Case Law Details
Bhavani Engineering Vs ITO (ITAT Hyderabad)
ITAT Hyderabad held that mentioning of firm in 2(3)(b) of the Finance Act, 2018 excludes it from 2(3)(a). Accordingly, in case of firm, surcharge is leviable only when its total income exceeds INR 1 crore and not otherwise.
Facts- Assessee is a partnership firm, carrying the business of generation of solar energy. The returns of income filed by the assessee for A.Y. 2018-19 and 2019-20 were processed under section 143(1) of the Income Tax Act, 1961. Surcharge at the rate of 10% on the income returned by the assessee was levied. According to the assessee, such a levy of surcharge, excess education cess, interest etc., are erroneous. The request of the assessee for a rectification thereof was rejected.
CIT(A) upheld the levy of surcharge, etc. and dismissed the appeal. Being aggrieved, the present appeal is filed by the assessee.
Conclusion- The legislative wisdom cannot be doubted in making this clear and distinct treatment of various categories of persons for the purpose of levy of surcharge and one category of person for this treatment cannot be construed to include another category of persons in it.
On this analysis, we are of the considered opinion that the clear mentioning of firm in 2(3)(b) of Finance Act, 2018 excludes it from the operation of 2(3)(a) thereof. A firm is, therefore, is liable for levy of surcharge only when its total income exceeds one crore rupees and not otherwise. With this view of the matter, we find it difficult to sustain the levy of penalty and accordingly direct the learned Assessing Officer to delete the same. Grounds of appeal are accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
Aggrieved by the orders passed by the learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), in the case of Bhavani Engineering (“the assessee”) for the assessment years 2018-19 & 2019-20, assessee preferred these appeals. Facts and grounds of appeals are identical and, therefore, it is just and convenient to dispose them of by way of this common order.
2. Assessee is a partnership firm, carrying the business of generation of solar energy. The returns of income filed by the assessee for the assessment years 2018-19 and 2019-20 were processed under section 143(1) of the Income Tax Act, 1961 (for short “the Act”). Surcharge at the rate of 10% on the income returned by the assessee was levied. According to the assessee, such a levy of surcharge, excess education cess, interest etc., are erroneous. The request of the assessee for rectification thereof was rejected.
3. Assessee, therefore, preferred appeals before the Ld. CIT(A), and contended that the assessee being a firm, surcharge is leviable as per section 2(3)(b) of the Finance Act, 2018 which says that in case of every cooperative society or firm or local authority, the amount of income tax shall be increased by a surcharge at the rate of 12% of such income tax, where the total income exceeds one crore rupees.
4. Ld. CIT(A), however, turned down the contention of the assessee by stating that though the assessee has been placing reliance on section 2(3)(b) of the Finance Act, 2018, at the same time, the assessee is not expected to ignore the provisions under section 2(3)(a)(i) of the Finance Act, 2018 where it is stated that in the case of every individual or Hindu Undivided Family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in subclause (vii) of clause (31) of section 2 of the Act having a total income exceeding rupees fifty lakhs but not exceeding one crore rupees were fastened with the liability to the increased income tax by way of surcharge at 10% of the income tax. On this premise, Ld. CIT(A) upheld the levy of surcharge etc., and dismissed the appeal.
5. Aggrieved by such an act of the Ld. CIT(A), assessee preferred this appeal contending that the finding of the Ld. CIT(A) is contrary to the provisions of the Finance Act, 2018 which prescribes that in case of partnership firm, surcharge is leviable only if the total income exceeds rupees one crore and the Ld. CIT(A) failed to notice that in case of the assessee, the total income for either of the years does not exceed rupees one crore. He, therefore, submits that the levy of surcharge has to be deleted.
6. Per contra, it is the submission of the Ld. DR that the assessee being a firm is covered by the definition of artificial juridical person under section 2(31)(vii) of the Act covered by section 2(3)(a)(i) of the Finance Act, 2018 and, therefore, the authorities below are right in levying the surcharge because admittedly, the income of the assessee for either of the years exceeds rupees fifty lakhs though not exceed rupees one crore.
7. We have gone through the record in the light of the submissions made on either side. There is no dispute that the assessee is a firm and the total income of the assessee for 2018-19 or 2019-20 does not exceed rupees one crore. According to the learned CIT(A), being a firm, the assessee is covered by 2(3)(a)(i) of the Finance Act which deals with every individual or Hindu Undivided Family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income Tax Act. It seems the learned CIT(A) gave wider interpretation to the expressions ‘Association of Persons or a body of individuals, whether incorporated or not’ and ‘every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income Tax Act’ in 2(3)(a)(i) of the Finance Act, 2018 to include the firm also. However, it does not appear to be correct for the following reason.
8. Section 2(31) of the Act reads that,-
“person” includes:
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
Explanation: For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.
9. The above definition of person clearly contemplates seven categories of persons and all such seven categories shall be taken as mutually exclusive, because no redundancy could be attributed to the wisdom of legislature or to infer that the distinction between various categories of persons enumerated in this provision is not taken proper care by the legislature. It shall be construed that the legislature knows the distinctiveness of each of these categories while enumerating them. Taken in that spirit, it would be clear that a firm is different from ‘Association of Persons or a body of individuals, whether incorporated or not’ and ‘every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income Tax Act’. When the firm is distinctly mentioned at 2(31)(iv) of the Act, it explicitly excludes the other categories covering this particular category of person.
10. Now coming to the case on hand, a perusal of the provisions under section 2(3) of the Finance Act, 2018 abundantly makes it clear that sub-clause (a) thereof is applicable to categories (i), (ii), (v) and (vii) of section 2(31) of the Act whereas sub-clause (b) is applicable to clause (iv), (vi) or co-operative societies whereas sub-clauses (c) and (d) are made applicable to clause (iii) of section 2(31) of the Act. Again, the legislative wisdom cannot be doubted in making this clear and distinct treatment of various categories of persons for the purpose of levy of surcharge and one category of person for this treatment cannot be construed to include another category of persons in it.
11. On this analysis, we are of the considered opinion that the clear mentioning of firm in 2(3)(b) of Finance Act, 2018 excludes it from the operation of 2(3)(a) thereof. A firm is, therefore, is liable for levy of surcharge only when its total income exceeds one crore rupees and not otherwise. With this view of the matter, we find it difficult to sustain the levy of penalty and accordingly direct the learned Assessing Officer to delete the same. Grounds of appeal are accordingly allowed.
12. In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on this the 30th day of January, 2023.
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