Case Law Details
Contention of the revenue
1. The CIT(A) has erred in law and on facts in considering the share of profit of Rs.47.48 crores as exempt u/s 10(2A) in the hands of the assessee despite the fact that the total income of the said firm namely M/s Parashar was Rs.Nil after claiming deduction u/s 80IB.
2. The CIT(A) has not appreciated the fact that the Circular No.636 dated 03.1992 was meant to prevent occurrence to double taxation. In this case, the income is not taxable in the hands of the firm and hence there is no question of double taxation while taxing the same in the hands of the partner (assessee).
Held by ITAT
CBDT itself has accepted the proposition that the share income from the firm received by the partners is exempt u/s 10(2A) of the Act and under no circumstances can be taxed in the hands of the partners. In view thereof, the order of the CIT(A) is upheld and the appeal of the Revenue is accordingly dismissed.
Extract of the Judgment
This appeal by the Revenue and Cross-objection thereof filed by the assessee are directed against the order of the Learned Commissioner of Income-Tax (Appeals)-VI, Ahmedabad dated 07.10.2013 for Assessment Year 2010-11.
2. The grounds of appeal raised by the Revenue read as under:-
1. The CIT(A) has erred in law and on facts in considering the share of profit of Rs.47.48 crores as exempt u/s 10(2A) in the hands of the assessee despite the fact that the total income of the said firm namely M/s Parashar was Rs.Nil after claiming deduction u/s 80IB.
2. The CIT(A) has not appreciated the fact that the Circular No.636 dated 03.1992 was meant to prevent occurrence to double taxation. In this case, the income is not taxable in the hands of the firm and hence there is no question of double taxation while taxing the same in the hands of the partner (assessee).
3. The brief facts are – the assessee-company was a partner in the firm M/s. Parasar Developers whose income was exempt u/s 80IB of the Act. The assessee received share income from the firm and exempt from tax u/s 10(2A) of the Act. The ld. Assessing Officer, going beyond the provisions of Section 10(2A), by applying his own misinterpretation, held that the share income from the firm was taxable. The assessee relied on the CBDT Circular No.636 dated 31st August, 1992 and further relied on the various judgments as under:-
i) CIT vs. UTI Bank Ltd, (2013) 256 CTR 76
ii) UCO Bank v. CIT, (1999) 237 ITR 889
iii) CIT vs. Ashok Mittal, (2013) 213 Taxman 197
3.1 Ld. CIT(A), relying on CBDT Circular No.636 dated 31.08.1992, the Memorandum explaining the provisions of Finance Act, 1992 and Notes on clauses of the Finance Bill, 1992, held as under:-
“… Therefore, having giving my careful consideration to the issue, I hold that denial of the exemption/s 10(2A) of the appellant’s share income from the firm M/s Parasar Developers is not in accordance with law. AO is directed to allow the exemption as claimed by the appellant in the return of income. This ground of appeal is allowed.”
4. Aggrieved, the Revenue is in appeal before us.
5. The ld. Departmental Representative relied on the order of the Assessing Officer.
6. The ld. Counsel for the assessee contends that the above CBDT circular has been again reemphasized by a fresh circular No.8 of 2014, dated 31.03.2014 as under:-
“A reference has been received in the Board in connection with the interpretation of provisions of section 10(2A) of the Income tax Act, 1961 (‘Act’) seeking clarification as to what will be the amount exempt in the hands of the partners of a partnership firm in cases where the firm has claimed exemption/deduction under Chapter III or VI A of tire Act.
2. The matter has been examined. Sub section (2A) of section 10 was inserted by the Finance Act, 1992 w.e.f. 1-4-1993 due to a change in the scheme of taxation of partnership firms. Since assessment year 1993-94, a firm is assessed as such and is liable to pay tax on its total income. A partner is not liable to tax once again on his share in the said total income.
3. It is clarified that ‘total income’ of the firm for sub section (2A) of section 10 of the Act, as interpreted contextually, includes income which is exempt or deductible under various provisions of the Act. It is, therefore, further clarified that the income of a firm is to be taxed in the hands of the firm only and the same can under no circumstances be taxed in the hands of its Accordingly, the entire profit credited to the partners’ accounts in the firm would be exempt from tax in 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 deduction as per the provisions of the Act.
4. This may be brought to the notice of all concerned.”
6.1 Thus, the order of ld. CIT(A) was passed on 07.03.2013. There is no infirmity in his order which is further corroborated by circular dated 31.03.2014.
7. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. We find merit in the contention of the ld. Counsel for the assessee. The CBDT itself has accepted the proposition that the share income from the firm received by the partners is exempt u/s 10(2A) of the Act and under no circumstances can be taxed in the hands of the partners. In view thereof, the order of the CIT(A) is upheld and the appeal of the Revenue is accordingly dismissed.
