M/s Minnow Trading Company Pvt. Ltd.,, Bangalore v. ITO, Bangalore

CO 16/BANG/2011 | 2008-2009
Pronouncement Date: 30-11-2011 | Result: Dismissed

Appeal Details

RSA Number 1621123 RSA 2011
Assessee PAN AABCM0207B
Bench Bangalore
Appeal Number CO 16/BANG/2011
Duration Of Justice 9 month(s) 3 day(s)
Appellant M/s Minnow Trading Company Pvt. Ltd.,, Bangalore
Respondent ITO, Bangalore
Appeal Type Cross Objection
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-11-2011
Date Of Final Hearing 30-11-2011
Next Hearing Date 30-11-2011
Assessment Year 2008-2009
Appeal Filed On 25-02-2011
Judgment Text
PAGE 1 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.K.SAINI ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K J.M ITA NO. ASST. YEAR APPELLANT RESPONDENT 1473/BANG/10 2001-02 ITO WARD-12(1) BANGALORE M/S MINNOW TRADING CO. PVT. LTD. C/O RAFFLES SOLUTIONS PVT. LTD. 8 TH FLOOR THE ESTATE NO.121 DICKENSON ROAD BANGALORE-42. PA NO.AABCM0207B 1474/BANG/10 2002-03 -DO- -DO- 1475/BANG/10 2004-05 -DO- -DO- 1476/BANG/10 2007-08 -DO- -DO- 1477/BANG/10 2008-09 -DO- -DO- CO.NO.12/B/11 (ITA NO.1473) 2001-02 M/S MINNOW TRADING CO. PVT. LTD. C/O RAFFLES SOLUTIONS PVT. LTD. 8 TH FLOOR THE ESTATE NO.121 DICKENSON ROAD BANGALORE-42. PA NO.AABCM0207B ITO WARD-12(1) BANGALORE. CO.NO.13/BANG/11 (ITA NO.1474) 2002-03 -DO- -DO- CO. NO.14/BANG/11 (ITA NO.1475) 2004-05 -DO- -DO- CO.NO.15/BANG/11 (ITA NO.1476) 2007-08 -DO- -DO- C.O.NO.16/BANG/11 (ITA NO.1477) 2008-09 -DO- -DO- DATE OF HEARING : 30/11/2011 DATE OF PRONOUNCEMENT : 30/11/2011 REVENUE BY : SHRI G V GOPALA RAO CIT-I ASSESSEE BY : SHRI C G BRITO C.A. PAGE 2 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 2 ORD ER PER BENCH : THESE APPEALS FILED BY THE DEPARTMENT AND THE CROS S OBJECTIONS PREFERRED BY THE ASSESSEE ARISE OUT OF TH E TWO SEPARATE ORDERS OF CIT(A)-III BANGALORE BOTH DATED 13.9.201 0. THE RELEVANT ASST. YEARS ARE 2001-02 TO 2002-03 2004-05 2007-08 AND 2008-09. 2. SINCE THESE APPEALS AND CROSS OBJECTIONS ARE RE LATING TO THE SAME ASSESSEE THEY ARE DISPOSED OF BY THIS CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE REVENUE HAS RAISED SIX IDENTICAL GROUNDS E XCEPT FOR VARIANCE WITH REGARD TO FIGURES HENCE THE EFFECTI VE GROUNDS RAISED FOR ASST. YEAR 2001-02 ARE REPRODUCED BELOW:- I) THE LEARNED CIT(A) ERRED IN LAW IN DELETING THE ADDITION MADE BY THE AO OF RS.1 94 09 979/- BEING THE INTEREST ACCRUED TO THE ASSESSEE ON THE AMOUNT OF CAPITAL CONTRIBUTED/INTRODUCED WHICH IS ASSESSABLE TO TAX UNDER SECTION 28(V) RWS 5(1)(C) O F THE I T ACT. