TMI Blog2003 (5) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... -one sets to S.C.E.R.T., Govt. of Assam, as a proprietor of the concern named M/s. Altron Electronics and later on credited the entire profit at the end to the firm M/s. P D Traders. When asked by the Assessing Officer it was submitted by the assessee that the personal profit earned in the name of M/s. Altron Electronics has been made over to the firm in accordance with the provisions of section 16 of the Indian Partnership Act, 1932, read with the clause 11 of the partnership deed of the firm M/s. P D Traders dated 31-3-1993. The Assessing Officer examined the assessee's explanation in the light of the records of M/s. P D Traders and it was found that the firm has never supplied any electronic items to any Govt. or Semi-Govt. Department. It was also found by the Assessing Officer that the firm did not submit any tender to SCER T for supply of two-in-one sets. The Assessing Officer also found that the name of business of M/s. P D Traders and that of M/s. Altron Electronics are quite different and in no way M/ s. Altron Electronics competed with M/s. P D Traders by way of supplying two-in-one sets to S.C.E.R.T. and accordingly he rejected the plea of the assessee and was of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication of income and, therefore, liable to be taxed at first in the hands of the assessee. In this regard reliance are placed on the following case laws: 1. 37 ITR 91 (Cal.) 2. Provat Kr. Mittal v. CIT 41 ITR 624 (SC) transfer of income without the transfer of source of income. 3. 42 ITR 25 (SC), 41 ITR 713 (SC), 41 ITR 367 (SC) 4. 62 ITR 323 (SC) and 36 ITR 18 (SC): Written submission dated 3-1-2003 "1. The appellant is a partner in the firms M/s. Hemkosh Stationers and M/s. P D Traders. He is also the proprietor of M/s. Altron Electronics and engaged in the supply of two-in-ones to SCERT, Govt. of Assam. Appellant had surrendered the income earned from M/s. Ahron Electronics to the Partnership firm M/s. P D Traders as per section 16 of the Partnership Act, as claimed. However the Assessing Officer found that M/s. P D Traders never supplied any electronic items to any Government or Semi-Government department and thus the provisions of section 16 of the Partnership Act was not applicable in the appellant's case. Further the appellant had admitted that the firm did not submit any tender to SCERT for supply of the said electronic items. Therefore the income of M/s. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sheet noting vide entry No.4 dated 26-3-1996 (marked as Annex-1 of the appellant's paper book dated 5-9-2002). It would appear from the noting that the Assessing Officer had requisitioned from the Director of SCERT, the details of all supplies made by M/s. Altron Electronics for the financial years 1991-92, 1992-93 and 199394. For the year under consideration the total payment by cheque was recorded at Rs. 21,15,417 made to M/s. Altron Electronics. It may be pertinent to mention here that the appellant had shown a total turnover at Rs. 21,58,590 and offered 12.596 of it as net profit i.e. Rs. 2,69,824. The Assessing Officer had estimated the net profit at Rs. 2,77,590 without giving any deductions on account of incidental expenses in the absence of any supporting evidence. The Ld. CIT(A) directed to adopt the appellant's figure of Rs. 2,69,824 as the profit subject to the non-taxability of such profit in the hands of the appellant. Hence, the issue is with regard to the quantum of Rs. 2,69,824 as against Rs. 2,77,590 estimated by the Assessing Officer to be assessed in the hands of the appellant or not. Since the appellant could not produce any supporting evidence with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties' and shows payment to 2 (two) parties, namely, (1) M/s. Altron Electronics (Pvt. Ltd.), Industrial Area, Bamunimaidan, Ghy-21 and (2) Altron Electronics, Bamunimaidan, Gby.21. The payments made to the first concern is not related to the Respondent while the payments made to the second concern is payment to the proprietary concern of the Respondent. 7. That Sirs, the learned Assessing, Officer has also noted that the 'a' (thereby meaning the Respondent) received Rs. 11,51,162 in cash for the financial year 1991-92. This is ex facie erroneous. In fact, such , amount was received by M/s. Altron Electronics (Pvt. Ltd.), Industrial Area, Bamunimaidan, Ghy-21, which evidently is a company. The said company received the amounts against their bill Nos. 1419, 1420, 1421 and 1423. The proprietary concern of the Respondent, namely, Altron Electronics, did not receive these amount." In the assessment order for assessment year 1992-93 (financial year 1991-92) in respect of the Respondent, the learned Assessing Officer made addition of Rs. 2,30,232 @ 20% on Rs. 11,51.l62. But, the proprietary concern of the Respondent Altron Electronics was not even in existence at the relevant time. