2008-VIL-420-ITAT-PNE

Equivalent Citation: TTJ 121, 847, [2009] 34 SOT 495 (PUNE)

Income Tax Appellate Tribunal PUNE

IT APPEAL NOS. 1245 AND 1246 (PUNE) OF 2006

Date: 31.12.2008

ASSISTANT COMMISSIONER OF INCOME-TAX.

Vs

SUMAN CONSTRUCTION.

BENCH

Member(s)  : PRAMOD KUMAR., MUKUL SHRAWAT.

JUDGMENT

These two appeals have been filed by the Revenue arising out of the common order of CIT(A)-II, Aurangabad, for asst. yrs. 1999-2000 and 2000-01 identically dt. 10th Aug., 2006. For both the years grievance of the Revenue is identical hence, these appeals have been consolidated and hereby decided by this common order. Since asst. yr. 1999-2000 is the first year wherein the issue was elaborately discussed hence, we shall take up the facts from that year to decide these two appeals, and the grounds raised are reproduced below:

"1. Whether, on the facts and in the circumstances of the case and in law. the learned CIT(A) was justified in allowing salary to partners on the basis of photo-copy of a partnership deed, not submitted along with return of income, though the assessee had not complied with the requirements laid down in s. 148 r/w s. 139 of the IT Act, 1961, and hence invited the rigours of sub-s. (5) of s. 184 of the IT Act, 1961?

2. Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in allowing salary to partner, on the basis of photo-copy of a partnership deed not submitted along with return of income, though the assessee had not complied with the requirements laid down in sub-s. (4) of s. 184 of the IT Act, 1961, and hence invited the rigours of s. 185 of the IT Act, 1961?

3. Whether, on facts and in the circumstances of the case and in law, the learned CIT(A) was justified in deleting the addition of Rs. 2,03,350, being the amount of unsecured loans, on the ground that it relates to a matter unconnected with the escapement of income, overlooking the established legal position that in an assessment or reassessment proceedings under s. 147, the jurisdiction of the AO to assess matters in respect of such items which have been found during the course of such assessment or reassessment, to be under-assessed or not been charged to tax is absolute and unfettered?"

2. Corresponding assessment orders for both the years were passed under s. 143(3) identically dt. 28th March, 2005. The AO has noticed that the assessee has claimed salary to partners of Rs. 2,20,000 for asst. yr. 1999-2000 and Rs. 2,10,000 for asst. yr. 2000-01. However, in his opinion as per the partnership deed filed along with the return in the past assessment year i.e., asst. yr. 1998-99 executed on 6th May, 1997, there was no specification of this salary payable to the partners. According to AO, there was neither the quantification of the salary payable to the partners nor it was prescribed the manner in which such quantification would be done. By referring CBDT Circular No. 739, dt. 25th March, 1996 [(1996) 131 CTR (St) 53] the AO has said that the provisions of payment of salary have been made clear and since there was no specified quantification therefore. assessee was not entitled for claim of deduction under s. 40(b) of IT Act regarding salary to partners. In response, the assessee has furnished copies of the partnership deed executed from time to time dt. 5th April, 1999, 1st April, 2001 and 16th June, 2003. After perusing those partnership deeds the observation of the AO was that partnership deeds executed on 5th April, 1999 and 16th June, 2003, the relevant pages were without signatures of the partners. He expressed possibility that those pages might have been replaced later on. He has also noticed that in the partnership deed executed on 1st April, 2001, the contents of the salary were inserted in writing by hand. On the other hand, he has also accepted that these partnership deeds submitted during the course of assessment proceedings did not have any connection with the assessment year under consideration. He has also accepted that the assessment year under consideration was reopened on the basis of a partnership deed executed on 6th May, 1997, which was attached along with the return of asst. yr. 1998-99. Thereafter, he has concluded that the impugned partnership deed on the basis of which this assessment was reopened did not specify the amount of salary or did not quantify the salary payable to the partners in accordance with the provision of s. 40(b) of IT Act and also not satisfied the conditions prescribed in CBDT Circular No. 739, therefore, the firm was not entitled for the deduction of salary to partners. For both the years disallowance was made.

3. When this issue was carried before the first appellate authority, it was noted by the learned CIT(A) that the assessee was a civil contractor and for the purpose of deciding the issue examined the partnership deed dt. 5th April, 1999 which was filed along with the return of income for asst. yr. 1999-2000. Vide para 19, it was held as under:

"19. Ground No. 9 relates to the issue, of the validity of the partnership deed produced by the appellant. In this connection, it is observed while scrutinizing the assessment record that partnership deed dt. 5th April, 1999 was filed along with the return of income itself for the asst. yr. 1999-2000. As already discussed above that during the course of the assessment proceedings itself the appellant filed the partnership deed dt. 5th April, 1999 which is more or less the same as filed along with the return. The assessee has also filed certified copy of the partnership deed from the PWD, Hingoli, evidencing the fact that this partnership deed was in existence during the previous year relevant to the assessment year in question. Therefore, looking into the totality of the circumstances, it can be said that the partnership deed dt. 5th April, 1999 is genuine partnership deed and on the basis of the partnership deed, the assessee is entitled to claim the remuneration paid to the partners and as the payment of salary is being authorized by this partnership deed to the 4 partners. The partners have also reflected their remunerations in their respective returns of income for the relevant assessment year and the same has been assessed under s. 143(1) of the IT Act. The assessee is entitled to claim deduction of the salary only to these 4 partners as per s. 40(b) of the IT Act. In view of this fact. the addition made by the AO on this account is hereby deleted."

