TMI Blog2019 (9) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... nce since the legislature expression herein is very much clear that the impugned exemption benefit is available to a member a of Scheduled Tribe only takes to a partnership firm consisting of partners who are member of such a Scheduled Tribe. We reiterate that the said provision General Clause Act itself contains a stipulation that unless there is anything repugnant in the subject or context . We therefore decline the assessee s instant argument as well. We make it clear whilst holding so the Income Tax Act is complete code in itself in the nature of specific law which applies at the cost of all the general laws going by the legal maxim generalia specialibes non derogant as per hon'ble apex court s decision in Union of India and Another vs. Indian Fisheries (P) Ltd. [ 1965 (4) TMI 52 - SUPREME COURT] We also wish to quote hon'ble apex court s foregoing decision in M/s Jullunder Vegetables [ 1965 (11) TMI 101 - SUPREME COURT] holding that though under the Partnership Law a firm is not a legal entity but only consists of individual partners for the time being, for tax law, income-tax as well as sales-tax, it is a legal entity. We hold that mere fact that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MA No.3-5/Gau/2019 06/Gau/2019 are accepted. The corresponding four appeal(s) ITA Nos. 348-351/Gau/2018 are restored at their original number(s). With the consent of all the learned representatives appearing at the assessees and Revenue s behest, we have heard these four main cases as well. 3. The assessees identical sole substantive ground pleaded in these appeals is that the Assessing Officer as well as CIT(A) have erred in denying sec. 10(26) exemption relief to the two partnership firms. We thus treat former assessee M/s Hotel Centre Point Shillong s appeal No. 348/Gau/2018 for assessment year 2013-14 as the lead case. ITA No.348/Gau/2018 AY 2013-14:- 4. We start with the basic relevant fact qua the instant sole issue of denial of sec.10(26) exemption to the assessee / partnership firm. This taxpayer is a partnership firm running its eponymous hotel business under the name and style of M/s Hotel Centre Point at Shillong. It consists of two partners S/Sh Prabhat Dey Sawyan, son of Ka Lisimon Jaid Dkhar residing at Lower Mawprem, and Mr. Walamphang Roy son of Pismon Jaid Dkhar resident of Umsohsun, Shillon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity distinct from its partners since the partner s only share profits. The Assessing Officer saw no merit in assessee s foregoing explanation. He quoted sec. 4(1) of the Act in the nature of the basic charging provision applicable in respect of the total income of the previous year of every person. Section 2(31) defined a person to include a firm as well. This followed reference to u/s 2(23) of the Act defining a firm, partner and partnership to be having the same meaning assigned to them under the Indian Partnership Act 1932. The Assessing Officer observed in the light of these provision of the Act that it was clear that a firm is a person chargeable to income-tax as per corresponding rates prescribed in the statute. 7. Relevant assessment order dated. 13.02.2017 indicates that the assessee had also furnished a copy of its partnership deed during the course of assessment. The Assessing Officer estimated its gross profit @ 3.5% on the total turnover of ₹6,65,84,000/- after holding the assessee not to have submitted books of account and vouchers for necessary factual verification of the corresponding business expenses. He therefore accordingly declined the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr Prabna: Dey Sawyan, son of Ka Lisimon Jaid Dkhar residing at Lowre Mawprem, Shillong 793002 and Mr Wallamphang Roy son of Pismon Jaid Dkhar residing at Umsohsun, Shillong. 2. It is stated that the partners are by caste belonging to Khasi Tribe which is Scheduled Tribe in the State of Meghalaya. Both the partners are residing within lire area of Khasi Hills Autonomous District specified in Part - II of the Table appended to Para 20 of the Sixth Schedule to the Constitution of India. The income arising to both the partners in the tribal areas is exempt from income-tax by virtue of the provision contained under section .10(26) of the Income Tax Act, 1961 since such income does not form part of the total income liable to tax under the aforesaid Act. 3. The provisions contained under the Income Tax Act, 1961 as well as under the Constitution of India being relevant for consideration in the instant case are reproduced here-under for the sake of ready reference: (a) Section 10(26) of the Income Tax Act, 1961 10. Incomes not included in total income- In computing the total income of a previous year of any person, any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the autonomous district of that name existing immediately before the day appointed under clause (b) of section 2 of that North-Eastern Areas (Reorganization) Act, 1971: Provided that for the purposes of clauses (e) and (j) of sub-paragraph (1) of paragraph 3, paragraph 4, paragraph 5, paragraph 6, sub-paragraph (2), clauses (a), (b) and (d) of sub- paragraph (3) and sub-paragraph (4) of paragraph 8 and clause (d) of sub-paragraph (2) of paragraph 10 of this Schedule, no part of the area comprised within the municipality of Shillong shall be deemed to be within the Khasi Hills District. (3) The reference in Part IIA in the table below to the Tripura Tribal Areas District shall be construed as a reference to the territory comprising the tribal areas specified in the First Schedule to the Tripura Tribal Areas Autonomous District Council Act, 1979. TABLE PART I 1. The North Cashar Hills District. 