Case Law Details
Shri Vinod Agarwal Vs. Pr. C.I.T. Central (ITAT Kolkata)
in circular No. 8/2014 dated 31-03-2014 issued by the CBDT on the provisions of section 10(2A) of the Act which clarified that ‘total income’ of the firm for sub section (2A) of section 10 of the Act, it has been claried that Sec.10(2A) of the Act as interpreted contextually, includes income which is exempt or deductible under various provisions of the Act. In particular it has been clarified by the CBDT in the said Circular 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 partners. It has further been clarified in the said Circular that 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. If one goes by the CBDT Circular No. 8/2014, the profit credited to the partner’s account in the firm would be exempt from tax in the hands of partners, viz., the sum of Rs. 4,84,89,051/- which is the profit credited to the partner’s account in the firm in the present case. The above clarification in the Circular implies that the share of profit in the hands of the partners is independent of the profits of the firm which is finally distributed among the partners. Even if the income of the firm chargeable to tax becomes NIL on account of exemption/deduction, it does not mean that the income before claiming exemption will be taxed in the hands of the partners.
Therefore there are two views possible on the issue as to whether the Assessee would be entitled to exemption u/s.10(2A) of the Act on the share of profits credited in the partner’s capital account with the firm or the share of total income of the firm declared in the return of income by the firm. It may be true that the CBDT Circular No. 8/2014 was issued in the context of deduction in Chapter-VIA to a partnership firm and exemption in Chapter-III to the income of a partnership firm but the Circular is applicable to all profits credited in the books of the firm in the capital account of the partners, even though they are not declared by the firm in their return of income.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
These are appeals by four different Assessees against four different orders all dated 21.03.2017 of Pr.C.I.T.- Central-2, Kolkata relating to A.Y.2013-14.
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