TMI Blog1995 (6) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... re income is therefore rejected". 3. The said disallowance was one of the subject-matters of the appeal filed by the assessee before the first appellate authority. The assessee's case before that authority was that the assessee had made a deposit on his own with the IDBI; that such deposits came to be made after receipt by the assessee of his share of income of the aforesaid two firms; that in the circumstances the proviso to section 32AB was not applicable; and that consequently the Assessing Officer was not justified in rejecting the assessee's claim. In particular, the assessee's case was that the proviso to section 32AB(1) only prohibited allowance of any further deduction under section 32AB once again in the hands of the partners on the basis of the deposit made by the firm, but that did not per se disentitle the partner to any further relief under section 32AB if he were to make a further deposit amounting to 20% of the income representing profits from business or profession falling to his share and that, therefore, the Assessing Officer had clearly misdirected himself in law. The said arguments found favour with the first appellate authority who allowed the assessee's clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Departmental Representative to the effect that the assessee had not submitted audit report in Form 3CCA, the learned counsel for the assessee contended that the said form is in two parts--Part I, which is applicable to companies generally speaking, and Part II to other assessees. And the assessee had in fact filed an audit report in Part II of Form 3CCA. It should, therefore, follow that the assessee was entitled to deduction under section 32AB as held by the first appellate authority. 7. In response, the learned Departmental Representative fairly stated, on verification of the records, that the assessee had in fact filed an audit report in Part II of Form 3CCA. Even so, she vehemently contended that the assessee's case is squarely hit by the proviso to section 32AB(1) of the Act. 8. We have looked into the facts of the case. We have considered the rival submissions. 9. The material and undisputed facts of the case are that the assessee is a partner in two firms, namely (a) Suhrudaya Clinical Laboratories and (b) Suhrudaya Cardiac Research Centre. It is a matter of record that the said firms had made deposits with the IDBI and had on that basis claimed deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is like any exception and on the normal principle of construction or interpretation of statutes, it is construed strictly, either because of legislative intention, or on economic justification of inequitable burden, or progressive approach of fiscal provisions intended to augment State revenue. But once the exception or exemption becomes applicable, no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict constructions are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause, then its being in the nature of exemptions is to be construed strictly and against the subject; but once ambiguity or doubt about the applicability is lifted, and the subject in the notification, then fun play should be given to it, and it calls for a wider and liberal construction." [Emphasis supplied]. 13. To turn now to the provisions of section 32AB. The said section was inserted into the Income-tax Act, 1961 by the Finance Act, 1986 w.e.f. 1-4-1987. It is a matter of legislative history that pursuant to the long term fiscal policy announced by the Government of India at that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is allowable both in the case of firm/AOP/ BOI and in the case of the partners of the firm/ members of the AOP, or as the case may be BOI. That, however, was not the intention of the Legislature. Therefore, a clarificatory proviso was inserted to section 32AB(1) by the Finance Act, 1987 w.e.f. 1-4-1987 (being the date w.e.f. which section 32AB itself came into force). The proviso reads as under : "Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of income of any partner, or as the case may be, any member, of such firm, association of persons or body of individuals." A plain reading of the said proviso indicates that the deduction admissible under section 32AB shall be allowed only in the hands of the firm/AOP/BOI which carries on an "eligible provision or profession", and not in the hands of the partners of the firm, or as the case may be, the members of the Association or BOI in respect of income derived from an eligible business or profession carried on by the firm/AOP/BOI. This would mean that, as rightly urged by the learned Departmental Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961, a firm is a distinct taxable entity; and that the Act contains many provisions which are applicable to firms. For a fact, some of the provisions relating to firms contained in the Income-tax Act have made a departure from the general law relating to partnership firms. It should, therefore, follow that the argument that a firm had no independent existence in the eye of law cannot avail the assessee. 19. There is yet another consideration which is noteworthy. As already pointed out, the scheme of investment deposit account replaces the scheme of investment allowance and under the latter scheme there was no provision for granting investment allowance both in the hands of firm and partners. This apart, as we have already pointed out, the scheme of section 32AB does not contain any provision which enables both the firm and partners to get the benefit of deduction under that section. For a fact, the proviso referred to above makes it very clear that the legislative intention was to grant deduction only to the firm carrying on the eligible business or profession and not to its partners. 20. In view of the foregoing, therefore, we hold that the first appellate auth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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