2. The Karbi Anglang District. PART II 1. Khasi Hills District. 2. Jaintia Hills District. 3. The Garo Hills District. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal was in the Shillong town. In either view of the case, the income accrued from a source in the areas specified in Part II of the Table appended to paragraph 20 of the Sixth Schedule. The third condition was also satisfied. It must, therefore, follow that the assessee was entitled to the exemption under section 10(26) (see pp. 504C, 507H, 508A-C). 5. It may be mentioned that the words used in section 10(26) of the Income Tax Act, 1961 for importing masculine gender are to be taken to include females as well as the words used in singular number are to be taken to include the plural numbers as provided in section 13 of the General Clauses Act, 1897. The aforesaid clause 13 of the General Clauses Act, 1897 is reproduced before for the sake of ready reference 13. Gender and number:- In all Central Acts and Regulations, unless there is anything repugnant in the subject or context- (1) words importing the masculine gender shall be taken to include females; and (2) words in the singular shall include the plural, and vice versa. 6. The Central Legislature, while extending the application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Act on due consideration of relevant mandatory provisions contained under the Constitution of India and in the light of the predominant objective of economic and other empowerment of the people residing in tribal areas as required and/or directed by the above constitutional provision. Therefore, it is quite imperative that not only the Courts, the authorities appointed and functioning under the 1961 Act ought to take a liberal view in granting exemption of income-tax to the deserving individuals and/or units. 8. It is not disputed that under the Income Tax Act, 1961, a firm is an independent and distinct juristic person for the purpose of assessment since it has been deemed to be a 'person' within the meaning of section 2(3) of the 1961 Act. However, in the back drop of the provision contained under section 10(26), it is contended that a partnership firm constituted by the members of the tribal areas specified in Part - II of the Table appended to Paragraph 20 of the Sixth Schedule for the purpose of earning income from any source of income arising in the said specified area is also entitled to avail exemption in respect of its income under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court in Income Tax Officer vs. N. Takin Ray Rymbai (1976) 103 ITR 82 (SC) for the purpose of claiming exemption under section 10(26), the Hon'ble Gauhaii High Court observed as under: 5. In the instant case there is no controversy about the existence of the last two conditions. There is also no controversy that Khasis are members of Scheduled Tribe as defined in Clause (25) of Article 366 of the Constitution. It is also not in dispute that had the income in question in the instant case accrued to a single member of Khasi Tribe it would have been exempt under section 10(26) of the Act. The only controversy is that the income in the instant case having accrued not to an individual Khasi but to a Khasi family, whether this exemption will be available. In other words, whether the benefit of exemption available to a member of Khasi Tribe will be available even if the income is earned by him not as an individual but as a group of individuals comprising of the members of his family. There is no dispute that all the members of the family are Khasis. 6. We have carefully applied our mind to the controversy. The words family is a popu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the source of income for the purpose of imposition of income-tax and exemption thereof is essentially part and parcel of the basic scheme of 1961 Act. Presently, section 10 itself contains numerous instances of such classification for the purpose of granting exemption from tax. It is also undisputed that the Central Legislature has levied income-tax on numerous sources of income by enlarging the scope and meaning of 'income' defined under clause (24) of section 2 of the 1961 Act. In support of the above, reliance is placed on the observations made by the Hon 'ble Apex Court in Income Tax Officer vs. N. Takin Ray Rymbai (1976) 103 ITR 82 (SC) at page 89-90: Classification for purposes of taxation or for exempting from tax with reference to the source of the income is integral to the fundamental scheme of the Income-tax Act. Indeed, the entire warp and woof of the 1961 Act has been woven on this pattern. Section 2(45) defines total income to mean the total amount of income referred to in section 5 computed in the manner laid down in-this Act . Section 5 makes the chargeability of income dependent upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrual or receipt of income by section 5 itself for the purpose of determination of total income of every person, it would be arbitrary, improper, unreasonable and unjustified to take a different view in the case involving application of section 10(26) which also clearly makes the exemption dependent on the accrual or arising of income on the locality i.e. the areas specified in the Sixth Schedule only. To do so will tantamount to discarding and/or ignoring the provision of section 10(26) when it is very much present and binding on the authorities under the 1961 Act. 10. Apparently, the provision of section 10(26) brings to one's notice the differentiation between income accruing or received by a person from a source in the specified areas and the income accruing or received by a person from a source outside such areas. The object behind such differentiation is the legislative intention not only to grant benefit of exemption to the members of the scheduled tribes but also for benefit such areas economically. In support of the above, reliance is placed again on the decision of the Apex Court in Income Tax Officer vs. N. Takin Roy Rumbai (1976) 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of denial of such exemption on technical considerations and/or grounds. 