TMI Blog1993 (10) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant, before the Commissioner of Income-tax (Appeals), relied on a decision of the Bombay High Court in Arvind Bhogilal's case [1976] 105 ITR 764, and another decision of the Bombay High Court in P. L. Paruck's case [1978] 113 ITR 869 to argue that this income was due to the deceased. It was received after his death and could not be taxed in the hands of the legal representative. The Commissioner of Income-tax (Appeals), after considering the various decisions cited, held in paragraph 3 of his order that the duty drawback was due not to the individual but to the concern in lieu of the exports made. He also noticed that the amount was received in the trade name of the concern and not in the name of the legal heirs of the deceased. No legal formalities were insisted upon by the authorities to establish that the recipient of the duty drawback was the legal heir of the deceased. The duty drawback had been paid in the name of Padamshi Meghji which was the trade name of the proprietary concern as well as of the partnership. On these facts, we are satisfied that the order of the Commissioner of Income-tax (Appeals) is correct and has to be confirmed. We are supported in this view by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Accountant Member, and being not able to persuade myself to the reasoning and conclusions arrived at by my learned brother in the proposed order, vis-a-vis, grounds Nos. 1, 2 and 3 above, I am appending to his order the following note of dissent. Facts put in the correct perspective are that the present assessee which is a registered firm by status came into existence on January 2, 1980. Prior to that, the business was being carried on under the same name and style, viz., Padamshi Meghji, Bombay, but as a proprietary business-concern _ by one Hiralal Padamshi who died on January 2, 1980. The said Hiralal Padamshi had willed his properties and a copy of the said will has been placed on the file of the Income-tax Appellate Tribunal as page 1 of the assessee's paper book. It reads as under :_ " True copy Established 1931 Padamshi Meghji Exporters of tarpaulins, jute canvas, holdalls, All types of cotton textiles, Waterproof cotton canvas Manufacturers of tents, kitbags, jute mail bags, etc Mail address office Post Box No. 3046 Bombay-400 003, India 101, J. M. Chambers, First floor 316, Narsi Natha Street ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id partnerhsip deed reads as under (copy of this partnership deed has beenplaced on the file of the Income-tax Appellate Tribunal as pages 2 to 6 of the paper book) :- "Partnership deed This deed of partnership executed at Bombay on this 17th day of January, 1980, between (1) Shri Madhukant Hiralal as karta of Hiralal Padamshi, Hindu undivided family, hereinafter referred to as the party of the first part, (2) Shri Madhukant Hiralal as karta of Madhukant Hiralal, Hindu undivided family, hereinafter referred to as the party of the second part, (3) Shri Kulinkant Hiralal as karta of Kulinkant Hiralal, Hindu undivided family, hereinafter referred to as the party of the third part, (4) Shri Rajesh Hiralal as karta of Rajesh Hiralal, Hindu undivided family, hereinafter referred to as the party of the fourth part, and (5) Shri Ashwin Hiralal as karta of Ashwin Hiralal, Hindu undivided family, hereinafter referred to as the party of the fifth part. Whereas one Shri Hiralal Padamshi was carrying on business as the proprietor under the name and style of 'Messrs. Padamshi Meghji', at 101, J. M. Chambers, 316, Narsi Natha Street, Bombay-400 009, till his demise in exports of and local t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh Hiralal, Hindu undivided family 20% 25% 5. Ashwin Hiralal, Hindu undivided family 20% 25% Total 100% 100%' (Terms 6 to 17 of the partnership deed being not relevant for the purpose of this appeal, they have been omitted) For the period and relating to the business when late Hiralal Padamshi was the sole proprietor, Rs. 70,649 were received representing central excise refund on exports effected, to emphasise, when late Hiralal Padamshi was carrying on the business as a sole proprietor and for that period. Since the legatees/beneficiaries under the will thought it fit to carry on the business in partnership under the same name and style as late Hiralal Padamshi was carrying on, the present assessee _ a partnership firm got that refund of Rs. 70,649 encashed and the entry was made in the books of account maintained by the partnership firm in the accounting period relevant to the assessment year under appeal. Now, the issue before the Income-tax Appellate Tribunal is, as to whether the said amount of Rs. 70,649 could be taken as income of the present assessee-appellant, the partnership firm. The assessee has, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement with my learned brother, i.e., on grounds Nos. 4 to 9, I agree with the conclusions of my learned brother. Order of reference to Third Member Since there is a difference of opinion, vis-a-vis, conclusions arrived at in I. T. A. No. 3870/(Bom) of 1985, in the case of Padamshi Meghji v. Second ITO, involving assessment year 1982-83, we are of the opinion that the following point of difference is required to be