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH HAS TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING AND THAT THE ACCRUED INCOME SHOULD HAVE BEEN DECLARED AS INCOME OF THE RELEVANT FINANCIAL YEAR AS PER THE PROVISIONS OF SECTION 28(V) OF THE ACT. II) THE LEARNED CIT(A) ERRED IN RELYING ON ITATS ORDERS IN ASSESSEES OWN CASE FOR THE AYS 2003-04 AND 1999-2000 AND DELETING THE ADDITION MADE BY PAGE 3 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 3 THE AO ON ACCOUNT OF ACCRUED INTEREST WITHOUT APPRECIATING THE FACT THAT THE SAID ORDERS OF THE ITAT HAVE NOT BECOME FINAL AS THE DEPARTMENT HAS NOT ACCEPTED THE SAID ITATS ORDERS AND APPEALS UNDER SECTION 260A OF THE ACT ARE PENDING BEFORE THE HONBLE HIGH COURT OF MUMBAI. III) THE LEARNED CIT(A) ERRED IN RELYING ON ITATS ORDERS IN THE ASSESSEES OWN CASE FOR THE AYS 2003- 04 AND 1999-00 AND DELETING THE ADDITION MADE BY THE AO SINCE THE FINDING OF THE ITAT THAT THERE IS NO CLAUSE IN THE PARTNERSHIP DEED OF THE PARTNERSHI P FIRMS PROVIDING FOR PAYMENT OF INTEREST TO PARTNERS REGARDLESS OF PROFITS TO THE FIRMS IS FACTUALLY INCORRECT WHICH IS EVIDENT FROM CLAUSE 7 & 8 OF THE PARTNERSHIP DEEDS WHICH CLEARLY MENTION THAT ANY AMOUNT CONTRIBUTED AS CAPITAL SHALL BEAR INTEREST A T 18% P.A. AND SUCH INTEREST SHALL BE TREATED AS AN EXPENDITURE IN DETERMINING THE PROFITS OR LOSSES OF THE FIRM AND THE SAME SHALL BE ASCERTAINED AFTER GIVING EFFECT TO INTEREST. 5. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS A PARTNER IN SEVEN FIRMS. IT HAD CONTRIBUTED A SUM OF RS.11 03 20 205/- BY WAY OF CAPITAL IN ALL THE SEVEN FIRMS. THE PARTNERSHIP DEEDS CONTAINED A CLAUSE FOR CHARGING INTEREST AT 18% PER ANNUM ON CA PITAL CONTRIBUTION. THE AO WHILE COMPLETING THE ASSESSMENTS FOR THE AS ST. YEARS CONCERNED FOLLOWED THE REASONING CONTAINED IN ASSES SMENT ORDER FOR THE ASST. YEAR 2003-04 AND HELD THAT INTEREST ON SUCH CA PITAL WAS DUE AND AS PER THE PROVISIONS OF SECTION 28(V) NOTIONAL IN TEREST IS TO BE CHARGED ON THE CAPITAL CONTRIBUTION. THE ADDITIONS WERE MA DE BY THE AO IN EACH OF THE ASST. YEARS ARE AS FOLLOWS :- PAGE 4 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 4 ASST. YEAR ADDITIONS MADE (RS.) 2001-02 1 94 09 979/- 2002-03 1 97 31 359/- 2004-05 2 04 68 379/- 2007-08 2 09 06 987/- 2008-09 2 09 06 987/- 5.1 AGGRIEVED BY THE ADDITIONS THE ASSESSEE COMPAN Y CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUT HORITY. 5.2 THE CIT(A) FOLLOWING THE ORDERS OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 2003-04 (ITA NO.5261/M/06) AND FOR THE AY 1999-2000 (ITA NO.6640/MUM/08) DECI DED THE MATTER IN FAVOUR OF THE ASSESSEE. 5.3 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 5.4 THE LEARNED DR SUPPORTED THE ORDER OF THE AO. 5.5 THE LEARNED AR ON THE OTHER HAND SUBMITTED T HAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE (CITED SUPRA). 5.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. IN RESPECT OF EACH OF THE ASST . YEARS UNDER DISPUTE THE AO HAD FOLLOWED THE ASSESSMENT COMPLET ED FOR THE ASST. YEAR 2003-04. THE ASSESSMENT COMPLETED FOR THE ASST . YEAR 2003-04 WAS TAKEN UP IN APPEAL BEFORE THE INCOME TAX APPELL ATE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 12/6/2008 DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS FOLLOWS:- PAGE 5 