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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) dated 19.11.2015 and pertains to assessment year 2012-13.
The grounds of appeal
read as under:
1. The order of the CIT (A) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 61,44,3287- and Rs. 96,59,697/- made by clubbing the income the income of two entities namely M/s Sea Princess Investments and M/s Sea Princess Realty respectively, without appreciating the fact the provisions of section 60 to 63 of the IT Act, 1961 is applicable in the case of the assessee, when the major portion of shares in the firms were invested by the assessee itself?.
3. Brief facts of the case are as under:
M/s. Sea Princess Hotels & Properties Pvt. Ltd. The issue in dispute here is clubbing of income of Rs.61,44,328/- from M/s Sea Princess Investments and of Rs. 96,59,697/- from M/s.Sea Princess Realty with the income of the assessee. During the course of assessment proceedings, the AO found that the assessee company was a partner holding share of 19% in M/s Sea Princes Reality.
The company invested an amount of Rs.38,41,01,676/- in the said firm, which is 86.17% of firm's total capital. The AO observed that the said arrangement resulted into shifting of income from assessee company to partners, who enjoy controlling stake in the firm, without infusion of substantial capital in the firm. That the assessee company derived lesser benefit even though its contribution was very high. That similarly, the assessee company was a partner in M/s Sea Princes Investment holding share of 34%. The company invested an amount of Rs.20,29,85,761/- in the said firm which is 97.79% of firm's total capital. The AO, therefore, clubbed an amount of Rs, 1,58,04,025/- u/s 61 of the Act.
Upon the assessee's appeal, the ld. Commissioner of Income Tax (Appeals) following the order of the ITAT in assessee's own case decided the issue in favour of assessee. The ld. Commissioner of Income Tax (Appeals) held as under:
5.2 I have carefully considered the facts of the case and submissions of the Ld. AR. I have also gone through the orders of the Hon'ble ITAT and CIT(A) referred to above. Similar issue had come up for consideration before the Hon'ble ITAT in appellant's own case in ITA No,2466/Mum/2013 dated 09.10.2013 for A.Y.2009- 10. The Ld. CIT(A) had decided the issue against the appellant against which the appellant had filed appeal before the Hon'ble ITAT. The Hon'ble ITAT vide its order in (supra) decided the issue in favour of assessee. Subsequently, the CIT(A)-6 vide order dated 17.09.2014 has also decided the issue in favour of the appellant for A.Y. 201 1-12. Since the facts are similar, following the above decisions, the addition is deleted and the ground is allowed.
M/s. Sea Princess Hotels & Properties Pvt. Ltd.
Against the above order, the Revenue is in appeal before us.
We have heard both the counsel and perused the records. The learned counsel of the assessee submitted that the issue is duly covered in favour of the assessee by the decision of ITAT in assessee's own case.
Per Contra learned departmental representative could not dispute this proposition.
Upon careful consideration we find that this tribunal in assessee's own case in vide order dated 09.10.2013 has considered identical issue and held as under:
We have considered the rival submissions and also perused the relevant material available on record. It is observed that the impugned addition have been made by the A.O. and confirmed by the ld. CIT(A) to the total income of the assessee by clubbing the income of two partnership firms namely M/s Sea Princess Investment and M/s Sea Princess Realty by invoking the provisions of section 60 to 63 of the Act which read as under:- “60. Transfer of income where there is no transfer of assets.--All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income. 61. Revocable transfer of assets.--All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to incometax as the income of the transferor and shall be included in his total income. 62. Transfer irrevocable for a specified period.--(1) The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer-- (i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or (ii) made before the first day of April, 1961, which is not revocable 1 for a period exceeding six years: Provided that the transferor derives no direct or indirect benefit from such income in either case. (2) Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total
M/s. Sea Princess Hotels & Properties Pvt. Ltd. income. 63. "Transfer" and "revocable transfer" defined.--For the purposes of sections 60, 61 and 62 and of this section,-- (a) a transfer shall be deemed to be revocable if-- (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets; (b) " transfer " includes any settlement, trust, covenant, agreement or arrangement.
