THE COMMISSIONER OF INCOME TAX, COCHIN vs. SARAF TRADING CORPORATION, COCHIN-3

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 21ST DAY OF JUNE 2016/31ST JYAISHTA, 1938 ITA.No. 1170 of 2009 ( ) ------------------------- AGAINST THE ORDER/JUDGMENT IN ITA 365/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 14-05-2008 APPELLANT(S)/APPELLANT/REVENUE: ---------------------- THE COMMISSIONER OF INCOME TAX, COCHIN.

BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/RESPONDENT/ASSESSEE: -------------- SARAF TRADING CORPORATION, COCHIN-3.

R,R1 BY ADV. SRI.ANIL D. NAIR R,R1 BY ADV. SMT.NIVEDITA A.KAMATH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 21-06-2016, ALONG WITH ITA. 1370/2009, AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX IN ITA.1170/09 APPELLANT'S EXHIBITS: ANNEXURE A: COPY OF ASSESSMENT ORDER DATED 22.12.2006 FOR THE ASSESSMENT YEAR 1982-83. ANNEXURE B: COPY OF ORDER DATED 13.2.2006 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C: COPY OF THE ORDER DATED 14.5.2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.365/COCH/2006. /TRUE COPY/ PS TO JUDGE

ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. ----------------------------------- I.T.A.Nos.1170, 1370, 1387 & 1391 of 2009 ----------------------------------- Dated this the 21st day of June, 2016 JUDGMENT Antony Dominic, J. 1. These appeals are filed by the Revenue aggrieved by the common order passed by the Income Tax Appellate Tribunal, Cochin Bench in ITA.Nos.365 to 368 of 2006 concerning the assessment years 1982-83, 1986-87, 1987-88 and 1988-89 respectively. By the common order under appeal, following the earlier judgment of this Court in Nalini V.Saraf V. Controller of Estate Duty [268 ITR 223 (Ker)] and Commissioner of Income Tax v. Saraf Trading Corporation [239 ITR 41(Ker)], the Tribunal held that section 13(b) of the Indian Partnership Act is not applicable to M/s.Saraf Trading Corporation where the assessees are partners. It is aggrieved by this order, the Revenue has filed these appeals and the question raised is regarding the correctness of the finding of the Tribunal on the applicability of section 13(b) of the Indian Partnership Act.

ITA.1170/09 & con. cases 2 2.We heard learned standing counsel for the Revenue and the learned counsel for the assessee. 3. The main contention raised by the learned counsel for the Revenue is that in the judgment in 239 ITR 41 (Ker), contrary to the assumption made by the Tribunal, this Court has only remitted the matter to the Assessing Officer to come to a finding as to whether section 13(b) of the Partnership Act would apply to the firm in question. According to him, in the judgment in Nalini V.Saraf (supra) also, there is no such specific finding and that a Division Bench of this Court has only approved the judgment in 239 ITR 41(Ker). On this basis, learned counsel contended that the conclusion arrived at by the Tribunal that this Court has already declared that section 13(b) of the Act would not apply to the assessee is illegal and incorrect.

4.However, among the aforesaid two judgments, we find that in the judgment in Nalini V.Saraf (supra), this Court has considered the very same issue and held thus:

ITA.1170/09 & con. cases 3 “So far as the first question is concerned, the assessing authority held that section 13(b) of the Partnership Act applies and hence all the partners share profits equally and the share was fixed at 20 per cent. But as rightly stated by the Tribunal, section 13(b) of the Act applies only when there is no contract to the contrary. A look at clause 7 of the partnership deed would show that there is contract to the contrary. As to what share a partner will be entitled to is not specific. As a matter of fact, this question came up for interpretation in the decision in CIT v. Saraf Trading Corporation [1999] 239 ITR 41 (Ker). A Division Bench of this court while interpreting this clause held as follows (headnote): “it was not the basis alone, but the factum of the agreement specifying share ratio in profits/losses that is necessary to exclude the right in share profits/losses equally. If upon scrutiny it was found that no contract specifying the share ratio in profits/losses was made after September 16, 1981, to distribute profits/losses for the assessment year 1982-83, then section 13(b) would apply. Neither the Assessing Officer nor the Appellate Officer nor the Appellate Tribunal probed into the vital aspect whether the partners, in fact, made any agreement after September 16, 1981, to specify share ratio in profits/losses. The question pertaining to the application of section 13 (b) of the Indian Partnership Act had to be remanded to the Assessing Officer”. Here we find that the profit has been declared and it was shown

ITA.1170/09 & con. cases 4 as Rs.9,000. Hence, according to us, section 13(b) of the Partnership Act will not apply. The Tribunal was not correct in fixing the share at 10 per cent. The share of the deceased partner was Rs.9,000 and that has to be taken into account.” 5.Reading of the above paragraph shows that after referring to the provisions of section 13(b) of the Partnership Act and clause 7 of the partnership deed dated 16.9.1981, this Court held that section 13(b) of the Act would apply only when there is no contract to the contrary and that a look at clause 7 of the Partnership deed would show that there is a contract to the contrary. Proceeding further, this Court has referred to the judgment in 239 ITR 41(Ker) and thereafter held that “hence, according to us, section 13(b) of the Partnership Act will not apply”. Thus, there is a categoric finding in the judgment in Nalini V.Saraf (supra) that section 13(b) of the Partnership Act will not apply to the firm. Learned counsel for the respondent has made available a copy of the judgment of the Apex Court in Civil Appeal No.8247/04 of the Apex Court, whereby, the appeal

ITA.1170/09 & con. cases 5 filed against the judgment in Nalini V.Saraf (supra) was dismissed.

6.The aforesaid facts would show that the Tribunal was justified in its conclusion that section 13(b) of the Partnership Act would not apply. Consequently, the Tribunal's order dismissing the appeals of the Revenue cannot be interfered with as illegal. Appeals are dismissed answering the questions raised in favour of the assessee. Sd/- ANTONY DOMINIC, Judge. Sd/- DAMA SESHADRI NAIDU, Judge. kkb.