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 5 7. IN THIS CASE THE STATEMENT OF ACCOUNTS OF THE ASSESSEE COMPANY AS WELL AS THE PARTNERSHIP FIRMS CLEARLY ESTABLISHES THE FACT THAT THE PARTNERSHIP FIRMS HAVE NOT EARNED ANY PROFITS DURING THE RELEVANT PERIOD. IN THESE FACTS WE HAVE GIVEN OUR CAREFUL THOUGHT TO THE SECOND PROPOSITION CANVASSED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PARTNERS OF THE FIRMS ARE NOT ENTITLED TO INTEREST ON THE CAPITAL SUBSCRIBED BY THEM WHEN THERE ARE NO PROFITS WITH THE PARTNERSHIP FIRMS AS PER THE PROVISIONS OF SEC.13(C) OF THE INDIAN PARTNERSHIP ACT 1932. WE FIND THAT THE PROVISIONS OF SEC.13(C) OF THE INDIAN PARTNERSHIP ACT 1932 PROVIDES SUBJECT TO CONTRACT BETWEEN THE PARTNERS WHERE A PARTNER IS ENTITLED TO INTEREST ON THE CAPITAL SUBSCRIBED BY HIM SUCH INTEREST SHALL BE PAYABLE ONLY OUT OF PROFITS. THE PROVISIONS OF SEC.13(C) OF THE INDIAN PARTNERSHIP ACT 1932 BEING THE LAW OF THE LAND THE PARTNERS OF THE FIRMS ARE ENTITLED TO INTEREST ON THE CAPITAL SUBSCRIBED BY THEM ONLY WHEN SUCH INTEREST COULD BE PAID OUT OF THE PROFITS OF THE PARTNERSHIP FIRMS. IT MEANS THAT IN VIEW OF OUR FINDINGS THAT THERE ARE NO PROFITS WITH ANY OF THE PARTNERSHIP FIRMS THE PARTNERS ARE NOT ENTITLED TO INTEREST ON THE CAPITAL SUBSCRIBED BY THEM. THE ONLY EXCEPTION TO THIS PROVISION OF LAW IS PROVIDED IN THE OPENING WORDS OF SEC.13(C) SEC.13(C) OF THE INDIAN PARTNERSHIP ACT 1932 I.E. SUBJECT TO CONTRACT BETWEEN THE PARTIES. THUS WHERE THE TERMS AND CONDITIONS OF PARTNERSHIP DEED EXECUTED BETWEEN THE PARTNERS EXPRESSLY PROVIDES FOR PAYMENT OF INTEREST TO THE PARTNERS REGARDLESS OF THE PROFITS ONLY THEN THE INTEREST SHALL BE PAYABLE ON THE CAPITAL SUBSCRIBED BY THE PARTNERS TO THEM PAGE 6 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 6 IRRESPECTIVE OF THE FACT THAT THERE ARE NO PROFITS WITH THE PARTNERSHIP FIRMS. THE CLAUSE-7 OF THE PARTNERSHIP DEED DATED 15.01.1997 EXECUTED BETWEEN THE PARTNERS OF THE FIRMS PROVIDES FOR INTEREST PAYMENT @ 18% PER ANNUM ON THE AMOUNT OF CAPITAL CONTRIBUTED BY THE PARTNERS BUT IT NOWHERE PROVIDES THAT THE INTEREST ON CAPITAL CONTRIBUTED BY THE PARTNERS SHALL BE PAYABLE TO THE PARTNERS REGARDLESS OF PROFITS TO THE PARTNERSHIP FIRMS IN QUESTION. IN THE CASE OF THE ASSESSEE IT CANNOT BE SAID THAT THE PARTNERSHIP DEED EXECUTED BETWEEN THE PARTNERS OF THE SEVEN FIRMS ON 15.01.1997 PROVIDES FOR INTEREST ON CAPITA L SUBSCRIBED BY THE PARTNERS EVEN IF THERE IS NO PROFIT WITH THE PARTNERSHIP FIRMS. 8. THE ISSUE BEFORE US WITH REGARD TO INTERPRETATION OF PROVISION OF SEC.13(C) OF THE INDIAN PARTNERSHIP ACT 1932 IS COVERED WITH THE DECISION OF HONORABLE MADRAS HIGH COURT IN THE CASE OF SOMASUNDARAM CHETTIAR V SEVUGAN CHETTIAR AND ANOTHER A.I.R. 1940 (MADRAS) 505 AND OF MADRAS TRIBUNAL IN FIRST ITO V SREE TIRUPATHI & CO. 40ITD 456 (MAD.). HONORABLE MADRAS HIGH COURT HELD THAT IT IS ONLY OUT OF THE PROFITS IF ANY THAT THE CAPITAL CONTRIBUTING