Myhome Developers Vs ACIT (Gujarat High Court)
Gujarat High Court allowed a batch of writ applications filed by My Home Developers challenging notices issued under Section 148 of the Income Tax Act, 1961 for reopening assessments for A.Ys. 2011-12, 2012-13 and 2013-14. The Revenue alleged that the assessee had claimed excessive deduction under Section 80IB(10) without providing for interest on partners’ capital and remuneration to partners, resulting in income escaping assessment. The assessee was a partnership firm engaged in developing housing projects. Its original partnership deed contained a clause regarding payment of interest on partners’ capital, while no remuneration was payable. After changes in the constitution of the firm, another partnership deed was executed and subsequently amended with effect from 01.04.2009, whereby the partners mutually agreed that no interest would be payable on their capital.
The assessee contended that the Revenue had proceeded on an incorrect understanding of the partnership deeds. Merely because an earlier deed contained a provision relating to interest on partners’ capital did not mean that payment of such interest was mandatory. The deed expressly permitted the partners to mutually alter the arrangement, and the subsequent amendment stipulated that no interest would be payable. The assessee relied upon the Gujarat High Court decision in PCIT v. Alidhara Taxspin Engineers, where the Court had held that mere incorporation of clauses concerning partners’ interest and remuneration does not by itself make those payments mandatory. The assessee further pointed out that for A.Y. 2010-11 it had claimed deduction under Section 80IB(10) without providing interest or remuneration to partners and the Revenue had not disturbed the claim on that ground.
