions of the Hon'ble Supreme Court, wherein it has been categorically and repeatedly laid down that even for purposes of Income Tax Act the partnership firm is not a legal entity or person but merely a collective name of persons who chose to become a partner in the said partnership firm. The Hon'ble Supreme Court itself vide its decision dated May 07, 1996 in the case of Arunagiri Chettiar (supra) has explained that, "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." 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....
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....of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub- clauses;" 13. A perusal of the afore reproduced provisions of the Income Tax Act, 1961 reveals beyond doubt that under the Income Tax Act, a firm has been specifically included in the definition of person and is treated at par with every artificial juridical person . 14. Section 2(23) of the Income Tax Act defines 'Firm', 'Partner' and 'Partnership' as under:- "2. In this Act, unless the context otherwise requires,- .... (23) (i) "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, 2....
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....hall not apply to a limited liability partnership." 17. Under Section 2(23) of the Income Tax Act, 1961, the firm and partnership have the meaning as assigned to them in Indian Partnership Act, 1932, but also includes in them limited Liability partnership as defined under Limited Liability Partnership Act, 2008. Section (2(d) of Limited liability Partnership Act, 2008 defines 'body corporate' as a company as defined under companies Act, and includes a LLP. Section 3 of Limited Liability Partnership Act, 2008 specifically states that an LLP under the said Act of 2008 will be a body corporate and a legal entity separate from its partners. Though, section 4 of the Limited Liability Partnership Act, 2008 specifically bars the applicability of the Indian Partnership Act 1932 to a limited liability 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 sep....
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....s of the firm. The act of the partner binds the firm towards third parties. A firm has its intellectual properties such as trademark, trade name, goodwill, etc. which cannot be used by the partners in their individual capacity and even an outgoing partner, subject to a contract to the contrary, is not entitled to use firm's name or represent himself on behalf of the firm.. Even after a firm is dissolved, in the absence of a contract to the contrary, a partner may restrain other partner or his representative from carrying on similar business in the firm's name. Even name and goodwill of a firm can be sold to third parties, who thereafter, can use the same for their business. Section 56 to Section 70 prescribe for registration of firms and effect of non-registration etc. A firm can be duly registered 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....
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....tnership is not a person in itself. The aforesaid contention of the ld. AR in the light of the specific definition given of the word "person" u/s 2(31) of the Income Tax Act and in view of the discussion made above, in our view, is misconceived and not tenable. 20. The Hon'ble Supreme Court in the case of "Dy. Commissioner of Sales Tax vs. K. Kelukutty" reported in (1985) 22 Taxman 25(SC) has held "therefore, a partnership firm must be regarded under that Act as an assessable entity separate and distinct from its individual partners. That would be in line with the view taken by this Court respecting a partnership firm as an assessable entity under the Income Tax Act. See Commissioner of Income-Tax, West Bengal v. A. W. Figgies and Company and Others(2)." The Hon'ble supreme court further held that even 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 "C....
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....pecific provision in that regard in the tax law modifying the partnership law. If the tax law is silent, it is the partnership law only to which he will refer. Having decided the legal identity of the assessee, that it is a partnership firm, he will then turn to the tax law and apply its relevant provisions for assessing the partnership income. 10. The Kerala General Sales Tax Act contains no provision which bears on the identity of a partnership firm. Therefore, recourse must be had for that purpose to the partnership law alone. Where it is claimed that they are not one but two partnership firms constituted by the same persons and carrying on different businesses, the assessing authority must test the claim in the light of the partnership law. It is only after that question has been first determined, namely, whether 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 unde....
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....o distinct firms. Or to extend merely a partnership, originally constituted to carry on one business, to the carrying on of another business. It will all depend on the intention of the partners. The intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances, including evidence as to the interlacing or interlocking of management, finance and other incidents of the respective businesses." 21. The aforesaid proposition of law has been reiterated by the Hon'ble Supreme Court in the case of "CIT vs. G. Parthasarthy Naidy" reported in (1999) 104 Taxman 197(SC). The hon'ble Supreme court in the case of Commissioner of Income-Tax, West Bengal v. A. W. Figgies and Company and Others reported in AIR 1953 SUPREME COURT 455 has held as under: "The partners of the firm 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 i....
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....er can be gathered by necessary implication from the other provisions of the Act. The first question is whether a firm is a separate assessable entity for the purposes of the Act or whether it is only a compendious term used to denote a group of partners. The definition of "dealer" takes in three categories of assessable units, namely, person, firm or a Hindu Joint family. The substantive and the procedural provisions of the Act prescribe the mode of assessment and realization of the tax assessed on such a dealer. If we read the expression "firm" in substitution of the word "dealer", it will be apparent that a firm is an independent assessable unit for the purposes of the Act. Indeed, a firm has been given the same status under the Act as is given to it under the Income-tax Act. Under S. 3 of the Income-tax Act "firm" is treated as a unit of assessment and as a distinct 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....
