M/s. Joint Venture, Hyd, Hyderabad v. ITO Ward-6(1), Hyderabad

ITA 572/HYD/2011 | 2003-2004
Pronouncement Date: 16-11-2011 | Result: Dismissed

Appeal Details

RSA Number 57222514 RSA 2011
Assessee PAN AAAFJ5710E
Bench Hyderabad
Appeal Number ITA 572/HYD/2011
Duration Of Justice 7 month(s) 8 day(s)
Appellant M/s. Joint Venture, Hyd, Hyderabad
Respondent ITO Ward-6(1), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 16-11-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 16-11-2011
Assessment Year 2003-2004
Appeal Filed On 07-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI CHANDRA POOJARI A.M AND SMT. ASHA VIJAYARAGHAVAN J.M ITA NOS.568 TO 572/HYD/2011 ASSESSMENT YEARS: 1999-2000 TO 2003-04 M/S JOINT VENTURE HYDERABAD. ( PAN AAAFJ 5710E) VS ITO WARD - 6(1) HYDERABAD. HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.C. DEVDAS RESPONDENT BY : SHRI K.J. RAO DATE OF HEARING: 25-10--2011. DATE OF PRONOUNCEMENT: -11-2011. O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THESE APPEALS PREFERRED BY THE ASSESSEE ARE DIRECTE D AGAINST SEPARATE ORDERS OF THE CIT (A)-IV HYDERABAD ALL DA TED 13-1-2011 AND THEY PERTAIN TO THE ASSESSMENT YEARS 1999-2000 TO 2 003-04. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEALS AS SESSEE IS ALSO COMMON; THESE ARE TAKEN UP TOGETHER AND DISPOSED OF F BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 568 TO 572/HYD/2011- M/S JOINT VENTURE HYDERABAD. L.L ========================== 2 2. SINCE GROUNDS ARE IDENTICAL AND INTERLINKED WIT H EACH OTHER FOR THE SAKE OF BREVITY WE REPRODUCE HEREUNDER THE GROUNDS TAKEN FOR THE ASSESSMENT YEAR 2001-02:- 1. THE ORDER OF THE CIT (A)-IV HYDERABAD IN HOLDI NG THAT AN ASSESSMENT COULD BE MADE ON THE PARTNERSHIP FIRM OF M/S JOINT VENTURE WHEN THE FIRM DID NOT CARRY ON ANY BU SINESS IS WHOLLY UNSUSTAINABLE ON FACTS AND IN LAW. 2. THE LEARNED CIT (A)-IV HYDERABAD FAILED TO NOT E THAT A PARTNERSHIP FIRM CAN EXIST ONLY TO CARRY ON BUSINE SS AND THE PRESENT OFFICER AND THE PREDECESSOR CIT (A)-IV HYD ERABAD IN ORDER DATED 26.9.2006 HAVING GIVEN A CLEAR FIND ING THAT THERE WAS NO BUSINESS ACTIVITY AND THEREFORE THE CI T (A)-IV HYDERABAD OUGHT TO HAVE DIRECTED AN ASSESSMENT UNDE R SECTION 26 OF THE INCOME-TAX ACT 1961 IN THE HANDS OF THE RESPECTIVE CO-OWNERS AND DIRECTED THE DEDUCTION OF INTEREST IN THE HANDS OF A. JAYACHANDRA REDDY. 3. WITHOUT PREJUDICE TO ANY OF THE AFORESAID GROUND S THE LD. CIT (A)-IV HYDERABAD FAILED TO NOTE THAT THERE WAS A REAL AND SUBSTANTIAL NEXUS BETWEEN THE PAYMENT OF INTERE ST OF RS.15 55 810 TO A. JAYACHANDRA REDDY AND THE CONSTR UCTION OF THE HOUSE PROPERTY AND THEREFORE OUGHT TO HAVE U PHELD THE CLAIM FOR DEDUCTION OF INTEREST AT RS.15 55 810 . 4. THE LEARNED CIT (A)-IV HYDERABAD FAILED TO NOTE THAT THE EARLIER DIRECTION OF THE CIT (A) IN ORDER DATED 26- 9-2006 WAS TO ALLOW THE DEDUCTION OF INTEREST OF RS.15 55 810 AFTER DUE VERIFICATION AND THEREFORE THE CIT (A)-IV HYDERABA D OUGHT TO HAVE DIRECTED ITS ALLOWANCE AS THE AO HAS NEITHE R ITA NOS. 568 TO 572/HYD/2011- M/S JOINT VENTURE HYDERABAD. L.L ========================== 3 DISPUTED THE BORROWAL FOR CONSTRUCTION NOR THE ACCR UAL OF INTEREST THEREON. THE CRUX OF THE ABOVE GROUNDS IS THAT THE ALLOWABIL ITHY OF INTEREST PAID BY ONE