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The Deputy Commissioner of Income Tax, Non-Corporate Circle – 4, Coimbatore Versus M/s Aqua Pump Industries and Vice-Versa

2017 (2) TMI 543 - ITAT CHENNAI

Disallowance on claim made under Section 40(b) - whether the partnership was one formed between the HUF and two trustees or between three individuals? - Whether a valid partnership could be formed between three persons in representative capacity? - Held that:- It is not in dispute that the assessees were granted the status of registered firm by virtue of provisions of Section 185(1) of the Act since assessment year 1991- 92. The position continued for a period of twenty years and it was after su .....

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n 40(b) of the Act by the A.O. is concerned, there is nothing in that section to conclude that a partnership could not be formed by a karta of an HUF in his individual capacity with other persons. The same, in our opinion, would also apply where an individual who joins partnership in a representative capacity. It can always be considered that he was doing so in his individual capacity. This position has been reiterated by Hon'ble Apex Court in the case of Bagyalakshmi & Co. (1964 (11) TMI 11 - S .....

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nch These appeals filed by the Revenue in respect of the assessees concerned for the impugned assessment year are directed against the orders dated 31.03.2016 of the Commissioner of Income Tax (Appeals)-3, Coimbatore. 2. Grounds taken by the Revenue are common. It assails deletion of disallowance on claim made by the assessees under Section 40(b) of the Income-tax Act, 1961 (in short 'the Act'). 3. Facts apropos are that the assessees had filed returns in the status of partnership firm f .....

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partnership firms, there was not even a single partner who was a natural person. As per the A.O., all the partners were legal or artificial entities and the partnership firms could not exist with artificial persons alone. When this was put to the assessees, their reply was that an individual could be a partner representing HUF where he was a member. Reliance was also placed on the judgment of Apex Court in the case of Rashik Lal & Co. v. CIT (1998) 229 ITR 458. However, the Assessing Office .....

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ion by DCIT, Special Range II, Coimbatore by Order under Section 185(1)(a) on 23.08.1993 and the firms were enjoying that status since assessment year 1991-92. As per the assessees, the deed of partnership was executed by three individuals, namely, Shri R. Kumaravelu, Mrs. Homai Kumaravelu and Dr. H.S. Adenwalla. Just because they represented either HUF or Trust, as per the assessees, would not mean that the partnership firms were not genuine one. The assessees also relied on the judgment of Ape .....

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r. Further, according to him, Hon'ble Supreme Court in the case of Rashik Lal & Co. (supra) clearly held that though a HUF could never be a partner of a partnership firm, if a person nominated by a HUF joins a partnership, the partnership would be between the nominated person and the other partners of the firm. Therefore, according to him, a karta of HUF could be a partner and the relationship of the karta as a partner vis-à-vis the firm and other partners may not be relevant in d .....

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ithisaria as contained in page 3805 of Income Tax Law Volume 3 Sixth Edition 2014. He thus held that the assessees were genuine partnership firms and therefore, remuneration paid to working partners and interest paid to the partners could not be disallowed. He deleted the disallowance made. 5. Before us, the Ld. Departmental Representative strongly assailing the order of the Ld. CIT(Appeals), submitted that all the three partners in the firms were partners in representative capacity. According t .....

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a non-genuine one. In any case, according to him, the partnership firms had acquired the status of registered firms as early as assessment year 1991-92 under Section 185(1)(a) of the Act and therefore, the Assessing Officer could not disturb a consistent position taken by the Revenue for more than two decades. 7. We have perused the orders and heard the rival contentions carefully. The question before us is whether the partnership was one formed between the HUF and two trustees or between three .....

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(2) Mrs. HOMAI KUMARAVELU, Wife of Mr. R. Kumaravelu, aged about 28 years, residing at 703, Avanashi Road, Coimbatore, hereinafter called the Party of Second Part ; (3) Dr.H.S. ADENWALLA, Son of Late Sorab Hirji Adenwalla, aged about 59 years, residing at Jubilee Mission Hospital, Trichur hereinafter called the Party of Third Part ; AND (4) Mrs. DAMAYANTI RAMACHANDRAN, Wife of Late Mr. R. Ramachandran, aged about 43 years, residing at 16 A.T.D Street, Race Course, Coimbatore, hereinafter called .....

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resenting THE CHRYSANTHEMUM TRUST , and THE MARIGOLD TRUST , being trusts evidenced by two indentures of Trust dated the Twentyfifth day of February, One Thousand Nine Hundred and Ninety. WHEREAS, Mr. R. Kumaravelu the party hereto of the First Part represents the Hindu Undivided Family consisting of himself, his wife and minor daughter, of which Hindu Undivided Family he is at present the Kartha. 9. In our opinion, the above clause would not ipso facto convert partnership firm as one entered be .....

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undivided family cannot be in a better position than a firm in the scheme of the Partnership Act. The reasons that led this court to hold that a firm cannot join a partnership with another individual will apply with equal force to a Hindu undivided family. In law, a Hindu undivided family can never be a partner of a partnership firm. Even if a person nominated by the Hindu undivided family joins a partnership, the partnership will be between the nominated person and the other partners of the fir .....

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s vis-a-vis other partners are determined by the Partnership Act and not by Hindu law. 10. What their Lordship held is that even if a person nominated by a HUF joins a partnership, the partnership could be deemed as one between such nominated person and other partners of the firm. The Apex Court did not hold that such partnership would only be an Association of Persons. In any case, it is not in dispute that the assessees were granted the status of registered firm by virtue of provisions of Sect .....

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