VIRESH S. TASWALA, MUMBAI v. ITO WD 25(2), MUMBAI

ITA 4398/MUM/2009 | 2006-2007
Pronouncement Date: 05-04-2010 | Result: Allowed

Appeal Details

RSA Number 439819914 RSA 2009
Bench Mumbai
Appeal Number ITA 4398/MUM/2009
Duration Of Justice 8 month(s) 15 day(s)
Appellant VIRESH S. TASWALA, MUMBAI
Respondent ITO WD 25(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 05-04-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 05-04-2010
Assessment Year 2006-2007
Appeal Filed On 21-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH MUMBAI. BEFORE SHRI R.V.EASWAR SR.VP AND SHRI B.RAMAKOT AIAH AM I.T.A. NO.4398/MUM/2009 (ASSESSMENT YEAR: 2006-07) MR. VIRESH S.TASWALA 401 SANTOSH VILL ROAD NO.8 DAULAT NAGAR BORIVALI(E) MUMBAI-400 066. PAN:AAAPT2930Q VS. THE INCOME TAX OFFICER 25(2)(4) C-11 R.NO.103 PRATYAKSHAKAR BHAVAN BKC. BANDRA(E) MUMBAI-400 051. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. BHUPENDRA M.SHAH RESPONDENT BY : MR. RAJARSHI DWIVEDY DR O R D E R PER R.V.EASWAR SENIOR VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 2006-07 AND ARISES OUT OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT. 2. THE ASSESSEE IS AN INDIVIDUAL. HE WAS A PARTNER IN A FIRM BY NAME M/S. PEACE MOON TRADERS. IN SUCH CAPACITY HE RECEIVED REMUNERATION OF RS.4 LAKHS FROM THE FIRM. AGAINST THE REMUNERATION HE CLAIMED EXPENSES OF RS.95 128/- WH ICH INCLUDED INTEREST OF RS.72 000/-. ON THE GROUND THA T THE ASSESSEE FAILED TO EXPLAIN HOW THE INTEREST WAS ATT RIBUTABLE TO EARN THE REMUNERATION THE ASSESSING OFFICER DISALL OWED THE SAME WHILE COMPLETING THE ASSESSMENT. THE ASSESSEE APPEALED TO THE CIT(A) AGAINST THE AFORESAID DISALLOWANCE AN D SUBMITTED THAT SINCE THE REMUNERATION RECEIVED FROM THE FIRM WAS TAXED UNDER THE HEAD BUSINESS THE INTEREST PAID SHOULD BE ALLOWED AS DEDUCTION AGAINST THE SAME. TO A QUERY RAISED BY THE CIT(A) THE ASSESSEE STATED THAT THE LOANS WHICH WERE TAKEN FROM MRS. SAPNA MAYUR JHAVERI AND MR. KAMLESH GANDHI AND WERE INVESTED AS CAPITAL IN THE PARTNERSHIP FIRM. HE ALS O POINTED OUT ITA NO.4398/M/09 2 THAT INTEREST OF RS.36 000/- PAID ON THE AFORESAID LOANS IN THE EARLIER YEAR WAS ALLOWED AS A DEDUCTION. RELIANCE A LSO APPEARS TO HAVE BEEN PLACED ON AN ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN WHICH PROPORTIONATE ALLOCATION UNDER SE CTION 14A OF EXPENSES CLAIMED AGAINST BUSINESS INCOME BEING REMU NERATION FROM PARTNERSHIP FIRM WAS NOT PERMITTED. 3. THE CIT(A) REJECTED THE AFORESAID SUBMISSIONS OF THE ASSESSEE ON THE FOLLOWING GROUNDS:- (A) AN EXPENDITURE CAN BE ALLOWED AS A DEDUCTION UNDER SECTION 37(1) ONLY IF IT IS NOT CAPITAL EXPENDITURE AND HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. (B) THE REMUNERATION RECEIVED BY THE ASSESSEE FROM THE FIRM IS INDEPENDENT OF HIS CAPITAL CONTRIBUTION. IT IS PAID TO HIM FOR HIS ACTIVE INVOLVEMENT IN THE BUSIN ESS OF THE FIRM. THEREFORE INTEREST PAID ON THE BORROWI NGS EFFECTED FOR THE PURPOSE OF MAKING THE CAPITAL CONTRIBUTION CANNOT BE ALLOWED AS DEDUCTION. IT HAS NOTHING TO DO WITH THE EARNING OF THE REMUNERATION. ON THE ABOVE GROUNDS THE CIT(A) CONFIRMED THE DISA LLOWANCE AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE FACTS WHICH ARE NOT IN DI SPUTE. THE ONLY QUESTION IS WHETHER ON THESE FACTS THE ASS ESSEE IS ENTITLED TO DEDUCT THE INTEREST PAID FROM THE REMUN ERATION RECEIVED BY HIM FROM THE FIRM. UNDER SECTION 10(2A) INSERTED BY FINANCE ACT 1992 WITH EFFECT FROM 1.4.1993 THE PA RTNERS SHARE