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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)
.. , ,
./I.T.A.No.2903/Mum/2013
( / Assessment Years : 2007-08)
Ravi R Mullick / The Assistant Commissioner of
E-2, Amalfi, Vs. Income Tax, 16(1),
L.D.Ruparel Marg, Matru Mandir,
Malabar Hill, Mumbai-400006. Mumbai-400020.
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. : AAGPM5504R
/ Appellant by : Shri Atul Mehta
/Respondent by : Shri Vikas Kumar Agarwal
/ Date of Hearing
: 17.7.2014
/Date of Pronouncement : 31.7.2014
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal filed by the assessee is directed against the order dated
07.02.2013 passed by Ld CIT(A)-6, Mumbai and it relates to the assessment year
2007-08.
2. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the
addition of Rs.3,14,105/-, being the difference between the amount of share of
profit from a partnership firm credited to his capital account and the amount of
share of total income of the partnership firm.
I.T.A. No.2903/Mum/2013
2
3. The facts relating to the above said issue are stated in brief. The assessee
is a partner in a partnership firm named M/s Kashon, wherein he is holding 50%
share. For the year ending 31.3.2007, the net profit shown in the Profit and Loss
account of the above said Partnership firm was Rs.25,52,952/-. The assessee's
share was Rs.12,76,476/- and the same was duly credited to the Capital account
of the assessee. The total income of the partnership firm was determined at
Rs.19,24,742/- after allowing deductions u/s 80IB and u/s 80G and also after
making certain disallowances. The assessee's share in the said total income
worked out to Rs.9,62,371/-.
4. The share of the assessee in the total income of the partnership firm is exempted from taxation u/s 10(2A) of the Act. The share of the assessee in the total income of the partnership firm was Rs.9,62,371/-, while the share of net profit that was credited to his capital account was Rs.12,76,476/-. The AO took the view that the assessee would be entitled to exemption u/s 10(2A) of the Act only to the extent of Rs.9,62,371/-, being the share in the total income of the assessee and not the entire amount of Rs.12,76,476/- credited in the capital account. Accordingly he assessed the difference amount of Rs.3,14,105/- (Rs.12,76,476/- (-) Rs.9,62,371/-) as income of the assessee. The Ld CIT(A) also confirmed the said addition and hence the assessee has filed this appeal before us. 5. We have heard the rival contentions and perused the record. It is in the common knowledge of every body that the net profit shown in the profit and loss account is the starting point for computing the total income under the Income tax Act. Further the total income is computed by making various additions and I.T.A. No.2903/Mum/2013 3 deductions prescribed under the Act. Hence the total income computed under the Act need not be the same as that shown as net profit in the Profit and Loss account. For accounting/book purposes, the net profit is divided between the partners. Hence, in the instant case, the capital account of the assessee is credited with Rs.12,76,476/-, being 50% of the net profit declared by the partnership firm in its books of account. However, for computing the total income of the assessee, his share in the total income of the partnership firm is required to be considered, which was determined at Rs.9,62,371/- and the same was claimed as exempt u/s 10(2A) of the Act. The difference between the share of net profit and share in the total income has occurred due to the deductions allowed in the hands of the partnership firm u/s 80IB and 80G and also on account of making certain disallowances of expenditure. 6. The view taken by the tax authorities is that the exemption u/s 10(2A) of the Act is available only to the extent of assessee's share in the total income of the partnership firm. Accordingly they have taken the view that the difference between the share of the assessee in the net profit and in the total income is assessable as income in the hands of the assessee. Both the tax authorities have rejected the contention of the assessee that the said difference has occurred due to the deductions allowed in the hands of partnership firm u/s 80IB and 80G of the Act, which are benefits allowed under the Act. The doubt entertained by the AO & CIT(A) has since been clarified by the CBDT in its Circular No.8 / 2014 dated 31.03.2014. For the sake of convenience, we extract below the contents of the Circular:- I.T.A. No.2903/Mum/2013 4 7. A perusal of the Circular extracted above would show that a partner cannot be subjected to tax in respect of the share income received from the partnership firm. The income of the partnership firm can be subjected to tax only in the hands of the partnership firm. Further it is explicitly clarified that the entire profit credited to the partners' accounts in the firm would be exempt from tax in I.T.A. No.2903/Mum/2013 5
the hands of such partners, even if the income chargeable to tax becomes NIL in the hands of the firm on account of any exemption or deductions as per the provisions of the Act. In the instant case, the difference has occurred due to the deductions allowed u/s 80IB and 80G of the Act. 8. The foregoing discussions would show that the tax authorities are not justified in assessing the amount of Rs.3,14,105/- referred above in the hands of the assessee. Accordingly, we set aside the order of ld CIT(A) and direct the assessing officer to delete the addition of Rs.3,14,105/- made in the hands of the assessee. 9. In the result, the appeal filed by the assessee is allowed. The above order was pronounced in the open court on 31st July, 2014. 31st July, 2014 Sd sd ( /SANJAY GARG) (.. / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai: 31st July,2014. . ../ SRL , Sr. PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. () / The CIT(A)- concerned 4. / CIT concerned 5. , , / I.T.A. No.2903/Mum/2013 6 DR, ITAT, Mumbai concerned 6. / Guard file. / BY ORDER, True copy (Asstt. Registrar) , /ITAT, Mumbai
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