3.1 Being aggrieved now the Revenue is before us. From the side of the Revenue learned Departmental Representative, Shri S.K. Ambasth appeared. A compilation has been filed from the side of the Revenue containing xerox copies of the partnership deed. Learned Departmental Representative tried to demonstrate that in the original partnership deed there was no specification or quantification of the salary to partners, however, subsequently, a page was changed and the assessee has attempted to mislead the authorities by replacing p. 5 of partnership deed dt. 5th April, 1999. Learned Departmental Representative has explained that the change was made so as to quantify the amount of salary to the partners and in this manner the assessee has obtained relief from learned CIT(A). He has vehemently argued that since the learned CIT(A) has granted relief to the assessee on the basis of a manipulated partnership deed therefore the said relief deserves to be quashed. In respect of the legal issue he has placed reliance on the CBDT circular cited supra to stress upon the necessity of quantification of salary in the clauses of the partnership deed.

4. From the sides of the respondent assessee learned Authorised Representative, Shri J.S. Singh appeared and supported the order of learned CIT(A).

5. Heard the submissions of both the sides at length and also carefully perused the orders of the authorities below in the light of the compilation file1d. We have found that by Finance Act, 1992 w.e.f. 1st April, 1993 an insertion was made in s. 40 of IT Act vide cl. (b) which prescribes that in the case of a firm assessable as such any payment of remuneration to any partners who is a working partner, if not authorized by the terms of the partnership deed shall not be entitled for deduction in computing the income chargeable under the head "Profits and gains of business or profession". This section also contains sub-cl. (v) which prescribes that any payment of remuneration to any partner who is a working partner who is authorized by and is in accordance with the terms of the partnership deed. then the amount of such payment of partnership should not exceed the aggregate amount as prescribed in this sub-clause. Meaning thereby that s. 40, cl. (b), sub-cl. (ii) and another sub-cl. (v) prescribes that a deduction in the case of a firm can be allowed in respect of salary or remuneration to working partners if it is duly authorized by the terms of a partnership deed however, to the extent of prescribed limit as has also been prescribed in the statute. Therefore, on plain reading of this section it is understood by us that these sections do not make it mandatory to quantify the amount of salary in one of the clauses of the partnership deed because of the main reason that the monetary limit or ceiling is otherwise prescribed in the statute itself. The language of s. 40(b)(ii) is as under:

"(ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorized by, or is not in accordance with, the terms of the partnership deed."

5.1 We have reproduced the language to make it clear that the statute has used the term "authorize" and not used the term "quantify". On the other hand, the AO has made the disallowance mainly because of the reason that the amount of salary was not quantified in the clause of the partnership deed and in support he has relied upon CBDT Circular No. 739. dt. 25th March, 1996 [(1996) 131 CTR (St) 53]. In this regard, we may like to clarify that CBDT cannot issue a circular under s. 119 which would tentamount to write or detract from the provisions of IT Act. CBDT is empowered to issue only administrative instructions to subordinate offices only for the purpose of correct enforcement of the provisions of the statute as it was held in the case of Jalgaon District Central Co-operative Bank Ltd. vs. Union of India (2003) 184 CTR (Bom) 343 (2004) 265 ITR 423 (Bom). Therefore, in our humble understanding of law since the statute has used the term "authorize" therefore, the CBDT has no jurisdiction to substitute the term "authorize" by the term "quantify". While interpreting the clause of a statute there is no scope for importing into the statute some other words which are not there, Such an interpretation, if any made, by any of the authority would amount to an amendment in the statute which is a prerogative of the legislative body i.e. Hon'ble Members of the Parliament. We are very well aware that even if there be a situation of casus omissus even then the defect can be cured only by a proper legislation and not by any interpretation. To our understanding, there appears no justification to deviate from the general principles of interpretation according to which the intention of the legislature is to be interpreted from the terms used or the words contained in a statute. For this proposition we place reliance on CIT vs. Distributors (Baroda) (P) Ltd. 1972 CTR (SC) 275 : (1972) 83 ITR 377 (SC) and Forbes Forbes Campbell & Co. Ltd. vs. CIT (1994) 119 CTR (Bom) 319 : (1994) 206 ITR 495 (Bom). It is also not a case before us that the impugned taxing provisions were ambiguous and therefore capable of more than one interpretation. To us, there was no ambiguity in the language of the said section, hence there is no question of a beneficial interpretation to either side. We are of the firm view that it is not permissible to add words into a taxing provisions which are not there or exclude words which are there. So, the words contained in a provision must be given a natural meaning as commonly understood in legal parlance. For this proposition, we place reliance on CED vs. R. Kanakasabai & Ors. 1973 CTR (SC) 227 : (1973) 89 ITR 251 (SC).

5.2 Next is the question that what will be impact of alleged change of p. 5 in the partnership deed as pointed out by learned Departmental Representative. This serious allegation was strongly refuted by learned Authorised Representative by placing on record a certified copy of said partnership deed which was stated to be filed before PWD who has certified the said deed dt. 5th April, 1999. The contention was that even if the clause of the deed, more particularly cl. 10, is taken into consideration as per the deed alleged to be with the AO. even then the authorization of salary was very much incorporated in cl. 10 therein. The vehement contention was that once the authorization was admitted in the said deed which was claimed to be with the AO then also the assessee deserves due relief. It was also contended that the assessee had no intention of wrongful gain because he was entitled for the claim of salary on the basis of the authorization made in the partnership deed. We find force in this argument of learned Authorised Representative because in our considered opinion no gainful purpose would be served to the assessee, as far as the question of the allowance of salary to partners in terms of s. 40(b) was concerned.

6. In the result, we hereby affirm the findings of the learned CIT(A) and dismiss the grounds of the Revenue. Rest of the grounds not seriously contested hence. hereby dismissed. Appeals dismissed.

 

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