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent, for similar reasons as in, the case of assessment year 1992-93. As regards the question of assessment of income from proprietary concern Altron Electronics against gross receipt of Rs. 1,95,510 (net receipt Rs. 1,91,600) against bill No. AE 135 dated 1-2-1993, the learned Commissioner of Income-tax (Appeal) was pleased to hold that such income estimated at Rs. 24,438 is to be assessed in. the hands of the partnership firm P D Traders, as he found provisions of section 16 of the Partnership Act to be applicable in this case. The Department in its appeal before this Honourable Bench numbered as ITA No. 43/Gau/97 did not contest the deletion of addition of Rs. 57,089 related to receipts of Rs. 2,85,445 of the Private Limited Company, namely, Altron Electronics (Pvt. Ltd.). 9. That Sirs, this Honourable Bench was pleased to dismiss the Departmental appeals for the assessment years 199.2-93 and 1993-94, as the tax effect was below the limit prescribed by the Central Board of Direct Taxes; 10. That Sirs, the learned Assessing officer has also noted in the ordersheet that the 'a' (thereby meaning the Respondent) received Rs. 21,15,417 in cheque for the financial year 1993-94. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso placed by the Respondent on the findings and decision of the learned CIT(A) in his order and also the following case laws:-- (a) L. Hans Raj Gupta v. CIT [1969] 73 ITR 765 (Delhi) at 771; (b) Muralidhar Himatsingka v. CIT [1966] 62 ITR 323 (SC) at 331. In the first mentioned case, provision in partnership deed provided that if new business were started by a partner without written consent of other partners, the profits earned by such partner shall belong to the firm. The profit so earned by a partner was held to be diverted by overriding title to the firm. It was also held that such diversion by overriding title may be created either by a will or by law or by any other document. The facts and circumstances in this case are quite akin to the case of the Respondent. In the second mentioned case, profit earned by a partner of a partnership was held to be diverted by superior title by the provision of a sub-partnership deed, where capital in the partnership remained with the partner, but income belonged to the sub-partnership. Here, sub-partnership document diverted the income by superior I overriding title. In the present case of the Respondent, the partnership documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court. The correct citation is Ratilal B. Daftari v. CIT [1959] 36 ITR 18 (Bom.). This case in fact helps the Respondent, because, share of income was held to be diverted by overriding title by sub-partnership deed. It is cited favourably in Murlidhar Himatsingka v. CIT [1966] 62 ITR 323 (SC) at 328. (g) K.A. Ramachar v. CIT 42 ITR 25 (SC). In this case, no case was made out that there was a sub-partnership, between the settler and his wife/children, having superior title. This case has been explained and distinguished in Murlidhar Himatsingka v. CIT [1966] 62 ITR 323 (SC). So, the decision is not applicable in the instant case. Regarding Ground No.2 1. This ground is regarding quantum of income from M/s. Altron Electronics. 2. The Respondent estimated income at a high net profit rate of 12.5% of Gross Receipts of Rs. 21,58,590 at Rs. 2,69,824. 3. The Assessing Officer estimated such income at Rs. 2,77,590. The basis taken by him is ex facie erroneous, unclear and non-speaking. According to him, he has considered the cost price of RCCP (two-in-one) at Rs. 200 for 2705 sets against approved rate of supply of Rs. 798 per set to arrive at the figure of Rs. 2,77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Director, SCER T, Assam, vide his letter dated 29-10-1992. We also find that the amount of security deposit was deducted by the Director, SCERT, Assam from M/s. Altron Electronics and after deducting the security net amount was paid to M/s. Altron Electronics by bank draft/cheque. Now, the moot question before us it as to whether the supplies of two-in-one sets by M/s. Altron Electronics and the income earned therefrom are belonging to M/s. Altron Electronics, the proprietor of which is Shri Debajit Bezbarua or M/s. P D Traders, a partnership firm. The claim of the assessee is that the profit from proprietary business of M/s. Altron Electronics stood diverted by overriding title to M/s. P D Traders for the following reasons:- 8.1 The business of M/s. P D Traders (Partnership firm) and M/s. Altron Electronics are of the same nature and competing. The supplies were made by the assessee though the same could have been done by the firm as in the partnership deed it is mentioned 'to supply' 'any commodity'. The assessee shut out any competition from the partnership firm despite his full knowledge. This results in unfair competition as there is clear conflict of interests. