Case Law Details
Amount paid by firm to partners or vice versa is payment to self and does not partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts.
Under the general provision relating to Partnership Act that partnership firm is not a juristic person and for inter relationship different remedies are provided to enforce the rights arising out of their inter se transactions, the issue about separate entities apart, it cannot be doubted that the assessee has acted bona fide and his plea that inter se transactions between the partners and the firm are not governed by the provisions of Section 269SS and 269T was bona fide and reasonable ground existed on which they had not adhered to the requirement of conducting the transaction through bank only. Therefore, on the facts found by the AO as well as the Tribunal, the assessee was otherwise not liable to be subjected to penalty.
HIGH COURT OF RAJASTHAN
Commissioner Of Income-Tax.
Vs.
Lokhpat Film Exchange (Cinema).
Date :- 23/1/2007
JUDGMENT
RAJESH BALIA, J.:
Learned counsel for the Revenue submits that the record of the assessee prior to 1991 is not available and hence, they are unable to produce the same before the Court.
Heard learned counsel for the parties.
2. These two appeals arise out of two separate orders passed by the AO levying penalty under Section 271D and 271E in respect of certain transactions between the assessee firm and its partners described as deposits from the partners. The transaction relates to receipt of deposit during the accounting period relevant to asst. yr. 1990-91 from its partners Shri Jay P. Motinani and 8hri Bhagwati Chandnani by way of deposits. The AO considering it to be intra party transactions of deposit otherwise then by way of cheque or bank draft inviting the provisions of ss. 269SS and 269T and considering these payments and repayments were in violation of ss. 269SS and 269T imposed penalty under ss. 271D and 271E respectively for receiving the deposit in cash and payment in cash. The assessee had claimed that in view of the fact that partners and firm are not independent of each other and the firm is not juristic person, these transactions cannot be considered as intra person but were only for the purpose of carrying on partner’s own business. The fact that under the IT Act, the firm and partners of the firm are recognised as independent units, the same cannot be treated for all purposes to be separate and independent. The assessee had contended that in that view of the matter, they had not violated the requirement of Section 269SS and 269T while conducting these transactions. However, the AO did not accept this explanation and rejected the plea of the assessee and imposed penalties under ss. 271D and 271E. The penalties were not sustained by the CIT(A).
3. The Tribunal relying on a decision in CIT Vs. R.M. Chidambaram Pillai, etc. 1977 CTR (SC) 71 : (1977) 106 ITR 292 (SC) wherein the 8upreme Court has said that there cannot be a contract of service, in strict law, between a firm and one of its partners so as to consider the salary paid to the partner as income from salary held that for the purpose of ss. 269SS and 269T also the firm and partners cannot be considered to be separate entity and deleted the penalty. Hence, these two appeals are before us raising the common issue in both appeals.
4. The firm was constituted with a particular object of constructing cinema and is now no more in existence. Sec. 273B has mitigated the penalty to be levied under ss. 271D and 271E by providing that where assessee is able to establish that there was reasonable cause for failure to comply with ss. 269SS and 269T, no penalty is leviable.
5. By considering the decision of the Supreme Court in the aforesaid decision and considering the facts that under the general provision relating to Partnership Act that partnership firm is not a juristic person and for inter relationship different remedies are provided to enforce the rights arising out of their inter se transactions, the issue about separate entities apart, it cannot be doubted that the assessee has acted bona fide and his plea that inter se transactions between the partners and the firm are not governed by the provisions of ss. 269SS and 269T was bona fide and reasonable ground existed on which they had not adhered to the requirement of conducting the transaction through bank only. Therefore, on the facts found by the AO as well as the Tribunal, the assessee was otherwise not liable to be subjected to penalty.
6. In view thereof, we hold that no interference is called for in the order of the Tribunal setting aside the penalty under ss. 271D and 271E.
7. The appeals are, therefore, dismissed. No order as to costs.