IN THE TOTAL INCOME OF THE FIRM IS EXEMPT FROM THE INCOME-TAX AND IT DOES NOT FORM PART OF HIS TOTAL INCOME. SECT ION 28(V) INSERTED SIMULTANEOUSLY SAYS THAT INTEREST SALAR Y BONUS COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED DUE TO OR RECEIVED BY A PARTNER OF A FIRM FROM THE FIRM IS TO BE BROUGHT ITA NO.4398/M/09 3 TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION. SECTION 36(1)(III) PROVIDES THAT THE A MOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF BUSINESS SHALL BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THE QUESTION THEREFORE IS WHETHER THE IN TEREST CLAIMED BY THE ASSESSEE IS A DEDUCTION FALLS UNDER SECTION 36(1)(III). 5. ON THIS QUESTION THERE ARE A FEW ORDERS OF THE MUMBAI BENCHES OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. IN SUDHIR DATTARAM PATIL VS. DCIT. (2005) 2 SOT 678 IT WAS HELD THAT THOUGH THE ASSESSEE IS NOT ENTITLED TO CLAIM EXPEND ITURE OF ANY NATURE AGAINST THE SHARE OF PROFIT RECEIVED FROM TH E FIRM SINCE THE REMUNERATION RECEIVED FROM THE FIRM CONSTITUTES BUSINESS INCOME BY VIRTUE OF SECTION 28(V) THE INTEREST PAI D ON MONIES BORROWED FOR THE PURPOSE OF MAKING CAPITAL CONTRIBU TION HAS TO BE ALLOWED AS A DEDUCTION AGAINST THE SAME. IN A.H. BALDOTA VS. ACIT. (2006) 103 TTJ 517 THE MUMBAI BENCH TOOK TH E SAME VIEW. IN VIEW OF THESE TWO ORDERS OF THE CO-ORDINAT E BENCHES OF THE TRIBUNAL WE ARE UNABLE TO GIVE EFFECT TO THE A RGUMENT OF THE REVENUE THAT MERELY BECAUSE REMUNERATION IS ASSESSE D AS BUSINESS INCOME THE INTEREST PAID ON MONIES BORROW ED FOR MAKING CAPITAL CONTRIBUTION TO THE FIRM CANNOT BE A LLOWED AS A DEDUCTION IN THE ABSENCE OF ALL THE CONDITIONS OF S ECTION 36(1)(III) BEING SATISFIED. RESPECTFULLY FOLLOWING THE AFORESAID ORDERS WE UPHOLD THE ASSESSEES CLAIM AND DIRECT T HE ASSESSING OFFICER TO ALLOW THE DEDUCTION IN RESPECT OF THE IN TEREST OF RS.72 000/- PAID BY THE ASSESSEE AGAINST THE REMUNE RATION RECEIVED FROM THE PARTNERSHIP FIRM. THIS ISSUE IS D ECIDED IN FAVOUR OF THE ASSESSEE. 6. THE SECOND ISSUE IS ABOUT THE ADDITION OF RS.26 325/- ON ACCOUNT OF LOW WITHDRAWALS FOR HOUSEHOLD EXPENSES. THE TOTAL ITA NO.4398/M/09 4 DRAWINGS OF THE FAMILY DURING THE YEAR AMOUNTED TO RS.93 675/-. THE FAMILY CONSISTS OF ASSESSEE HIS W IFE AND SON. THE ASSESSING OFFICER CONSIDERED THE DRAWINGS TO BE LOW AS COMPARED TO PRESENT RATE OF INFLATION. KEEPING IN VIEW THE COST OF LIVING IN MUMBAI THE ASSESSING OFFICER ESTIMATE D THE DRAWINGS AT RS.1 20 000/- AND ADDED THE DIFFERENCE OF RS.26 325/- AS INCOME OF THE ASSESSEE. THE SAME HA VING BEEN CONFIRMED BY THE CIT(A) THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. ON A CONSIDERATION OF THE FACTS WE ARE INCLINED TO ACCEPT THE ASSESSEES SUBMISSION. THE TOTAL DRAWING S OF RS.93 675/- SEEMS REASONABLE TO US FOR A FAMILY CON SISTING OF THE ASSESSEE HIS WIFE AND SON. THE ASSESSING OFFIC ER HAS NOT POINTED OUT ANY SUBSTANTIAL EXPENDITURE NOR IS THER E ANY MATERIAL TO SHOW THAT THE ASSESSEE WAS ADOPTING AN EXTRAVAGANT STYLE OF LIVING. WE ACCORDINGLY DELETE THE ADDITION OF RS.26 325/- AND DECIDE THIS ISSUE ALSO IN FAVOUR OF THE ASSESSE E. IN THE RESULT THE APPEAL IS ALLOWED WITH NO ORDER AS TO C OSTS. ORDER PRONOUNCED ON THIS 5 TH DAY OF APRIL 2010. SD/- (B.RAMAKOTAIAH) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI DATED 5 TH APRIL 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-MC-25 MUMBAI. 4. THE CIT(A)-XXV MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI