The assessee received salary at Rs. 13,26,000/- from the said partnership firm and also received share in profit thereof at Rs. 40,25,600/-. The assessee claimed expenses of Rs. 14.27,819/- against these incomes and arrived at an income of Rs. 39,23,780/- out of which assessee claimed Rs. 40,25,600/- as exempt u/s. 10(2A) of the Act and, hence, finally showed a net loss of Rs. 1,01,819/- under the head profits and gains of business or profession.
A partnership firm is a separate entity than that of its partners under the Income Tax Act and if there exist any specific provision in the Income Tax Law modifying the partnership law then, such specific provision shall be applied and if the tax law is silent on a specific issue, then a reference will have to be made to the provisions of partnership law for the adjudication of the same and in the present case, provisions of law sufficiently take care of the issue involved herein, hence, the issue is to be decided accordingly. In the present case, there exist specific provisions for computing the income of the partnership firm as well as that of it’s partners, hence, total income of both is liable to be computed in accordance with such provisions. We further hold that since partnership firm, for the purpose of Income Tax Act is a separate asses sable entity and, therefore, partners vis-a’-vis partnership firm would stand on the same footing of shareholders vis-a-vis company. Accordingly, income charged in the hands of partnership firm can not be treated as being a non-exempt income in the hands of a partner of such firm and, therefore, provisions of Section 14-A would be applicable in computing the total income of such partner in respect of his share in the profits of such firm.
If a particular course of action is adopted, then, the legal consequences thereof, have to be faced i.e. if no salary is paid, then, whole of the income by way of share in profit is exempt in the hands of the partner and consequently, provisions of Section 14A have to be applied in respect of any expenditure incurred by the assessee in relation to such income and when a partner receives salary, then, expenditure incurred for earning the same can be allowed as deduction as it is the net income which is to be taxed under the head income from profits and gains or profession or when a partner receives both salary as well as share in the profit, the logical course can be adopted by way of proportionate dis allowance of expenditure incurred towards the same, if there exist no provision for such allocation.
the provisions of Section 14A are applicable and, in our view, the impugned expenditure can be considered as incurred by the assessee for earning salary as well as share in profits of the partnership firm.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES ‘H’
ITA No. 7534/Mum/2004
Assessment Year 2001-02