OF THE PARTNERS ON THE CAPITAL INVESTED BY T HAT PARTNER IN THE FIRM. FOR THE ASSESSMENT YEARS UNDER CONSIDERATION THE ASSESSEE CLAIMED INTEREST ON CAPITAL TO THE EXTENT OF RS.12 75 000 RS.15 55 810/- RS.8 49 712/- AND RS.9 07 270/- FOR THE ASSESSMENT YEARS 2000-01 TO 2003-04 RESPECTIVELY AGAINST THE I NCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER WAS OF THE VIEW TH AT INTEREST ON CAPITAL SO CLAIMED AGAINST THE INCOME FROM HOUSE PROPERTY W AS NOT AN ALLOWABLE DEDUCTION UNDER SECTION 24(B) OF THE INCO ME-TAX ACT AND ACCORDINGLY HE DISALLOWED THE SAME. AGGRIEVED AGAIN ST THE DECISION OF THE ASSESSING OFFICER THE ASSESSEE WENT IN APPEAL B EFORE THE CIT (A). ON APPEAL THE CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND DISMISSED THE ASSESSEES APPEAL. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT THE PARTNER OF THE ASSESSEE FIRM SRI A. JAYAC HANDRA REDDY IN HIS INDIVIDUAL CAPACITY HAS BORROWED FUNDS FROM ARUPPA KOTI JAYVILLAS FINANCE LIMITED FOR THE PURPOSE OF INVESTMENT IN T HE ASSESSEE FIRM AND THAT FUND HAS BEEN UTILIZED FOR THE PURPOSE OF BUS INESS OF THE ASSESSEE FIRM AND THEREFORE THE INTEREST THEREON IS TO BE AL LOWED. THE LEARNED AUTHORIZED REPRESENTATIVE REITERATED BEFORE US THE SAME SUBMISSIONS WHICH WERE MADE BEFORE THE LOWER AUTHORITIES. 4. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. ITA NOS. 568 TO 572/HYD/2011- M/S JOINT VENTURE HYDERABAD. L.L ========================== 4 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE AM OUNT IN QUESTION WAS NOT BORROWED BY THE ASSESSEE FIRM AND THE SAID AMOU NT WAS SAID TO BE BORROWED BY ONE OF THE PARTNERS OF THE ASSESSSEE FI RM AND HE HAS CONTRIBUTED THE SAME AS CAPITAL IN THE ASSESSEE FIR M. FOR THE PURPOSE OF ALLOWING DEDUCTION AS BUSINESS EXPENDITURE TOWARDS INTEREST THE BASIC CONDITION UNDER SECTION 36(1)(III) OF THE ACT IS TH AT THE AMOUNT SHOULD BE BORROWED BY THE ASSESSEE (II) FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE (III) THE ASSESSEE SHOULD HAVE PAID THE IN TEREST ON SUCH BORROWALS. IN THE PRESENT CASE THE FIRST CONDITIO N IS THAT THE ASSESSEE SHOULD HAVE BORROWED FUNDS AND THIS IS NOT FULFILLE D. THE BORROWINGS MADE BY THE ASSESSEES PARTNER TO INVEST THE SAME A S CAPITAL OF THE FIRM CANNOT BE CONSIDERED AS BORROWALS MADE BY THE ASSES SEE FIRM. BEFORE DELETION OF SECTION 67 OF THE I T ACT BY FINANCE AC T 1968 W.E.F. 1-4- 1969 IF THE ASSESSEES PARTNER BORROWED FUND FOR T HE PURPOSE OF INVESTMENT IN THE FIRM AND PAID INTEREST THEREON S UCH INTEREST SHOULD BE ALLOWED UNDER SECTION 67(3) OF THE ACT FROM THE INC OME OF THE PARTNERS SHARE OF PROFIT. AFTER DELETION OF THAT SECTION T HE PAYMENT OF INTEREST BY THE PARTNERS NEITHER BE ALLOWED IN THE HANDS OF THE PARTNER NOR IN THE HANDS OF THE FIRM. THAT BEING SO THE CLAIM OF THE ASSESSEE THAT THE PAYMENT OF INTEREST ON THE BORROWALS MADE BY THE AS SESSEES PARTNER TO INVEST THE SAME IN THE BUSINESS OF THE ASSESSEE FIR M CANNOT BE ALLOWED AS DEDUCTION IN THE HANDS OF THE ASSESSEE FIRM. AC CORDINGLY THIS GROUND RELATING TO ALLOWABILITY OF INTEREST IS REJECTED. 