The Commissioner Of Income Tax, Vijayawada vs. M/s. Maruthi Wines

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ITTA/493/2010HC TelanganaHBHC01051754201007 December 2010Bench: V.V.S.RAO,RAMESH RANGANATHAN2 pages
AI SummaryAllowed

What did the High Court hold?

The Tribunal had previously allowed such deductions for similar assessees. Following this precedent and a Division Bench ruling of the High Court, the Revenue's appeals were allowed, and the Tribunal's orders were set aside.

What were the facts?

Assessees, holding liquor licenses, formed partnership firms to conduct retail liquor businesses. They claimed deductions for salary and interest paid to partners in their income tax returns. The Assessing Officer disallowed these deductions, citing a Supreme Court judgment.

What were the issues?

Whether salary and interest paid to partners are deductible expenses for a business conducted through a partnership firm, especially in the context of liquor trade licenses.

Which sections of the Income-tax Act were involved?

Section 260A

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Cases cited in this judgment(2)Show list

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

ITTA Nos.114, 237 of 2008; 290, 444, 482, 493 and 510 of 2010

Dated:07.12.2010

Between:

The Commissioner of Income Tax, Vijayawada.

…Petitioner and

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

ITTA Nos.114, 237 of 2008; 290, 444, 482, 493 and 510 of 2010 COMMON ORDER: (per Hon’ble Sri Justice V.V.S.Rao) In all these cases the assesses were granted a licence under the Andhra Pradesh Indian Liquor and Foreign Liquor Rules, 1970 and the 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 firms were 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 assesses 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. In all these matters as directed by this Court, notices are taken

out by the Senior Standing Counsel for Income Tax. The postal authorities returned the registered covers with an endorsement “not claimed, addressee left”. Therefore, applying the ratio in C.C.Alavi Haji v Palapetty Muhammed[2] the service of notice on the respondents is treated as deemed service. The question whether the assessee was entitled to claim deduction of salary, and interest paid to the 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[3]. There is no dispute that the conclusion therein squarely covers the l i s in these cases. Following the same, these appeals also 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)

07.12.2010 vs [1] (1996) 217 ITR 746 [2] (2007) 6 SCC 555 [3] ITTA Nos.613 of 2006 and batch, dated 09.9.2010

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