The Commissioner of Income Tax, vs. M/s Omega Wines,

THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE Ms. JUSTICE G. ROHINI

I.T.T.A.No.555 of 2012

DATED: 19.7.2013 Between: The Commissioner of Income Tax, Vijayawada. … Appellant And M/s. Omega Wines, Hyderabad. …. Respondent

THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE Ms. JUSTICE G. ROHINI

I.T.T.A.No.555 OF 2012

Judgment: (per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta)

Despite service of notice, none appeared for the assessee-respondent. This appeal is directed against the judgment and order of the learned Tribunal dated 3.12.2007 in relation to the assessment year 2001-02 and is sought to be admitted on the following substantial question of law: 1) Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee should be assessed as a firm and not as an AOP and entitled for the consequential benefits ?

It appears from the impugned judgment and order that the learned Tribunal has relied on a decision of the Income Tax Appellate Tribunal, Visakhapatnam Bench in the case of New Shivaji Wines wherein it was held that assessment has to be done on the partnership firm and the partnership firm should not be treated to be an Association of Persons. It is placed on record that this decision of the Tribunal was not challenged by

the Revenue. Therefore, the point involved in this case has been decided by the Tribunal by following the earlier judgment rendered by it in the case of New Shivaji Wines. Looking at this judgment, we took a prima facie view that the impugned judgment and order cannot be assailed. But,

Mr. J.V. Prasad, learned counsel for the appellant submits that a contra view has been taken by this Court in the case of C.I.T. vs. Swarna Bar Restaurant, reported in [2011] 334 ITR 387 (AP). We have carefully examined the above subject cited before us and it appears that in that judgment, it was held that apart from the licencee of the liquor trade, who is an individual, no one can carry on business either in partnership or in joint venture and if such a business is carried out, then it would be illegal and contrary to law. This judgment is not an authority to hold that if the licence holder forms a partnership with other persons, such partnership firm is an illegal one.

In our considered view, it cannot be so. Once a partnership firm is formed, it is established on proof that the firm exists. The provision of Section 184 read with 185 of the Income Tax Act has to be followed. Section 184 provides as follows: “(1) A firm shall be assessed as a firm for the purposes of this Act, if __ (i) the partnership is evidenced by an instrument; and (ii) the individual shares of the partners are specified in that instrument.

(2) A certified copy of the instrument of partnership referred to in sub- section (i) shall accompany the return of income of the firm of the previous year relevant to the assessment year commencing on or after the 1st day of April, 1993 in respect of which assessment as a firm is first sought.” Section 185 says as follows: “Notwithstanding anything contained in any other provision of this Act, where a firm does not comply with the provisions of Section 184 for any assessment year, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head “profits and gains of business or profession” and such interest, salary bonus, commission or remuneration shall not be chargeable to income tax under clause (v) of Section 28.”

Thus, it is clear that the status of the partnership firm cannot be denied. Learned counsel for the revenue says that in stead of firm, it should be Association of persons. The contention of the Revenue is the same as that of the partnership firm. Partnership is nothing but a compendium of a body, individuals and of persons and they bring their assets in the hotch potch of partnership. Ordinarily, such assets should form part of the assets of the firm, but, where the law does not permit for division or share of the assets with any other person, in that case, such assets should be treated to be an individual asset, but should be utilized for the benefit of the partnership firm. Carrying on illegal business is one thing and carrying on business with partnership is another thing. In the

circumstances, we cannot follow the judgment rendered in the case of Swarna Bar Restaurant. We are of the view that the judgment cited by the learned counsel, Mr. Prasad is miles away from the point. As such, it is distinguished. Hence, this appeal is dismissed and the judgment and order of the learned Tribunal is affirmed.

___________________ K.J. SENGUPTA, CJ

_________________ G. ROHINI, J 19.07.2013

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