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TMI Blog2013 (8) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... d Dharmadhikari, already a partner of the firm, was added once again as partner in a representative capacity, representing M/s Deloitte Haskins & Sells, Mumbai. Ld. CIT noted that Shri Mukund Dharmadhikari had right to share of profit, both in the representative capacity as well as in his individual capacity. Thus, according to him, the number of partners exceeded 20, maximum allowed under Indian Partnership Act, 1932. Assessee therefore had to be treated as an Association of Persons. Assessment order under Section 143(3), passed on 31.12.2010, as per CIT, did not consider this aspect, but had accepted the claim of the assessee that it was a firm and on account of this, assessee was allowed deduction under Section 40(b) of the Act on salaries paid to its partners. 3. To the above notice, reply of the assessee was that the number of partners did not exceed 20, but remained at 20. According to assessee, amendment dated 1.5.2007 clearly mentioned that the number of partners was 20 only. Relying on the decision of Hon'ble Apex Court in the case of CIT v. Bagyalakshmi & Co (55 ITR 660), assessee argued that an individual could represent group of persons as well as himself thereby occup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned with Hindu Undivided Family and rights of a karta, when a karta entered into a partnership. As per ld. CIT, these decisions only dealt with the position of a karta of a HUF and his right to share in the profits of a firm in which he was a partner. Whereas in assessee's case, the partnership deed clearly mentioned that Shri Mukund Dharmadhikari was a partner, who was to account to M/s Deloitte Haskins & Sells, Mumbai, in his representative capacity. In addition, he also got a share of 20.0530% in the profits in his individual capacity. He was thus of the opinion that the amendment to the partnership deed on 1st May, 2007 resulted in the membership exceeding 20, the maximum limit prescribed under law. Since Assessing Officer had not considered this aspect, but allowed the claim of the assessee with regard to the salaries paid to its members under Section 40(b) of the Act, he directed the Assessing Officer to modify his assessment order and enhance the assessment by disallowing the claim made by the assessee under Section 40(b) of the Act. 5. Now before us, learned A.R., strongly assailing the order of CIT, submitted that both partnership deed dated 1.4.2007 and amended deed dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer had taken a lawful view. CIT could not substitute a lawful view with his own view. Relying on the decision of Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), learned A.R. submitted that twin conditions viz. existence of an error and such error being prejudicial to the interests of Revenue, which were necessary for invoking revisionary powers under Section 263 of the Act were absent here. In any case, as per the learned A.R., the CIT fell in error when he directed the Assessing Officer to modify the assessment considering assessee as an Association of Persons and deny its claim of remuneration paid to its partners. This had completely tied up the hands of the Assessing Officer and such directions, according to learned A.R., were beyond the scope of the revisionary powers under Section 263 of the Act. 6. Per contra, learned D.R., strongly supporting the order of CIT, submitted that the Assessing Officer had committed gross error in not verifying the supplementary deed. Assessing Officer, according to learned D.R., had never gone into the aspect of number of partners in the assessee-firm. Assessing Officer had without applying his mind, accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S DELOITTE BASKINS & SELLS, CHENNAI No. Name Share of Profits and Losses (%) 1. M.K. Ananthanarayanan 7.0923 2. V. Balaji 2.6481 3. Bhavani Balasubramanian 4.4459 4. Mukund Dharmadhikari 20.0530 5. Anil Gupta 9.2697 6. M. Lakshminarayanan 8.0450 7. B. Mala 6.1396 8. C.R. Rajagopal 3.0698 9. K. Rajasekhar 5.1923 10. B. Ramaratnam 2.9354 11. M. Ramchandran 4.2577 12. P.R. Ramesh 0.0005 13. K. Sai Ram 6.6461 14. K.R. Sekar 3.4932 15. V. Srikumar 6.6461 16. S. Sundaresan 0.0046 17. Geetha Suryanarayanan 3.3873 18. Ganesh Swaminathan 2.7522 19. S. Thirumalai 0.0046 20. Ravi Veeraraghavan 3.9166 TOTAL 100.0000 9. Shri Mukund Dharmadhikari had a share of 20.0530% in the total profits left, after paying Rs. 267 lakhs to him in his capacity as representative partner of M/s Deloitte Haskins & Sells, Mumbai. M/s Deloitte Haskins & Sells, Mumbai is mentioned as a "Participating firm" in the original partnership deed dated 1st day of April, 2007. "Participating Firm" has been defined in the said deed as under:- ""Participating Firms" shall mean the group of Firms comprising, in alphabetical order, A.F. Ferguson & Co., A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng indirectly into the partnership M/s Deloitte Haskins & Sells, Mumbai, which was already a participating firm. Assessee was a renowned partnership firm and was well aware that number of partners cannot exceed 20. It is a well settled principle of law that what is permissible is tax planning, but not evasion. When an attempt is made by a concern to evade tax using subtle camouflages, bounden duty of the authorities is to find out the real intention. It is the duty of the Court in every case, where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smoke screen and discover the true state of affairs, as held by Hon'ble jurisdictional High Court in the case of Indo Tech Electric Co. v. DCIT in TC(A) No.2209 & 2210 of 2006 dated 16.12.2010 at para 15.1 of its order. The Court has to go into substance and not to be satisfied with the form. No doubt, as pointed out by the learned A.R., Hon'ble Apex Court in the case of Rashik Lal & Co. (supra) has clearly held that a partner may be a trustee or may enter into a sub-partnership with others, or can be a representative of a group of persons. Qua the partnership, he functions in his personal capacity. But, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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