11. Under the Income Tax Act, 1961, the partnership firm has been recognized as a person for the purpose of taxing its income independently and various provisions have been enacted relating thereto. However, the Income Tax Act, 1961 does not contain any specific provision declaring or providing that partnership formed by the partners belonging to scheduled castes and scheduled tribes for carrying on its business operations within the area specified in the Sixth schedule to the Constitution will also be a taxable unit notwithstanding that the partners of such firm are entitled to exemption from income-tax under section 10(26) in respect of their income accruing or arising in the specified area. The Income Tax Act, 1961 does not contain any specific and/or overriding provision either for considering such firm a taxable unit or a non-taxable unit. But in the context of the provision presently contained under section 10(26) in favour of the members of the schedule castes and schedule tribes only, it stands to reason to consider a partnership firm constituted by the members of the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the authorities under the 1961 Act are duty bound to interpret the legislation creatively by adhering to a liberal approach and not to disallow the claim of exemption on mere technicalities. A bare mechanical interpretation of the provision devoid of legislative intendment, if made, will reduce the beneficent legislation to futility. In support of the above contentions, reliance is placed on the decision of the Hon'ble Supreme Court in Directorate of Enforcement vs. Deepak Mahajan (1994) 3 SCC 440. The relevant observations of the Hon'ble Apex Court in paragraphs 29 to 31 are reproduced below for the sake of ready reference: 29. Subba Rao, C.J. speaking for the Bench in Chandra Mohan v. State of U.P. has pointed out that the fundamental rule of interpretation is that in construing the provisions of the Constitution or the Act of Parliament, the Court will have to find out the express intention from the words of the Constitution or the Act, as the case may be ... and eschew the construction which will lead to absurdity and give rise to practical inconvenience or make the provisions of the existing law nugatory. A.P. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s elaborately clarified in the preceding paras will be arbitrary, wholly illegal and violative of the provision of equal treatment of law in Article 14 of the Constitution of India. A partnership formed by the persons residing inside or outside the specified areas is liable to income tax doubtlessly in the whole of India. But if a partnership formed by the persons belonging to scheduled castes and scheduled tribes residing in the specified area for earning income in the specified area is also considered on the same level, it will amount to unequal treatment of law in the case of such partnership in flagrant violation of the provision contained under section 10(26) of the Act and will be hit by Article 14 of the Constitution of India. It is, therefore, urged that the distinction pointed out above deserves a judicious consideration in the spirit of the provision contained under section 10(26). 15. The learned assessing officer, in order to refute the claim of the assessee, has relied up on the conditions laid down in Section 184 of the Act whereas such reliance has no direct nexus to the claim of exemption as made by the assessee. He has failed to rebut the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duled Tribes for the purposes of the Constitution. If the intention of the Act was to limit the exemption available u/s 10(26) to individuals to the exclusion of the AOP/BOI/Firm/Family/ and Clan, etc. it would have made it abundantly clear as in the case of Hindu undivided family, etc. In the absence of such a clear-cut distinction, the Income-tax Officer is not justified in assigning restrictive meaning to the term member so as to deprive the appellant, the exemption available. 17. That the decision in Mahari Sons Supra is squarely applicable in our case with the only difference in situation that in Mahari Sons the assessee is assessed as BOI and in the instant case it is assessed as Firm. BOI is included in the definition of Person in Section 2(31) of the Income tax Act, 1961. Here in our case the status determined is that of a Firm as per item 2(31)(iv). Now taking the spirit of the decision given in Mahari Sons by the Hon'ble Guwahati High Court, the Learned income tax Officer should have granted exemption to a firm of tribals which otherwise conforms to the parameters of Section 10(26). In Mahari Sons it has been clearly held that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cited above, it is respectfully submitted that the income of the assessee firm should be declared to be exempt under section 10(26) of the Income tax Act, 1961. 