Income Tax Appellate Tribunal - Ahmedabad
Shrepak Enterprises vs Deputy Commissioner Of Income-Tax on 20 May, 1997
Equivalent citations: [1998]64ITD300(AHD)
ORDER
H. C. Shrivastava, A.M.
1. During the assessment proceedings the AO noted that the assessee had received cash deposits of Rs. 2,17,000 as below :
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Name of the Date of Deposit Mode of deposit Depositor and the amount
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M/s Arvind Panalal Investment In Cash
(P) Ltd. 11.12.1990 Rs. 15,000
-do- 17.12.1990 In Cash
Rs. 30,000
-do- 08.12.1990 In Cash
Rs. 1,72,000
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Total Rs. 2,17,000
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According to the AO this was in contravention of the provisions of s. 269SS of the IT Act and after giving the assessee an opportunity of being heard, he came to a conclusion that the assessee was liable to be penalised under s. 271D of the Act. Accordingly, he imposed a penalty of Rs. 2,17,000. When the matter was taken to the CIT(A), he confirmed the penalty.
2. We have heard the assessee's counsel and the Departmental Representative. According to the assessee's counsel under s. 269SS, no person shall, after the 30th day of June, 1984, take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or the aggregate amount of such loan and deposit, or on the date of taking or accepting such loan or deposit exceeds Rs. 20,000 or more. He submitted that, in this case, the amount was paid by the firm to the partners and vice versa. It was submitted that under the law of partnership, there is no distinction between the partner and firm. They are one and the same. It was submitted that a firm is a compendious name of all the partners taken together. Therefore, the payment, in this case, is not from one person to another. It is a payment to self. It may be treated as loan or deposit for the purposes of accounting only and not for the purposes of general law. He relied upon the following decisions :
CIT vs. R. Chidambaram Pillai Etc. (1977) 106 ITR 292 (SC), Sunil Siddharthbhai vs. CIT (1985) 156 ITR 509 (SC), Malabar Fisheries Co. vs. CIT (1979) 120 ITR 49 (SC), ITO & Anr. vs. Arunagiri Chettiar (1996) 220 ITR 232 (SC) : 74 ITR 526 (Guj) (sic), CIT vs. Madhukant M. Mehta (1981) 132 ITR 159 (Guj), Vir Sales Corpn. vs. Asstt. CIT, and AIR 1945 Pat 286.
The Departmental Representative invited our attention to the provisions of ss. 188 and 189 of the IT Act to submit that a specific mention has been made in the Act where the firm and the partners are treated as separate entities. As far as s. 269SS is concerned, the firm and partners are separate entities for the purposes of income-tax and for the purposes of application of the provisions of the IT Act. He invited our attention to the decisions reported in CIT vs. A. W. Figgies & Co. & Ors. (1953) 24 ITR 405 (SC), 200 ITR 505 (Sic), CIT vs. Rajagiri Rubber & Produce Co. Ltd. (1991) 189 ITR 185 (Ker), Narayandas Kedarnath vs. CIT (1952) 22 ITR 18 (Bom) and CIT vs. Rangaswamy Naidu (1997) 224 ITR 113 (Mad). The assessee's counsel in reply submitted that s. 188A has been specifically brought into existence to clarify what has already been taken for granted in general law. He invited our attention to s. 48 of the Partnership Act. We are of the opinion that in view of the Departmental Circular No. 387, dt. 6th July, 1984, this provision was brought in to cover those situations where unaccounted cash found in the course of search or was explained by the taxpayers as representing loans taken or deposits made by various persons. This particular section was brought in with a view to counter such tactics of the assessees in question. The clarification has been given in the Departmental Circular No. 387, dt. 6th July, 1984, which is a clarification of binding nature on the Departmental authorities. There is no dispute in this case that it is not a case where any search and seizure had taken place and it is also not a case of explaining deposits or loans taken through cash in past. The Hon'ble Supreme Court in the case of CIT vs. R. M. Chidambaram Pillai (1977) 106 ITR 292 (SC) held that a firm is not a legal person even though it has some attributes of personality. In income-tax law a firm is a unit of assessment, by special provisions, but is not a full person. Thus, in that case, it was held that the payment of salary to a partner represents a special share of profits. Salary paid to a partner retains the same character of the income of the firm. The Hon'ble Supreme Court, therefore, relying on the Commentary of Lindley on Partnership held that the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In a point of law, a partner may be a debtor or a creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer. Therefore, it is obvious that in this case there cannot be a relationship of a debtor and creditor between the firm and the partners. The Hon'ble Bombay High Court in the case of Narayandas Kedarnath vs. CIT (1952) 22 ITR 80 (Bom), held that there is no presumption that all payments by the firm and the partners are separate payments. But in that case the Hon'ble High Court was not required to decide as to whether the firm and the partners are the same. It was a very narrow compass which was to be decided. The reliance of the Department in the case of CIT vs. A. W. Figgies & Co. & Ors. (supra) is also of no help to it. At page 409, the Hon'ble Supreme Court have held that the partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purpose of assessment. It has been held that the provisions of the IT Act go to show that the technical view of the nature of partnership, under English law or Indian law cannot be taken in applying the law of income-tax. Therefore, only for the purposes of making an assessment that the IT Act has made distinction between the firm and the partners. In general law, they continue to be one and the same. Therefore, the decision of the Hon'ble Supreme Court also does not help the Department. Reliance of the Department on the decision of the Madras High Court in the case of CIT vs. R. Rangaswamy Naidu (supra) is also not helpful. The Hon'ble Madras High Court have held that under the income-tax law, the position is different from general law and the firm and the partners are distinct assessable entities. The law has for some specific purposes relaxed its general rigid notions and extended a limited personality to a firm. Therefore, the Hon'ble Madras High Court has only stated that firm and the partners are distinct assessable entities, but it has nowhere said that the firm is a separate legal entity. The Hon'ble Gujarat High Court in the case of CIT vs. Madhukant M. Mehta (supra) had also held that a firm has no distinct legal entity apart from the parters except that in IT Act a firm is a unit of assesseement and has certain attributes simulative of a personality. The Hon'ble Supreme Court in the case of CIT vs. Ramniklal Kothari (1969) 74 ITR 57 (SC) held, "...... although for purposes of income-tax a firm has certain attributes simulative of personality, we have to take it that a partnership is not a person but plurality of a person". In the classic decision of the Hon'ble Supreme Court in Malabar Fisheries Co. vs. CIT (1979) 120 ITR 49 (SC), it has been held, "there is no transfer of assets involved even in the sense of any extinguishment of the