It is manifest from the above provisions that if there is any transfer, whether revocable or not, the income arising to any person from such assets shall be chargeable to tax as the income of the transferor and shall be included in his total income. The terms “transfer” and “revocable transfer” for the purposes of section 60 to 62 are defined in section 63 which provides that a transfer shall be deemed to be revocable if it contains any provision for the re-transfer directly or indirectly of the whole or in part of the income or assets to the transferor or it in any way gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets. The transfer includes any settlement, trust, covenant, agreement or arrangement. The definition given on section 63(b) thus includes any settlement, trust, covenant, agreement or arrangement whereby there is a transfer of an asset. As rightly contended by the ld. counsel for the assessee, there was, however, no such transfer by way of any settlement, trust, covenant agreement or arrangement and it was a case of contribution of capital made by the assessee company in the partnership firms in the capacity of a partner which did not result on any such transfer. The definition of revocable transfer given in section 63(a) of the Act, on the other hand, envisages that there should be a transfer first as the same talk about condition involving re-transfer of any part of the income or assets to the transferor. In the present case involving contribution of capital by the partner of the firm, there is no transfer as such and therefore the question of retransfer directly or indirectly of the whole or part of the income or assets to the transferor does not arise. The capital remains the liability of the partnership firm and the same is payable as such to the partners. The partner is always entitled to receive back his capital from the partnership firm and the question of right to reassume the power of the whole or any part of the income or assets does not arise.
As rightly contended by the ld. counsel for the assessee, the share of profit of the partners and the capital contribution made by them are governed by the Partnership Act which provides that the same are to be decided by and between the partners. These aspects are decided by the partners as per the Partnership Deed entered into by between them and it is not necessary that the capital contribution of the partners should always be in the ratio of their share of profit. As pointed out by the ld. counsel for the assessee, the capital contribution in the case of two relevant partnership firms was to be made by the partners as may be required by M/s. Sea Princess Hotels & Properties Pvt. Ltd. the partnership firm from time to time and there was no such agreement between the partners that the same should always be in the profit sharing ratio of the concerned partners. The said two partnership firms were independent entities under the Income Tax Act chargeable to tax and the entire income received by them was already subjected to tax in their hands. In such circumstances, clubbing their income in the hands of the assessee company and charging the tax again amounted to double addition which, in our opinion, is not permissible in law as rightly contended by the ld. counsel for the assessee relying, inter alia, on the decision of Hon’ble Supreme court in the case of Laxmipat Singhania (supra) and in the case of Bachu Lal Kapoor (supra). Moreover, when the said income was subjected to tax in the hands of the partnership firms at the maximum marginal rates, it cannot be said by any stretch of imagination that there was any arrangement made by the assessee to use the partnership firms as a tool to avoid tax as alleged by the A.O. Furthermore, the fact that the partnership firm of M/s Sea Princess Realty had already made investment in various lands during the course of its business before the assessee company became partner thereof on 1-4- 2006 and thereby became entitled to enjoy the benefit of increased value of the said land as a result of contribution of its capital establishes that the capital contribution was not made by the assessee firm to use the partnership firms as tool to avoid tax. In our opinion, the capital was contributed by the partners as per the requirement of the firm as decided from time to time keeping in view the different business considerations and this was one of such considerations for the assessee company to make substantial contribution in the partnership firm of M/s Sea Princess Realty.
Keeping in view the concept of the partnership firm as governed by the Partnership Act as well as the scheme of taxation of the partnership firms which are recognized as separate entities for income tax purpose and having regard to the taxation purpose, we are of the view that the provisions of section 60 to 63 of the Act cannot be applied to club the income of two partnership firms namely M/s Sea Princess Investment and M/s Sea Princess Realty with the income of the assessee and the ld. CIT(A), in our opinion, was not justified in upholding the action of the A.O. in clubbing the income of the said two partnership firms in the hands of the assessee by invoking the said provisions. In that view of the matter, we delete the additions made by the A.O. and confirmed by the ld. CIT(A) to the total income of the assessee by clubbing the income of two partnership firms with the income of the assessee and allow ground No. 1 & 2 of assessee’s appeal for A.Y.2009-10.
Since the facts in the present case remain identical, respectfully following the above decision of ITAT we uphold the order of the ld. Commissioner of Income Tax (Appeals).
M/s. Sea Princess Hotels & Properties Pvt. Ltd.
In the result this appeal by the revenue stands dismissed.