Income Tax Appellate Tribunal - Amritsar
Asstt. Cit vs Kakkar Cold Storage on 27 December, 2002
Equivalent citations: (2004)91TTJ(ASR)722
ORDER
By The Bench:
This is an appeal by the department against the order of the Commissioner (Appeals), Jalandhar, dated, 31-3-1995. The following grounds have been raised in this appeal :
"1. That on the facts and in the circumstances of the case, the learned. Commissioner (Appeals) has erred in directingthe assessing officer to assess the assessee in the status of firm and not as AoP as has been done by the assessing officer.
2. That on the facts and in the circumstances of the case, the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 1,40,796 made by the assessing officer on account of disallowances of interest and to partners and has failed to appreciate that the change in the ratebf interest has not been authorised the partnership deed.
2. Ground No. 1 relates to the. status of the firm,. which the, assessing officer considered as AoP instead of registered firm. while the learned Commissioner (Appeals) directed the assessing officer to assess the assessee in the status of firm and not as AOP. In this case, the assessee claimed the status of the firm but the assessing officer adopted the status as AOP observing that in accordance with the amended law applicable from the assessment year 1993-94, 'the assessee was required to file a certified copy of the instrument of the partnership accompanying the return of income, which the assessee had failed to comply with. Before the assessing officer, the assessee submitted that the original deed of partnership was filed for the assessment year, 1974-76 for which it was registered as a firm and, therefore, it was continuously assessed in the status of the registered firm upto the assessment year 1992-93 and there wag no change for the assessment year 1993-94 also because the profit and loss had been divided in accordance with the partnership deed dated 27-2-1974. The assessing officer, however, observed that the asgessee had not filed any partnership deed for the assessment year 1993-94 as per the provisions of section 184 of the Act.
3. Before the learned Commissioner (Appeals), it was stated that the requirements of sub-section (1) of section 184 had been complied with because the firm should be evidenced. by an instrument of partnership and in that instrument, the new shares of the partners should be specified, it was further stated that sub-section (2) of section 184 on which the assessing officer relied was related to those assessees, which sought the registration for the first time for the assessment year 1993-94. It was further submitted that the provisions of section 184(2) were not applicable to the case of the assessee because it did not went to be assessed in the status of the firm for the first time after 1-4-1993, but continuously had been assessed in the status of the firm right from the assessment year 1974-75 onwards. It was clarified that in the assessee's case, sub-section (3) of section 184 was applicable, according to which where the firm had once been assessed as a firm in any assessment year then it should have been continued to be so assessed for every subsequent year if there was no change in its constitution or in the shares of the partners as per the deed of the partnership on the basis of which it was first assessed in the status of the firm. It was further stated that the copy of partnership deed was only a procedural requirement but in the assessee's case, the deedwas already there with the department. The learned Commissioner (Appeals) after considering the submissions of the assessee directed the assessing officer to treat the status of the assessee as a firm by observing as under :
"2.3 I have considered the facts of the case and submissions of the learned counsel, I agree with the submissions of the learned counsel that sub-section (2) of section 184 will be applicable in the case of the assessees who want to be assessed in the status of the firm for the first time for the assessment year 1993-94 or for any subsequent years, but since the assessee had been regularly assessed in the status of the firm for the earlier years, sub-section (2) will not apply in its case and it is covered by the provisions of sub-section (3). It is clear from the language of sub-section (3) that once an assessee is assessed in the status of the firm for any assessment year (emphasis, italicized in print, supplied) it shall be assessed in the same capacity for every subsequent year, if there is no change. Like sub-section (2), sub-section (3) does not say that it is applicable for the assessment year 1993-94 onwards. Had the requirement of sub-section (2) been mandatory even for those firms which have already been assessed in the status of the firm for the preceding assessment year, sub-section (3) would have also been, applicable for the assessment years commencing from assessment year 1993-94 onwards. The assessee, therefore, was not required to file a certified copy of the deed of Partnership because in its case there is already an original deed of partnership on record of the department and it has already been assessed in the status of the firm for the preceding assessment years. The learned Assistant Commissioner is, therefore, directed to treat the status of the assessee as 'FIRM'."
