Subhash Chand Of Ludhiana v. Commissioner Of Income Taxludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ----- -Income tax Appeal No. 14 of 2003Date of decision: July 14, 2010. Subhash Chand of Ludhiana --- Appellant Versus Commissioner of Income TaxLudhiana --- Respondent --- CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- PRESENT:Mr. Pankaj Jainfor the appellant , Advocate . --- AJAY KUMAR MITTAL , .J The is assessee’s appeal filed under 1. -Section 260- A of the Income tax Act, 1961 ( in short “the-Act’). Theappellant assesseehasprayedthatthefollowingsubstantialquestionoflawarisesinthisappealfor -determination by this Court, from the order of the Income taxAppellateTribunal, ChandigarhBench, ‘A’Chandigarh, (in-short “the Tribunal”), passed on 20.8.2002, in Income taxAppeal No. 1136/CHD/1996 for the assessment year 1993-94: “Whether under the facts and circumstances ofthecaseandonthetrueinterpretation of theprovisions of Section 80HHC, 28( ), 40( ), 10vb(2 ), 80 (3) AAthe Hon’ble Tribunal is justified inholding that the interest and salary drawn by apartner from a firm having income from exportbusiness whose income is exempted u s / 80HHCthecaseandonthetrueinterpretation of theprovisions of Section 80HHC, 28( ), 40( ), 10vb(2 ), 80 (3) AAthe Hon’ble Tribunal is justified inholding that the interest and salary drawn by apartner from a firm having income from exportbusiness whose income is exempted u s / 80HHC is not to be given the exemption to the partnerinrespectofsaidinterestandsalary as thecomputation of the same is not possible ”.inrespectofsaidinterestandsalary as thecomputation of the same is not possible ”. The appellant is a partner in the firm 2. -M s/ . Cycle Gears (India) and is an individual assessee. It isclaimedthatfortheassessmentyearunderreference, theassesseesubmittedreturndeclaringhisincomeasRs.60,490/-. The return was processed under Section 143(1) ( ) aof the Act and consequently, a refund of Rs.17,110/- wasallowed to the assessee by the assessing officer, vide order25.3.1994. Later on it was found by the assessing officerthat the assessee had claimed deduction of Rs. 1,63,842/-under Section 80HHC of the Act in the capacity of his beinga partnerin thefirm inrespectof goodsexported by thesaid firm. It was held that the above deduction was allowable-to the firm only and it could not be allowed to the assesseepartner in his individual capacity. Consequently, the assessingofficerafterissuingnoticetotheassesseeandconsideringreply submitted by him, observed that the deduction of Rs.1,63,842/- under Section 80HHC read with Section 80 (3)Ahad been wrongly claimed and allowed also, while processingthereturnunderSection 143(1) ( ) aoftheAct. Theassessingofficerobservingthattherewasmistakeapparentfromtherecordinthatregard, rectifiedthe same. Thematter was carried by the assessee before the Commissioner-ofIncome tax (Appeals) [inshort “the CIT ( ) ]. A ”Theappellate authority held that controversial and debatable pointswere involved in the matter and, therefore, it was not a fit case where order under Section 154 of the Act could havebeenpassed. Theorderpassedbytheassessing officerdisallowing deductions referred to above was cancelled. 3.The Revenue preferred appeal before the Tribunal.The Tribunal after considering the rival submissions made bytheparties, whileallowingtheappealoftheRevenue,recorded in paras 7 to 10 of its order as under: “7. Wehavegivencarefulthoughtto the rivalsubmissionsoftheparties. Attheveryoutset, itmaybestatedthatdeduction / 80u sHHC hasbeen allowed to firm M s/ . Cycle Gears (India) inwhich the assessee is a partner. There is furthernodisputethatshareincomereceivedbytheassessee from above firm has not been subjectedtotaxinviewofstatutorychangesmade w e f. . .1.4.1993. Onlyinterestoncapital andsalaryreceived by the assessee from firm aggregating toRs. 1,63,711/- wasdisclosedinthereturn.Againstabovereceipt, whichnodoubtisabusiness receipt, deduction u s / 80HHC amounting 3.The Revenue preferred appeal before the Tribunal.The Tribunal after considering the rival submissions made bytheparties, whileallowingtheappealoftheRevenue,recorded in paras 7 to 10 of its order as under: “7. Wehavegivencarefulthoughtto the rivalsubmissionsoftheparties. Attheveryoutset, itmaybestatedthatdeduction / 80u sHHC hasbeen allowed to firm M s/ . Cycle Gears (India) inwhich the assessee is a partner. There is furthernodisputethatshareincomereceivedbytheassessee from above firm has not been subjectedtotaxinviewofstatutorychangesmade w e f. . .1.4.1993. Onlyinterestoncapital andsalaryreceived by the assessee from firm aggregating toRs. 1,63,711/- wasdisclosedinthereturn.Againstabovereceipt, whichnodoubtisabusiness receipt, deduction u s / 80HHC amounting to Rs. 1,63,842/- was claimed in the