SUBHASH CHAND vs. COMMISSIONER OF INCOME TAX

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ITA/14/2003HC Punjab & HaryanaPHHC01002102200314 July 2010Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL10 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the deduction under Section 80HHC is to be allowed out of the profits of the business in proportion to the export turnover to the total turnover of the business carried on by the assessee. It noted that the firm, M/s Cycle Gears India, had already claimed and been allowed the deduction based on its export turnover and total turnover. The Tribunal found it illogical that the same deduction should be allowed again to the partners. It reasoned that a partner cannot claim the firm's total turnover as their own total turnover. Furthermore, the Tribunal stated that if the computing provisions are not satisfied, the deduction cannot be allowed. The assessee's formula for claiming the deduction was found to have no statutory sanction. The Tribunal concluded that the deduction under Section 80HHC was wrongly claimed by the assessee and allowed in the intimation under Section 143(1)(a), constituting a mistake apparent from the record. The Tribunal set aside the order of the CIT(A) and restored that of the AO, holding that there was no way to compute the deduction under Section 80HHC in the hands of the partner after it had been allowed to the firm. The substantial question of law was answered against the assessee.

What were the facts?

The assessee, Subhash Chand, is an individual and a partner in M/s Cycle Gears India. For Assessment Year 1993-94, the assessee declared income of Rs. 60,490, which was processed under Section 143(1)(a) of the Income Tax Act, 1961, and a refund was issued. Subsequently, the Assessing Officer (AO) found that the assessee had claimed a deduction of Rs. 1,63,842 under Section 80HHC for income derived from export business of the firm. The AO held that this deduction was allowable only to the firm and not to the partner in his individual capacity. Observing a mistake apparent from the record, the AO rectified the order under Section 154, disallowing the deduction. The Commissioner of Income Tax (Appeals) cancelled the AO's order, holding that the issue involved debatable points and was not suitable for rectification. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT).

What were the issues?

1. Whether, on the facts and circumstances of the case and on the true interpretation of Sections 80HHC, 28(i), 40(a)(iii), and 80AB of the Income Tax Act, 1961, the Tribunal was justified in holding that interest and salary drawn by a partner from a firm engaged in export business, whose income is exempted under Section 80HHC, is not eligible for exemption to the partner in respect of such interest and salary, as its computation is not possible? Assessee's contention: The assessee argued that the deduction under Section 80HHC is permissible out of business income and cited the ITAT Jaipur Bench decision in Moti Chand Rawat. The assessee's return claimed the deduction by applying a formula: (Salary + Interest received) / Total Profit X Deduction u/s 80HHC. Revenue's contention: The Revenue contended that the deduction under Section 80HHC was allowable to the firm only and not to the partner in his individual capacity. The Tribunal's reasoning, as presented in the judgment, indicates it found the assessee's claim illogical and without statutory sanction.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 28(i),Section 40(a)(iii),Section 80AB,Section 143(1)(a),Section 154

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 - . 14 2003 Income tax Appeal No of IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ----- - . 14 2003 Income tax Appeal No of : 14, 2010. Date of decision July Subhash Chand of Ludhiana --- Appellant Versus Commissioner of Income Tax Ludhiana --- Respondent --- : . CORAM HON’BLE MR JUSTICE ADARSH KUMAR GOEL . HON’BLE MR JUSTICE AJAY KUMAR MITTAL --- : PRESENT . , Mr Pankaj Jain Advocate . for the appellant --- , . AJAY KUMAR MITTAL J 1. The is assessee’s appeal filed under 260- - , 1961 ( “ Section A of the Income tax Act in short the ). - Act’ The appellant assessee has prayed that the following substantial question of law arises in this appeal for 2 - . 14 2003 Income tax Appeal No of , - determination by this Court from the order of the Income tax , , ‘ , ( Appellate Tribunal Chandigarh Bench A’ Chandigarh in “ ), 20.8.2002, - short the Tribunal” passed on in Income tax . 1136/ /1996 1993- Appeal No CHD for the assessment year 94: “ Whether under the facts and circumstances of the case and on the true interpretation of the 80 , 28( ), 40( ), 10 provisions of Section HHC v b (2 ), 80 (3) A A the Hon’ble Tribunal is justified in holding that the interest and salary drawn by a partner from a firm having income from export / 80 business whose income is exempted u s HHC is not to be given the exemption to the partner in respect of said interest and salary as the . computation of the same is not possible ” 2. The appellant is a partner in the firm / . ( ) - . M s Cycle Gears India and is an individual assessee It is , claimed that for the assessment year under reference the . assessee submitted return declaring his income as Rs 60,490/-. 143(1) The return was processed under Section 3 - . 14 2003 Income tax Appeal No of ( ) , .17,110/- a of the Act and consequently a refund of Rs was , allowed to the assessee by the assessing officer

vide order 25.3.1994. Later on it was found by the assessing officer

. 1,63,842/- that the assessee had claimed deduction of Rs

80

under Section HHC of the Act in the capacity of his being

a partner in the firm in respect of goods exported by the .

said firm It was held that the above deduction was allowable

- to the firm only and it could not be allowed to the assessee

. ,

partner in his individual capacity Consequently the assessing

officer after issuing notice to the assessee and considering

,

. reply submitted by him observed that the deduction of Rs 1,63,842/-

80

80 (3) under Section HHC read with Section A

,

had been wrongly claimed and allowed also while processing

143(1) ( )

. the return under Section a of the Act The

assessing officer observing that there was mistake apparent

,

. from the record in that regard rectified the same The

matter was carried by the assessee before the Commissioner

- ( ) [

“

( ) ]. of Income tax Appeals in short the CIT A ” The

appellate authority held that controversial and debatable points

, ,

were involved in the matter and therefore it was not a fit

4 -

. 14 2003 of

154

case where order under Section of the Act could have .

been passed The order passed by the assessing officer

. disallowing deductions referred to above was cancelled 3. . The Revenue preferred appeal before the Tribunal

The Tribunal after considering the rival submissions made by ,

, the parties while allowing the appeal of the Revenue

7 10

: recorded in paras to of its order as under “7. We have given careful thought to the rival

.

