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2019 (11) TMI 1174 - AT - Income TaxDisallowance of expenditure against the business income received from the partnership firms - whether there emerges any business activity merely on becoming a partner in the partnership firm - HELD THAT:- A business can earn a profit for the products and services it offers and it works on regular basis. We also note that a partnership firm is a form of business in which a group of people, also known as partners, come together. They set up their firm and provide services and products through it. However, a partnership firm is not considered to be a separate legal entity. Partners share all the profit and losses amongst each other. Thus the business has been carried out by the partnership firm and the profit of the same has been determined in its hands for the purpose of the tax. Accordingly, we hold that the assessee on becoming a partner in the firm does not mean that he is carrying out any business activity. We are of the opinion that the assessee as such is not carrying out any business activity and therefore the question of claiming the expenses against the income received from the firm does not arise. As relying on N. KHADERVALI SAHEB AND ANOTHER [2003 (2) TMI 63 - SUPREME COURT] it is clear that the partners are not separate from the partnership firms. Therefore the income of the partner from the firm is treated as business income. Income received by the assessee from the partnership firm i.e. remuneration from the firm, in this regard we note that such income is taxable in the hands of the partner. Now the question arises, whether the assessee has incurred an expense against the earning of such income. The assessee as partner in the firm is acting in the representative capacity meaning thereby whatever expenses are incurred by the partner in connection with the business of the firm, then the firm is entitled for the deduction of such expenses subject to the provisions of the Act. If the assessee has incurred any expense on behalf of the partnership firm then the right course of action is to claim the reimbursement from the partnership firm and such firm will claim the deduction under the relevant provisions of the Act on account of such reimbursement of expenses. As such the assessee cannot claim any expense against the income from the firm, save as provided above. As we have noted that, there is no dispute regarding the interest income viz a viz interest expenses. From the above, it is transpired that the assessee has claimed an expense against the remuneration and share of profit as discussed above. However the assessee has claimed that expenses against the remuneration income. As such the assessee has not allocated any expense which has been incurred against the share of profit. Thus, the action of the assessee is not acceptable. Principles of consistency can be applied where the facts remain the same. Thus it is transpired that the principles of consistency are based on the facts. For example if the salary has been paid to the staff for a particular amount in a year then in our considered view the same cannot be disturbed in the subsequent year until and unless the facts warrant otherwise. Thus in our considered view in such a situation, the principles of consistency will be applied. In a case where there is a violation of the law in 1 year then the question arises whether, the same can be allowed to be applied in the subsequent year. For example, the assessee is entitled to claim the depreciation at a particular rate say 10% but the assessee has claimed depreciation at the rate of 25%. Thus the question arises whether the assessee can claim depreciation at the rate of 25% in the subsequent year keeping the principle of consistency. To our mind, the answers stands negative. Now, coming to the present facts of the case, we are of the view that the issue involved is legal in nature whether the assessee by becoming a partner in the firm can be said that the partner has started any business and commercial activity. It is undisputed fact that there was no scrutiny assessment under section 143(3) of the Act in the earlier years. But in our considered opinion the principles of consistency cannot be applied in the given facts of the case. - Decided against assessee.
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