6. THE ASSESSEE MADE BEFORE US AN ALTERNATIVE CLAIM THAT THERE WAS NO PARTNERSHIP FIRM EXISTING TO CARRY ON BUSINESS S INCE THERE WAS NO ITA NOS. 568 TO 572/HYD/2011- M/S JOINT VENTURE HYDERABAD. L.L ========================== 5 BUSINESS ACTIVITY AND THE ASSESSMENT HAS TO BE MADE IN THE HANDS OF RESPECTIVE CO-OWNERS AND THEREFORE DEDUCTION OF INT EREST IS TO BE ALLOWED IN THE HANDS OF SRI A. JAYACHANDRA REDDY. FOR THIS PURPOSE THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PHABIOMAL & SONS (158 ITR 773 (AP) WHEREIN HELD THAT: THE TEST TO DETERMINE WHETHER CO-OWNERS SHARING PRO FITS OF ANY PROPERTY ARE PARTNERS OR NOT IS TO INQUIRE WHETHER THERE IS REALLY A BUSINESS AND WHETHER THE BUSINESS IS CARRIED ON B Y ONE OR MORE OF THEM. THE ASSESSEE DECLARED IN THE RETURNS FILED FOR THE ASSESSMENT YEARS 1975-76 AND 1976-77 INCOME DERIVE D FROM LETTING OUT OF THE PROPERTIES AS IF IT WAS INCOME DERIVED FROM BUSINESS ASSESSABLE UNDER SECTION 28 OF THE ACT. IN HE FIRST PLACE THERE IS NO INDICATION IN THE ASSESSMENT ORD ERS THAT THE INCOME WAS COMPUTED UNDER THE HEAD INCOME FROM PRO PERTY UNDER SECTION 22 OF THE ACT. THE SO-CALLED AGREEMEN T OF PARTNERSHIP BETWEEN THE PARTIES EVIDENCES THE ARRAN GEMENT REGARDING THE SHARING OF THE INCOME FROM THE PROPER TIES AND THE AGREEMENT CAN BE CONSIDERED TO BE ONE BETWEEN CO-OW NERS. SECTION 26 OF THE ACT COMES INTO OPERATION AND THE ASSESSMENT SHOULD HAVE BEEN MADE ON EACH OF THE CO-OWNERS IN A CCORDANCE WITH THE PROVISIONS CONTAINED THEREIN. WE HAVE GONE THROUGH THE ABOVE JUDGMENT AND CONSIDE RED THE RIVAL SUBMISSIONS OF THE PARTIES ON THIS ISSUE. WE FIND THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE WITH REGARD TO ASSESSM ENT OF EACH CO-OWNER TO THE EXTENT OF THEIR SHARE OF PROPERTY IS DEVOID OF ANY MERIT. THE ASSESSEE FORMED A PARTNERSHIP DEED ON 1-4-1995 FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF BUILDINGS MULGIES AND SHOW ROOMS FOR THE PURPOSE OF LETTING OUT THE SAME FOR HOTELS AND OTH ER BUSINESS ACTIVITIES ITA NOS. 568 TO 572/HYD/2011- M/S JOINT VENTURE HYDERABAD. L.L ========================== 6 AT THE PREMISES KNOWN AS ZENITH HOUSE AND THIS I S EVIDENCED BY AN VALID PARTNERSHIP DEED UNDER THE NAME AND STYLE OF JOINT VENTURE AND THEREAFTER THE ASSESSEE ACQUIRED VARIOUS PROPERTIES FOR THE PURPOSE OF LETTING OUT THE SAME WITH THE INTENTION TO EARN MOR E PROFITS AND NOW THE ASSESSEE CANNOT GO BACK AND PLEAD THAT THE RESPECT IVE CO-OWNERS SHOULD BE ASSESSED. BUT THE FACT THAT THE PROPERT Y OWNED BY THE ASSESSEE COMPANY IS NOT THE PROPERTY OF CO-OWNERS A ND IT IS THE PROPERTY WHICH BELONGS TO AN VALID PARTNERSHIP FIRM WHICH WAS ASSESSED UNDER THE NAME AND STYLE OF JOINT VENTURE. AFTE R CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES OF THE CASE WE ARE NOT INCLINED TO ACCEPT THE ARGUMENTS ADVANCED BY THE LEARNED AUTHOR IZED REPRESENTATIVE OF THE ASSESSEE FOR ALL THE YEARS UN DER CONSIDERATION AND ACCORDINGLY REJECT THE SAME. 7. IN THE RESULT ALL THE APPEALS FILED BY THE ASSE SSEE STAND DISMISSED ORDER PRONOUNCED IN THE COURT ON 16 -11-2011 . SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/-16-11-2011. COPY FORWARDED TO: 1. C/O M/S. V.G. RAO & ASSOCIATES CAS 306 OASIS PLAZA TILAK ROAD ABIDS HYDERABAD. 2. ITO WARD-6(1) HYDERABAD. 3. CIT(A) - I V HYDERABAD. 4. CIT AP HYDERABAD. 5. THE D.R. ITAT HYDERABAD. JMR* ITA NOS. 568 TO 572/HYD/2011- M/S JOINT VENTURE HYDERABAD. L.L ========================== 7