, submissions of the parties At the very outset it

/ 80

may be stated that deduction u s HHC has

/ .

( ) been allowed to firm M s Cycle Gears India in

.

which the assessee is a partner There is further

no dispute that share income received by the

assessee from above firm has not been subjected

. . . to tax in view of statutory changes made w e f 1.4.1993. Only interest on capital and salary

received by the assessee from firm aggregating to . 1,63,711/-

. Rs was disclosed in the return

,

Against above receipt which no doubt is a , / 80

business receipt deduction u s HHC amounting

5 -

. 14 2003 of . 1,63,842/-

. to Rs was claimed in the return It is

the case of the assessee that above deduction is

.

permissible out of business income In support of ,

this the decision of ITAT Jaipur Bench in the case

( )

. of Moti Chand Rawat supra was cited On

,

consideration of above decision we find that the

Bench was dealing with a case relating to 1989-90

assessment year and interest received by

the assessee which was treated as exempt in the

case of the firm was also treated as not taxable in

the hands of the partners on the basis of some

31.7.

1992. circular of the CBDT dated The said

, circular is not cited in the decision nor copy ,

.

,

thereof is available At any rate decision relating

1989-90

to assessment year cannot be applied in 1993-94

assessment year on account of wholesale

amendment of statutory provisions relating to

. . . 1.4.1993. taxation of firms and partners w e f

8.

The interest and salary received by the

assessee as partner is no doubt business income

6 -

. 14 2003 of

/ but it seems to be illogical that deduction u s 80

HHC which has already been allowed to the firm

should again be allowed to the partners of the . same firm 9. / 80 (1),

U s HCC deduction has to be allowed

,

“

out of total income if the assessee is engaged in

business of export out of India of any goods or

…… . merchandise to which this section applies ” The

- said deduction is to be computed as per sub (3)

80 .

section of section HHC The relevant

portion applicable for the assessment year under

:- consideration is as under “(3)( )

a Where the export out of India is of

goods or merchandise manufactured or

,

processed by the assessee the profile derived

from such export shall be the amount which

,

bears to the profits of the business the same

proportion as the export turnover in respect of 7 -

. 14 2003 of

such goods bears to the total turnover of the

. business carried on by the assessee ” (

) Other clauses are not relevant

It is quite evident from above that deductions out

of profits of business is to be allowed in the same

“

proportion as export turnover” bears to the total -

turn over of the business carried on by the .

“ assessee So the assessee must have export

“

-

turnover” and total turn over” for computing .

,

deduction Now under the scheme a firm is a

. separate assessee from that of its partners Share

income received by a partner is not subjected to . . . 1.4.1993. -

tax w e f The total turn over and export -

/ . turn over of business carried on by m s Cycle ( )

Gears India has already been taken into account

and deduction worked out and allowed in that .

case The same figures cannot be export turnover

-

- and total turn over in the hands of the assessee .

partner It is difficult to accept that a partner

8 -

. 14 2003 of

having a share in the firm can claim that total

. turnover of the firm is his total turnover It is also

settled law that if computing provisions are not ,

. satisfied the deduction cannot be allowed 10. ,

In the present case the assessee was faced

with above problem to find export turnover and .

, total turnover In the absence of above figures he

/ 80

computed deduction u s HHC by adopting the

:- following formula shown in the return +

/ Salary Interest received X Deduction u s 80 =

. HHC Total Profit

The above formula has no statutory sanction and

demonstratively shows that the assessee has no

/ 80

justification for claiming deduction u s HHC of .

the Act We are of the view that the assessee has

, ,

no arguable case and therefore no debate can be .

/ raised It is absolutely clear that deduction u s 80

HHC was wrongly claimed by the assessee and

/ 143(1) ( )

. allowed in intimation u s a of the Act It 9 -

. 14 2003 of

.

was a mistake apparent from record There is no

/ 80

way to compute deduction u s HHC in the

hands of the partner once again after allowing the

. same to the firm where the assessee is a partner

,

In the light of above discussion we hold that the

/ 154

AO was justified in passing order u s of the . ,

Act

Accordingly we set aside the order of the CIT ( )

. A and restore that of the AO ” 4. - Learned counsel for the assessee

appellant could not refer to any material to show that the

approach of the Tribunal was erroneous or perverse in any . manner 5. ,

In view of the above it is clear that it

was only the firm of which the assessee was partner which

80

. could claim deductions under Section HHC of the Act

Such deduction could not have been claimed by the assessee , ,

and thus the same was rightly disallowed by the assessing

. officer and upheld by the Tribunal

10 -

. 14 2003 of 6. ,

Consequently the substantial question of law

noticed above as claimed by the assessee is answered

.

. against the assessee Appeal is accordingly dismissed (

) AJAY KUMAR MITTAL JUDGE (

ADARSH KUMAR ) GOEL 14, 2010 July JUDGE * * rkmalik

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