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained." Clause 11 of the Partnership Deed "11. Subject to the provision of this deed no partner shall transfer his share in the partnership to any outsider without prior written approval from the other partner of the firm. If a partner derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name or carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business/transaction." 8.4 From reading of section16 of the Indian Partnership Act we find that this section starts with 'subject to contact between the partners'. Sub-clause (a) of section 16 makes a partner liable to account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection of the firm or the firm name or carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business/transaction. In the case before us the assessee has not placed any material as to show that the supply of two-in-one sets are the transaction of the firm or he has used the property of the firm in any manner or business connection of the firm or the firm's name or the same nature of business was carried on by the firm also and to avoid competition the same supply was made by the assessee on behalf of the firm. 8.7 In the case of L. Hans Raj Gupta we find that in that case it was provided under clause 12 of the deed "that none of the parties shall without the written consent of all the other parties start any new business either individually or in partnership, and in the case of infringement of this condition, the profits earned in such business shall belong to the firm and the losses, if any, shall be borne by such party". It was held by the Hon'ble Delhi High Court that by clause 12, he had clearly agreed that in case he started any business without the written consent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue for 30 years could not be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income. 8.11 In the case of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172 their lordships of the Hon'ble Supreme Court have held at page 186 that "it is well-settled that income attracts tax as soon as it accrues. The application or destination of the income had nothing to do with its accrual or taxability". 9. In this view of the matter we are of the opinion that the income earned by M/s. Altron Electronics is the income of Sri Debajit Bezbarua and not the firm M/s. P D Traders and the assessee, Shri Debajit Bezbarua is liable to pay tax thereon. The application or destination of the income has nothing to do with its accrual or taxability. The ground No.1 taken by the Revenue is, therefore, allowed. However in the absence of any contrary material against the finding of the CIT(A) no interference is called for in respect of ground No.2 and accordingly ground No.2 taken by the Revenue is rejected. 10. Ground No.3 in this appeal is against the deletion of addition of Rs. 42,390 made on account of unexplained investment in the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf by the Assessing Officer. No specific instance of violation of section 40A(3) is on record and in the absence of books of account or purchase document the addition under section 40A(3) cannot be made. Reliance was placed on the decision of the Tribunal, Gauhati Bench, Guwahati, in the case of Gupta Bros. v. Asstt. CIT [1997] 93 Taxman 218 at 221 (Mag.). 15. We have carefully heard the rival submissions of the parties and perused the material available on record including the decision relied on by the learned AIR of the assessee. We find that admittedly the assessee does not maintain any books of account. No purchase bill was found by the Assessing Officer to show that the assessee has made payment in violation of section 40A(3). The addition was made on estimate basis without bringing any material on record. The Revenue has not placed any contrary material against the finding of the CIT(A). Under these circumstances we are of the view that the Assessing Officer has erred in making the disallowance under section 40A(3) amounting to Rs. 18,93,500 and the CIT(A) was fully justified in deleting the same and accordingly we find no error in the order of the CIT(A) on this acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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