return. It isthe case of the assessee that above deduction ispermissible out of business income. In support ofthis, the decision of ITAT Jaipur Bench in the caseofMotiChandRawat (supra) wascited. Onconsiderationofabovedecision, wefindthat theBenchwasdealingwithacaserelatingtoassessment year 1989-90 and interest received bythe assessee which was treated as exempt in thecase of the firm was also treated as not taxable inthe hands of the partners on the basis of somecircular of the CBDT dated 31.7.1992. The saidcircularisnotcitedinthedecisionnor, copythereof, is available. At any rate, decision relatingto assessment year 1989-90 cannot be applied inassessment year 1993-94 on account of wholesaleamendmentofstatutoryprovisionsrelatingtotaxation of firms and partners w e f . . . 1.4.1993. 8. Theinterestandsalaryreceived by theassessee as partner is no doubt business income butitseemstobeillogicalthatdeduction u s /80HHC which has already been allowed to the firmshouldagainbeallowedtothepartners of thesame firm. 9. / 80U sHCC(1), deduction has to be allowedout of total income, if the assessee is “engaged inbusiness of export out of India of any goods or”merchandise to which this section applies…… . The-saiddeductionistobecomputedasper subsection (3) ofsection 80HHC. Therelevantportionapplicablefortheassessmentyearunderconsideration is as under:- “(3)( ) aWhere the export out of India is ofgoodsormerchandisemanufacturedorprocessed by the assessee, the profile derivedfrom such export shall be the amount whichbears to the profits of the business, the sameproportion as the export turnover in respect of such goods bears to the total turnover of thebusiness carried on by the assessee ”. . (Other clauses are not relevant)It is quite evident from above that deductions outof profits of business is to be allowed in the sameproportionas “exportturnover”bearstothe totalturn- overofthebusinesscarriedonby theassessee. Sotheassesseemusthave “export-turnover”and “totalturn over”forcomputingdeduction. Nowunderthescheme, a firm is aseparate assessee from that of its partners. Shareincome received by a partner is not subjected to-tax w e f . . . 1.4.1993. The total turn over and export-turn overofbusinesscarriedonbym s/ . CycleGears (India) has already been taken into accountanddeductionworkedoutandallowedin thatcase. The same figures cannot be export turnover--and total turn over in the hands of the assesseepartner. Itisdifficulttoacceptthata partner havingashareinthefirmcanclaimthat totalturnover of the firm is his total turnover. It is alsosettledlawthatifcomputingprovisionsare notsatisfied, the deduction cannot be allowed. 10. In the present case, the assessee was facedwithaboveproblemtofindexportturnover andtotal turnover. In the absence of above figures, hecomputeddeduction / 80u sHHCbyadopting thefollowing formula shown in the return:- Salary Interest+receivedXDeductionu s/80HHC Total Profit=. havingashareinthefirmcanclaimthat totalturnover of the firm is his total turnover. It is alsosettledlawthatifcomputingprovisionsare notsatisfied, the deduction cannot be allowed. 10. In the present case, the assessee was facedwithaboveproblemtofindexportturnover andtotal turnover. In the absence of above figures, hecomputeddeduction / 80u sHHCbyadopting thefollowing formula shown in the return:- Salary Interest+receivedXDeductionu s/80HHC Total Profit=. The above formula has no statutory sanction anddemonstrativelyshowsthattheassesseehas nojustificationforclaimingdeduction / 80u sHHC ofthe Act. We are of the view that the assessee hasno arguable case and, therefore, no debate can beraised. Itisabsolutelyclearthatdeduction u s /80HHC was wrongly claimed by the assessee andallowed in intimation u s / 143(1) ( ) aof the Act. It was a mistake apparent from record. There is nowaytocomputededuction / 80u sHHC inthehands of the partner once again after allowing thesame to the firm where the assessee is a partner.In the light of above discussion, we hold that theAO was justified in passing order u s / 154 of theAct. Accordingly, we set aside the order of the CIT( ) Aand restore that of the AO ”. -4. Learned counsel for the assesseeappellantcouldnotrefertoanymaterialtoshow that theapproach of the Tribunal was erroneous or perverse in anymanner. In view of the above , it is clear that it 5. was only the firm of which the assessee was partner whichcouldclaimdeductionsunderSection 80HHCof the Act.Such deduction could not have been claimed by the assesseeand, thus, the same was rightly disallowed by the assessingofficer and upheld by the Tribunal. 6.Consequently , thesubstantialquestionoflaw noticedaboveasclaimedbytheassesseeisansweredagainst the assessee. Appeal is accordingly dismissed. (AJAY KUMAR MITTAL)JUDGE (ADARSH KUMAR GOEL)July 14, 2010JUDGE*rkmalik*