4.3 I have carefully considered the matter. The AO had not doubted the fact of the partners being tribals and resident of scheduled area. The fact of the source from where assessee earned its income being from scheduled area is also not in doubt. That the fact of Income of partners in individual capacities and which is earned from scheduled area is exempt from tax is also not in question. In view of binding decision of Hon'ble Jurisdictional Tribunal in case of Mahari Sons (supra) and subsequent decision of Hon'ble Gauhati High Court, the income of firm would have been exempt had the same business' been ran by partners as BOI and not firm is also not in question. In view of this, the crux of matter to be examined is whether exemption available to Tribal members in scheduled area from business ran in capacity as Individual or BOI would be available if the same is conducted through partnership firm formed by tax-exempt partners. 4.3.1 According to section 4(1) of the Act income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3.2 In the written submission, assessee reproduced text of section 10(26). Opening line of the section says: In the case of a member of a scheduled Tribe A reading of the section makes it very clear that an assessee has to be a member of a scheduled Tribe. Even by common understanding, one has to be an individual to be a member of any tribe or, say any community. Hence, no entity, other than an individual can be a member of Scheduled Tribe. Consequently, a firm cannot be a member of Scheduled Tribe. Therefore, section 10(26) by implication, gives exemption to individuals and not to Firm. 4.3.3. Assessee heavily relied on decision of Hon'ble Cauhati High Court in case of Mahari Sons (supra). In that case, the Hon'ble Gauhati High Court had extended the benefit of section 10(26) of the Act to a Khasi family. The Hon'ble High Court considered the question as to whether the exemption available to a member of Khasi tribe will be available when income was earned by him not as an individual but as a group of individuals comprising the members of his family. The Hon'ble High Court answered the question in the affirmative for the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is of no assistance to the assessee. Other case laws relied upon viz. Takin Ray Rymbai (supra) and Marbaniang (supra) pertained to exemption allowable in cases of individuals. They are therefore, not applicable to the case of assessee. 4.3.4 The issue under discussion relates to tax exemption. Very recently, a Constitution Bench of the Hon'ble Supreme Court in Commissioner of Customs (Import) Vs. M/s Dilip Kumar and Company Ors. (Civil Appeal 3327 of 2007 dated July 30, 2018) held that where there is an ambiguity in exemption, the same is subject to a strict interpretation and benefit of such ambiguity cannot be claimed by the assessee and it must be il1ll'rprl'lcd in the favour of revenue. The Hon'ble Apex Court held: 52. To sum up, we answer the reference holding as under (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity In exemption notification which is subject to strict Interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious. If one goes through the Chapter on Exemption, it is seen that some of the clauses are meant for individuals, some for non-residents, some for companies, some for local authorities and so forth. If the contention of the assessee is accepted, incomes of even Companies and Trusts formed and owned exclusively by tribals who are residing in scheduled areas will be exempt from payment of tax. This will over-stretch the exemption provision of the Act, which in my considered view, is not in consonance with the recent ruling of Hon'ble Apex Court in the case of Dilip Kumar and Co (supra). 4.3.7. Considering the above discussion and in view of expressed provision of the Act as well as the judgment of Hon'ble Apex Court in the case of Dilip Kumar and Co (supra), I am of the considered view that exemption provision u/s 10(26) of the Act cannot be extended to partnership firm constituted by tax-exempt individual tribals. Consequently, ground No. 1 is decided against appellant. 9. Learned authorized representative vehemently contends during the course of hearing that both the lower authorities have erred in law as well as on facts in holding that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confined to tribal people residing in specified areas and that too is available only in respect of income accruing or arising to them from any source in such areas. Thus, whatever limitation the Legislature wanted to put, it has specifically incorporated in the clause itself no more condition or restriction can be added, nor can such beneficial provision be given too narrow a meaning which may result in disentitling the members of the Khasi Tribe from the benefit conferred by this clause. 11. The assessee next refers to sec. 13 of the General Clauses Act, 1897 that in all Central Acts Regulation; unless there is anything repugnant in subject or context words imparting masculine gender also include feminine gender and words in singular shall includes plural and vice versa. Its case therefore is that the legislative expression member used in sec. 10(26) of the Act included members as well since the assessee-firm s income is the joint income of the eligible schedule tribe s members / partners already enjoying exemption. And that it is also entitled for the very relief as a necessary corollary. It is re-emphasised with the hon'ble Guwahati high court has alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent entity; its partners are the real owners of the assets of the firm. The firm name is only a compendious name given to the partnership for the sake of convenience. The assets of the firm belong to and are owned by the partners of the firm . 