referred to the Third Member and, for this purpose, we direct that the file be put up to the Hon'ble President. Point of difference : " Whether, on the facts and in the circumstances of the case, amount of Rs. 70,649 is taxable or not as income of the assessee for the assessment year under appeal ? " ORDER OF THIRD MEMBER Ch. G. Krishnamurthy ( President ). _ The question that arose in this reference to a Third Member made under section 255(4) of the Incometax Act, 1961, is whether the provisions of section 28(iv) of the Incometax Act, which provided for the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession is includible as the income of the assessee under the head " Profits and gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status nor the ownership of the person who is entitled to receive and the person who received the refund were not material. He distinguished the cases relied upon by the assessee, namely, Arvind Bhogilal v. CIT [1976] 105 ITR 764 (Bom), CIT v. Executors of estate of late P. L. Paruck [1978] 113 ITR 869 (Bom) and CIT v. C. N. Caroe [1983] 141 ITR 80 (Bom). In sum, the view of the Commissioner of Income-tax was that, when the assessee-firm received the refund as successor to the proprietary business carried on by Shri Hiralal, the same became taxable. He did not refer to any particular section under which the said sum became taxable. It had to be presumed that he must have invoked the provisions of section 28(iv) as was done by the Income-tax Officer. Aggrieved by this dismissal of the assessee's claim, the assessee preferred a further appeal before the Tribunal. After the matter was heard by the Tribunal, the learned Members differed on the conclusion. While the learned Accountant Member held that the sum was rightly taxed, the learned Judicial Member took a contrary view. According to the learned Judicial Member, the amount of refund became due to late Hiralal in his capacity as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent assessees as partners, the amount became taxable in the hands of the present assessee, is wrong because it ignores the ownership. What was due to a proprietor was received by a firm. In such circumstances, it has to be decided whether the firm could be taxed on the receipt of what was due to the proprietor. Therefore, the commonness of the name alone does not make any difference. Having said this much about the trade name and its commonness, the learned advocate for the assessee submitted that the assessee-firm was only a successor to the business. The provisions of section 28(iv) were totally inapplicable and in this context, he referred me to the provisions of section 176(4) of the Income-tax Act. Relying upon a judgment of the Calcutta High Court reported in CIT v. Justice R. M. Datta [1989] 180 ITR 86, wherein this provision was interpreted, the learned advocate for the assessee submitted that, even under this provision, the sum in question was not taxable in the hands of the assessee-firm. If section 28(iv) and section 176(4) were both not applicable, then the only other section that could be considered for taxation of this kind of sum is section 41(1) of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 40(c) and 40A(5). In the end, he supported the view of the Revenue not exactly on the point that the Accountant Member had raised, but on the strength of the above submissions. I have carefully considered these arguments and perused the orders of the authorities below as well as the opinions expressed by my learned brothers. First let me deal with the strongest argument put forward by the Departmental Representative in support of the Revenue's view that section 176(3A) would apply. I have already extracted in brief the provisions of section 176(3A) but I would like to repeat it again : " 176. (3A) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. " A look at this provision would show that this would come into operation only when there was a discontinuance of business. Discontinuance of a business would mean a total cessation of business and not a continuation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. In a further appeal filed before the Tribunal, it was argued on behalf of the Revenue that the said amount was taxable under section 28(iv) of the Income-tax Act as the value of any benefit arising from business. Alternatively, the provisions of section 41(1) also were pressed into service. The Tribunal held that, on the language of section 28(iv), what was received from the Excise Department was money and not something the value of which was required to be converted into money, and therefore, the provisions of that section would not apply. Thereafter, there was a reference to the Gujarat High Court. Dealing with this argument and the interpretation of the provisions of section 28(iv), the Gujarat High Court observed at page 173 of the report as under : "So far as the question of section 28(iv) of the Act is concerned, section 28(iv) provides that that income falling under clause (iv) of section 28 shall be chargeable to income-tax under the head 'Profits and gains of business or profession'. Clause (iv) provides : 'the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. ' It is obvious tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