PARTNER CAN BE EXPECTED TO TAKE HIS STIPULATED INTEREST U/S 13(C). THIS LAW MAY RECOGNIZE AN EXCEPTION TO THIS RULE WHERE THE CONTRACT EXPRESSLY PROVIDES FOR PAYMENT OF INTEREST REGARDLESS OF PROFITS. HONORABLE MADRAS HIGH COURT HAS FURTHER HELD THAT IT IS ONLY OUT OF PROFITS IF ANY OF THE BUSINESS THAT THE CAPITAL CONTRIBUTING PARTNER COULD BE EXPECTED TO TAKE HIS STIPULATED INTEREST. THIS SEEMS TO BE THE PRINCIPLE ADOPTED BY THE INDIAN LEGISLATURE IN SEC.13(C) OF THE INDIAN PARTNERSHIP ACT AND BY PARLIAMENT IN SEC.24 CL.4 OF THE ENGLISH PARTNERSHIP ACT. THE LAW MAY PAGE 7 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 7 RECOGNIZE AN EXCEPTION TO THIS RULE WHERE THE CONTRACT EXPRESSLY PROVIDES FOR PAYMENT OF INTEREST REGARDLESS OF PROFITS -------. 9. NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE BY THE PARTIES. IN THESE FACTS OF THE CASE AND IN THE LIGHT OF THE DECISIONS OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOMASUNDARAM CHETTIAR V SEVUGAN CHETTIAR AND ANOTHER (SUPRA) AND OF MADRAS TRIBUNAL IN FIRST ITO V SREE TIRUPATHI & CO.(SUPRA) WE FIND THAT THERE BEING NO CLAUSE IN THE PARTNERSHIP DEED OF THE PARTNERSHIP FIRMS PROVIDING PAYMENT OF INTEREST TO THE PARTNERS REGARDLESS OF PROFITS TO THE FIRMS WE HOLD THAT NO INTEREST IS PAYABLE BY THE PARTNERSHIP FIRMS TO ITS PARTNERS AND ACCORDINGLY NO RIGHT TO RECEIVE INTEREST FORM THE PARTNERSHIP FIRMS HAS ACCRUED TO THE ASSESSEE COMPANY AND THEREFORE THE NOTIONAL ADDITION ON ACCOUNT OF ACCRUED INTEREST FROM THE PARTNERSHIP FIRMS IS NOT SUSTAINABLE AND THE ADDITION MADE IS DELETED AND THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 5.7 THE ABOVE ORDER WAS FOLLOWED SUBSEQUENTLY BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 1999-2000 (ITA NO.6640/MUM/08). IT IS NOT THE CASE OF THE AO THAT THE SEVEN PARTNERSHIP FIRMS IN WHICH THE ASSESSEE IS A PARTNE R HAS EARNED PROFIT DURING THE ASST. YEAR UNDER DISPUTE. THEREFORE THE FACTS OF THESE ASST. YEARS ARE IDENTICAL TO THE FACTS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 2003-04 AND 1 999-2000. HENCE RESPECTFULLY FOLLOWING THE COORDINATE BENCH ORDERS WE HOLD THAT THE CIT(A)S ORDER IS CORRECT AND IN ACCORDANCE WITH LA W. PAGE 8 OF 8 ITA NOS.1473 TO 1477/BANG/2010 & C.O.NOS.12 TO 16/BANG/201 1 8 6. IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED. 7. THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE O NLY SUPPORTING THE ORDER OF THE CIT(A). SINCE WE HAVE DISMISSED THE APPEALS FILED BY THE REVENUE THE GROUNDS RAISED IN THE CROSS OBJECTIONS ARE DISMISSED AS INFRUCTUOUS. 7.1 IN THE RESULT THE CROSS OBJECTIONS FILED BY TH E ASSESSEE ARE DISMISSED. 8. IN THE RESULT THE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE DISMISSE D. THE ORDER PRONOUNCED ON THE 30 TH DAY OF NOVEMBER 2011 AT BANGALORE. SD/- SD/- (N.K. SAINI) (GEORGE GEORG E K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER ASST. REGISTRAR ITAT BANGALORE.