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....e under East Punjab General Sales Tax Act in respect of turnover affected during its existence. The question was whether assessment can be made or not ? In the case in hand also, the claim of the Ld. AR is that the income of the assessee partnership since exempt, hence not taxable and no assessment is required to be made. The assessees herein even did not file the returns of the income. The hon'ble Supreme Court has held though under the partnership law a firm is not a legal entity but for tax law, income-tax as well as sales-tax, it is a legal entity. However on dissolution, the firm ceases to be a legal entity. Thereafter, unless there is a statutory provision permitting the assessment of a dissolved firm, it can not be done. However, in the case of the assessees herein, the firm has been subsisting firm and there was no provision, either express or implied, that the income of 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 Ma....
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....rmese Buddhist husband and wife, carrying on business are not partners in such business. In the case in hand, even though the partners of the firm are brothers in one case and Husband and wife in another case, but their relation does not affect either the status of the partnership firm nor its taxability in any manner. Partnership arises out from a legal contract of sharing profits of a business and in that case, even in a case of partnership Firm having partners of a Khasi family only, the mother or wife, as the case may be, being the head named as " Kur" would not be having any dominant position. All the partners, subject to the terms of the contract between them , will have equal status and rights inter se and even equal duties and liabilities towards firm. The profit of the partnership firm are shared as per the agreement/capital contributed by the partners. Neither the capital, nor the profits 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 Mo....
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....(body of individuals) under the income Tax Act are general terms which includes different type of societies including co-operative societies, clubs, trusts including charitable trusts, associations and organizations etc. , whether incorporated or not and whether formed with the motive of earning of income or not. Therefore, AOP or BOI are genre in class whereas societies, trusts, clubs etc. are species, which have a common genre 'AOP'. Technically speaking, a firm is also a species with ' AOP' its genre. However, under the Income Tax Act, a firm is not included under the AOP or BOI but has been given a separate and distinct identity. It is pertinent to mention here that though, certain charitable Trusts and certain type of societies and co-operative societies etc. have not been specifically included in the definition of " Person" under the Income Tax Act, and thus are assessed as " AOP" but special privileges 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 availa....
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.... recognized as a separate entity. If the individual members of an HUF earn income in individual capacity and they also earn some income collectively through and in the name of HUF, separate standard deduction is permissible both to the HUF and to the individual. It, under the circumstances, amounts to benefit of double deduction as the income of the individual and the HUF was not clubbed. If the argument of the Ld. AR is to be accepted then the HUF being the common or collective name of the Hindu Undivided Family having no separate or distinct entity should not be treated as a separate assessable person and in such a case, the income of the HUF will be added as per their share in the properties/income of HUF in the income of the individuals and in that case, the double benefit of standard deduction will not be available and the income being increased will also be subjected to higher rate of tax. But, under 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 enti....
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....n should be given liberal interpretation. However, in our humble opinion, liberal interpretation does not mean that the benefit of such exemption provision could be extended to bypass the express provisions of the fiscal law, which as held time and again has to be construed strictly. The exemption u/s 10(26) of the Act has been specifically conferred on members of the Scheduled Tribe residing in the specified area. This exemption, in our view, cannot be extended to another separate and distinct "person", that is the partnership firm, though such partnership firm consist of the individual partners who in their individual capacity are entitled to such exemption. A partnership firm is a separate and district entity under the Income Tax Act and as observed above, its income is separately assessable subject to admissible exemptions and deductions. It has been held time and again that the benefit of deduction of loss/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....
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....rtner. Can under such circumstances it be argued that income of the firm is exempt on the ground that the firm at the end of the year was having partners of the exempted category only and the Assessing Officer having no such information of change of partners. The answer, in our view, will be negative. What we want to convey with our above discussion is that under the Income Tax Act, the exemption of 10(26) of the Act is available to the individual members of the Scheduled Tribe and that this benefit cannot be extended to a firm which has been recognized as a separate assessable person under the Income Tax Act. The advantages and disadvantages conferred under the Act on separate class of persons are neither transferrable nor inter-changeable. The scope of the beneficial provisions cannot be extended to a different person under the Act, even after liberal interpretation as it may defeat the mechanism and process provided under the Income Tax Act for assessment of different class/category of persons. In view of the discussions made above, both the proposed questions as noted in the opening para of this order are answered in negative by holding that a partnership firm being a separa....