The Commissioner of Income Tax vs. M/s. Sri Laxmi Venkateswara Wines,

ITTA/208/2010HC TelanganaHBHC01025460201016 November 2010Bench: V.V.S.RAO,RAMESH RANGANATHAN2 pages

AI SummaryAllowed

What did the High Court hold?

The High Court noted that a Division Bench of the same Court had previously considered the question of deductibility of salary and interest paid to partners in the case of The Commissioner of Income Tax v M/s.Swarna Bar & Restaurant (ITTA Nos.613 of 2006 and batch, dated 09.9.2010). The Court found that the conclusion in that judgment squarely covered the present appeals. Therefore, following the precedent set in M/s.Swarna Bar & Restaurant, the High Court allowed the appeals filed by the Revenue. The impugned orders of the Income Tax Appellate Tribunal were set aside. The Court did not record any specific arguments from the assessees as none appeared. No costs were awarded.

What were the facts?

The assessees, M/s. Priya Wines and others, were granted licenses to conduct retail liquor businesses under the Andhra Pradesh Indian Liquor and Foreign Liquor Rules, 1970, and the Andhra Pradesh Excise Act, 1968. They commenced their businesses by forming partnership firms, either before or after obtaining the licenses. In their income tax returns for the relevant assessment years, the assessees claimed deductions for salary and interest paid to their partners. The Assessing Officer disallowed these deductions, relying on the Supreme Court's judgment in Biharilal Jaiswal v Commissioner of Income Tax. The assessees appealed to the Income Tax Appellate Tribunal (ITAT) and were successful. The Revenue (Commissioner of Income Tax, Vijayawada) has filed these appeals under Section 260A of the Income Tax Act, 1961, challenging the ITAT's orders.

What were the issues?

1. Whether the assessees were entitled to claim deduction for salary paid to partners in their income tax returns, considering the provisions of the Income Tax Act, 1961. The Revenue contended that following the Supreme Court's decision in Biharilal Jaiswal v Commissioner of Income Tax, such deductions are impermissible. The assessees argued for the allowability of these deductions. 2. Whether the assessees were entitled to claim deduction for interest paid to partners in their income tax returns, considering the provisions of the Income Tax Act, 1961. The Revenue's contention, similar to the salary issue, was that such deductions were not allowable based on the Supreme Court's precedent. The assessees maintained their claim for deduction of interest paid to partners.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

I.T.T.A.Nos.191. 192, 208, 215, 217, 231, 234, 300, 303, 372, 443, 462, 471, 479 and 496 of 2010

November 16, 2010

Between: The Commissioner of Income Tax, Vijayawada … Appellants

And

M/s.Priya Wines, Khammam And others ... Respondents

THE HON’BLE SRI JUSTICE V.V.S.RAO AND

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN I.T.T.A.Nos.191. 192, 208, 215, 217, 231, 234, 300, 303, 372, 443, 462, 471, 479 and 496 of 2010

COMMON JUDGMENT: (per Hon’ble Sri Justice V.V.S.Rao)

In all these cases the assessees were granted a licence under Andhra Pradesh Indian Liquor and Foreign Liquor Rules, 1970 and Andhra Pradesh Excise Act, 1968. The licence enabled the assessee to carry on trade in retail liquor business. The assessees commenced their respective business by forming a partnership firm with others. Such firm was constituted either before or after obtaining the licence.

In the income tax returns, for the relevant year, the assessees claimed deduction in respect of the salary and interest paid to the partners. The assessing officer, following the judgment of the Supreme Court in Biharilal Jaiswal v Commissioner of Income Tax[1], disallowed the deduction. The assessees were, however, successful before the Income Tax Appellate Tribunal. The Revenue has now come forward with these appeals under Section 260A of the Income Tax Act, 1961. Though the notices are served on the respondents, none appears and nobody entered appearance for them. The question whether the assessee was entitled to claim deduction of salary and interest paid to partners in the returns was considered by a Division Bench of this Court in The Commissioner of Income Tax v M/s.Swarna Bar & Restaurant[2]. There is no dispute that the conclusion therein squarely covers the lis in these cases. Following the same, the appeals have to be allowed. Accordingly the appeals filed by the Revenue are allowed, and the impugned orders of the Income Tax Appellate Tribunal are set aside. No costs.

________________ (V.V.S. RAO, J)

_______________________________ (RAMESH RANGANATHAN, J) November 16, 2010 YS [1] (1996) 217 ITR 746 [2] ITTA Nos.613 of 2006 and batch, dated 09.9.2010

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