4. We have heard both the parties and carefully gone through the material available on record. In the instant case it is noticed that the assessee was granted status of the firm from the very beginning when the partnership deed was filed for the assessment year 1974-75, and this status continued till the assessment year 1992-93. It is also not doubted at any stage that there was any change in the partnership deed originally filed by the assessee for the assessment year 1974-75. In our view the learned Commissioner (Appeals) was justified in stating that the provisions of section 184(3) were applicable to the facts of the assessee's case section 184(3) states as under:
"184(3). Where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the assessment as a firm was first sought."
Admittedly, in the assessee's case, the status of the firm was accepted upto the assessment year 1992-93 and there was no change in the constitution of the firm. Moverover, the original deed of partnership was with the department and therefore, the assessee was not required to file any certified copy of the same. In that view of the matter, the learned Commissioner (Appeals) fully appreciated the provisions of law and we do not see any justification in interfering with his findings on this issue. Accordingly, we uphold the same.
5. The next grievance of the department is that the learned Commissioner (Appeals) erred in deleting the addition of Rs. 1,40,796 made by the assessing officer on account disallowance of interest paid to the partners. The assessing officer denied the benefit of interest claimed on the partners' capital on the basis that the status was taken as AoP. According to him, the interest to the partners had been paid @ 18 per cent whereas according to the clause 4 of partnership deed the capital of the partners was to carry the interest @ 6 per cent. He, therefore, disallowed a sum of Rs. 1,40,796.
6. On appeal, the learned Commissioner (Appeals) allowed the claim of the assessee stating that the payment of interest to the partners had been authorised by the partnership deed, which also incorporated the specific mention that the rate of interest should be varied by mutual consent of the partners. According to him, the assessee's claim was legal and admissible as per the provisions of section 40(b)(iv) of the Act.
7. After considering the rival submissions, we find that the learned Commissioner (Appeals) has correctly appreciated the facts of the present case. In this case, the partners were paid interest @ 6 per cent from the assessment year 1974-75 to assessment year 1982-83 and thereby by mutual consent of the partners as provided in clause 4 of the partnership deed interest was paid @ 24 per cent from the assessment years 1983-84 to 1985-86. The rate was subsequently reduced to 21 per cent from the assessment year 1986-87. The department has not questioned the payment of interest to partners in the past. However, in this year, the assessing officer has denied the benefit of interest on the ground that the rate of interest was not authorised by the partnership deed and no intimation to this effect was given to the department. Clause 4 of partnership deed dated 27-2-1974, is reproduced hereunder :
"4. That the capital of the partners shall be as per the capital accounts in the books of account of the firm. Capital will carry interest @ 6 per cent per annum The rate of interest may be changed from time to time by mutual consent."
From perusal of the above clause, it would be clear that it was decided by the partners that the rate of interest would be changed by mutual consent. It seems that in the present case, the assessing officer has not correctly appreciated the aforesaid provisions of partnership deed. It is not required that whenever there is a change in rate of interest a new partnership deed is to be executed. A partnership may be evidence by one document or several documents. In the instant case, the partners had mutually agreed to pay the interest @ 18 per cent (which was maximum allowable as per the new provisions amended in the Act for the year 1993-94). It is well-settled that "Instrument" does not mean only a regular partnership deed, it may constitute any other formal transfer. If the terms of partnership are contained in a number of documents or in the correspondence between the parties, the documents or letters would constitute "Instrument of partnership". In the present case, it is noticed that for the assessment year 1992-93, the interest @ 21 per cent was allowed by the department but for this year, i.e., assessment year 1993-94, the interest has been charged @ 18 per cent, which was in accordance with the limit prescribed under the provisions of section 40(b)(iv) of the Act. The relevant provision states that the following amount shall not be deducted for and from the assessment year 1993-94 in computing the income chargeable under the head "Profits and gains of business or profession" :
"any payment of interest to any partner which is authorised by, and is in accordance with, the terms of partnership deed and relates to any period falling after the date of such partnership deed insofar as such amount exceeds the amount calculated at the rate of eighteen per cent simple interest per annum."
Thus there is no doubt that the payment of interest to the partners has been authorised by the partnership deed dated 27-2-1974, and as per clause 4 of the deed, it is stated that rate of interest can be changed by mutual consent of the partners. In that view of the matter, the interest paid @ 18 per cent for the year under consideration cannot be disallowed as has been done by the assessing officer, and the learned Commissioner (Appeals) rightly allowed the claim in accordance with law. This ground of appealis without any merit and accordingly, the same is dismissed.
8. In the result, the appeal is dismissed.