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Income Tax Appellate Tribunal, “B”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by assessee against the order of CIT(A) for the assessment year 2003-2004 & 2004-2005, in the matter of order passed u/s. 143(3) of the IT Act. 2. Common grounds have been taken by the assessee in both the years under consideration. 3. Facts in brief are that the assessee an advocate and Solicitor and senior partner of the firm of Amarchand angaldas and Suresh A. Shroff & Co, Solicitors and Advocates (hereinafter referred to as "AMSAS"). The assessee derived income mainly in form of salary and share in the total income or the said firm in terms of Deed of Partnership. The assessee is 2 & 6782-2008 Mr. Marezban Bharucha also on Board of Directors of certain companies and Directors' fees received therefrom as professional director also form part of income from profession. The assessee also derives income from investments.
First grievance relates to decline of claim of depreciation on the Motor Vehicle used for the purpose of profession. The Assessing Officer has erroneously considered the motor car as being used for the purpose of the business of the firm and not for the business of the assessee and therefore denied the claim for depreciation of the assessee. The motor cars used for professional purpose by the partners of the firm are owned by them in their individual capacity, hence the depreciation thereon has been rightly claimed by the assessee. The Assessing Officer has further, pointed out that the assessee has claimed depreciation on the opening written down value of the motor car @ 50%, in respect of the Mercedes Benz purchased during the previous year 2001-02, instead of 20% admissible as per the depreciation schedule.
From the record we found that the assessee has claimed depreciation on 80% of the cost after considering 20% of the cost thereof on personal account with effect from the said previous year ended 31 March, 2002.
We have heard rival contentions and found from record that the Assessing Officer has disallowed claim of depreciation on motor car @ 50%. The Income-tax (Sixth Amendment) Rules,2001 (Notification No. S.O.388(E), dated 4th May, 2001) Inserted the following entry in the depreciation schedule:
3 & 6782-2008 Mr. Marezban Bharucha “2(iind) New commercial vehicle which is' acquired on or after the 1st day of April, 2001 but before the 1st day of April, 2002 and is put to use before the 1st day of April, 2002 for the purposes of business or profession [see note 3A below the Table]. (emphasis supplied)" The word commercial vehicle has been defined in note 3Abelow Appendix I as under: "3A. "Commercial Vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle' but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller" .
The expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", .maxi-cab", "motor-cab", "tractor" and "road- roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988. Since the expression “Commercial Vehicle” has been defined to include motor cars, assessee has rightly claimed depreciation as the said definition includes a motor cab at the rate specified vide the said Entry 2(iind) of Appendix I for the assessment year 2002-03 and similarly at the rate specified vide Entry III- 3(vi) for the previous year under consideration relevant to the assessment year 2003-04. Thus, the assessee is eligible to claim depreciation at the normal rates of depreciation provided or motor car used for professional purposes i.e. @ 20%, in place of assessee’s claim of 50%. 9. Assessee is also aggrieved for holding that expenses for Law Book, Journals and Periodicals, Membership Fees and Professional compliments to staff, various clients and professional associates were not 4 & 6782-2008 Mr. Marezban Bharucha incurred for the purpose of profession of the assessee and hence are not allowable u/s 37(1). 10. We have considered rival contentions and found that the salary which the assessee as a partner gets for his efforts is appropriation of profits and hence it is deemed profit or gains of business/profession and taxed as such and not under the head salary. It is true that the partnership firm incurs expenditure to earn profits and deduction is allowed to the firm of such expenses. Many a times even the partner incurs expenditure on his own account wholly and exclusively laid out for the purposes of profession which is not reimbursed by the firm. By incurring such expenditure the partner ensures super profits for the firm. These expenses are incurred for the purpose of earning and ensuring professional income in competitive professional environment. Since these expenses are incurred by the partner to ensure his maximum effort in procuring professional work thereby getting the substantial amount as salary it is a legitimate expenditure wholly and exclusively laid out for the purposes of earning such professional income, which will be born out from the fact of the assessee being able to achieve material and substantial enhancement professional income. The share in total income is a fixed share in terms of the Deed of Partnership while the quantum of salary depends on the professional fees and income generated by individual partners based on their personal efforts. Any expenditure incurred and laid out for the purpose of earning deduction in the hands of the person, incurring the same, while computing his income.
5 & 6782-2008 Mr. Marezban Bharucha 10. Even as per the scheme of the Income tax Act, the salary derived by the partner from the firm is not taxed as "salary income" but is taxed as deemed profits and gains of business or profession" under Section 28 of the Act. Section 29 of the Act stipulates that the income under the head profits and gains of business or profession shall be computed in accordance with the provisions of section 30 to 43D of the Act. Section 37 provides for deduction of any expenditure (which is not in the nature of capital expenditure or personal expenditure) laid out or expended wholly and exclusively for the purposes of the business or profession while computing income chargeable under the head profits and gains of business or profession. The proposition is well settled by the Apex Court in the case of the Commissioner of Income Tax, Bihar Vs. Ramniklal Kothari, reported in (1969) 74 I.T.R. pg. 57, the head-note whereof is reproduced hereunder: "Business carried on by the firm is business carried on by the Partners. Profits of the firm are profits earned by all the partners in carrying on the business. The share of the Partner is business income in his hands for the purpose of Section 10(2) of the Income Tax Act, 1922, and being business income expenditure necessary for the purpose of earning that Income and appropriate allowances are deductible therefrom in determining the taxable income of the partner. HELD, accordingly, that the respondent, who was a Partner in 4 firms, did not carry on any independent business, was entitled to deduct from his share of profits from the firms, amounts paid as salary and bonus to staff, expenses for maintenance and depreciation on motor cars and travelling expenses expended by him in earning the Income from the firms."
6 & 6782-2008 Mr. Marezban Bharucha 11. The Bombay High Court has also endorsed the view in the Firoze H. Kudianiwalla Vs. the Commissioner of Income tax reported in (1978)113 LT.R. page 873.
The assessee is a senior professional and needs to incur certain expenses for the purpose of profession. In the course of the assessment proceeding up of such expenditure incurred was furnished alongwith copies of the bills evidencing the expenditure made. The assessee had in the course of the assessment proceedings submitted in writing that the said expenses are borne by the assessee himself and not reimbursed by the firm, which fact is also stated in terms of the professional income statement forming part of the return of income.
Similar claim of assessee was declined by the AO in earlier years in an appeal filed before the CIT(A), assessee’s claim for these expenses were allowed, however, revenue did not file any appeal before us and in further years AO himself has accepted such claim of expenses.
Keeping in view the nature of expenses and assessee’s profession for which it was incurred, there is no justification for disallowing claim of expenses incurred for Law Book, Journals and Periodicals etc., Accordingly, we direct the AO to allow the same.
Facts and circumstances in the assessment year 2004-2005 are same, accordingly following the reasoning given in ITA No.3481/Mum/2008 grounds raised in assessment year 2004-2005 are disposed of accordingly.