15. Learned counsel accordingly contends that the assessee has firmly established that by virtue of sec. 2(31)(v) of the Act, a firm has been included in the definition person and treated as a distinct assessable unit. It is equally undisputable that by virtue of sec. 2(31) therein, the firm has been assigned the same meaning as in the partnership law. All the partners are collectively called a firm. A firm is synonymous that to all the partners collectively and vice versa. And Hotel Centre Point is therefore only a compendious name of the schedule tribe s members / partners having 50% share each making it entitled for sec. 10(26) exemption. Mr. Modi accordingly prays for acceptance of the instant appeal in assessee s favour. 16. Mr. Sengupata the learned is departmental representative at Revenue s behest. He strongly supports both the lower authorities action denying sec. 10(26) exemption benefit to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 therefore to provide for levy and collection of tax on income earned by a person comprising of (I) to (VII) categories of an individual, HUF, company, a firm, an association of persons or a body of individuals; where incorporated or not, a legal authority and every judicial person not falling within any of the above specified classes u/s 2(31) of the Act. It further inserted Chapter-III in the Act comprising of section 10 to 13B specifying incomes which do not form part of the total income for the purpose of assessment and levy of tax. Since the instant lis raises the issue of ambit and scope of sec. 10(26) thereof, we deem to appropriate to reproduce the same as under:- Section 10(26) of the Income Tax Act, 1961 Incomes not included in total income- In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- xxx xxx xxxx xxxx xxxx xxx xxx xxxx (26) in the case of a member of Scheduled Tribe as defined in clause (25) of article 366 of the Constitution, residing in any area specified in Part I or Part II of the Table appended to para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am and Others vs. Commissioner of Income-tax (1977) 108 ITR 345 (SC) also holds than is no scope of intendment in tax laws as follows:- We have given anxious thought to the persuasive argument.... (which) if accepted, will certainly soften the rigour of this externally drastic provision and bring it more in conformity with logic and equity. But, the language of the sections ...... is clear and unambiguous. There is no scope for importing into the statute the words which are not there. Such interpretation would be, not to construe, but to amend the statute. Even if there is causes omicus the defect can be remedied only by legislative and not by judicial interpretation. 21. We proceed to examine with the instant issue of assessee / partnership firm s entitlement for sec.10(26) exemption in the light of the above narrated facts and settled principles of interpretation of a tax statute. It has placed a heavy reliance on hon'ble Guwahati high court s decision in Mahari Sons (supra) affirming the tribunal s order that sec. 10(26) exemption does not apply only in case of an individual but to a Khasi family as well. Their lordships have taken note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral properties would always be held by Ka Khaddu for the family, and most the self-acquired properties also would become the properties of family either on the mother s side or of that consisting of wife and the children. The use of the word person in section 10(26) in the context of the above peculiarities of the Tribal law, assumes importance. The Legislature has deliberately not use the word individual in section 10(26) and has, in-stead, used the words person , which is wide enough to include in its ambit, a unit as that of Khasi family as in the present case. It is difficult to believe that the Parliament intended to grant exemption only to Khasi individuals who own properties though only marginally, and intended to leave out the bulk of the Khasi society, wherein properties and businesses are owned by family units, and in which the individual members do not have any determinate interest and unlike Hindus, cannot even ask for division of properties. If we interpret section 10(26) as suggested by the revenue, we would be rendering the exemption illusory. Apart from it, it would not be in accordance with the deliberate language used by the Parliament. We n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Clause Act itself contains a stipulation that unless there is anything repugnant in the subject or context . We therefore decline the assessee s instant argument as well. We make it clear whilst holding so the Income Tax Act is complete code in itself in the nature of specific law which applies at the cost of all the general laws going by the legal maxim generalia specialibes non derogant as per hon'ble apex court s decision in Union of India and Another vs. Indian Fisheries (P) Ltd. (1965) 57 ITR 331 (SC). 23. We also wish to quote hon'ble apex court s foregoing decision in M/s Jullunder Vegetables holding that though under the Partnership Law a firm is not a legal entity but only consists of individual partners for the time being, for tax law, income-tax as well as sales-tax, it is a legal entity. That being the case, we hold that mere fact that the assessee s two partners are already enjoying sec. 10(26) exemption does not amount to overstretching the very relief to their partnership firm as well. 24. Learned counsel has also referred to various statutory provisions i.e. sec. 10(26AAA), 87A, 54 and 54F (supra) that the legisl ..... 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