2021 (6) TMI 841 - AT - Income Tax

Taxability of interest income in the hands of Partner instead of Partnership firm - Allegation that assessee did not disclosed the receipt of Interest in his return of income - TDS on the interest amount received against NSC and saving account - HELD THAT - It is not disputed that the licence of the assessee was utilised by partnership firm and all the receipts, TDS, interest and other sources of revenue were being shown in the hands of the firm, M/s. Biraja Construction. This practice is being followed by the assessee and partnership firm consistently from year to year and accepted by the Revenue, which is supported by the order of the Tribunal in assessee's own case for the assessment year 2009-2010 wherein, it has been held that the contract receipt in the name of the partner was to be considered as the amount received by the firm. Since amount has already been offered for taxation in the hands of the firm M/s. Biraja Construction, the said amount to be taxed in the hands of the individual partner i.e. assessee would amount to double taxation, which is not permissible under law. Even otherwise, there is no provision of law to deduct TDS on the interest amount received against NSC and saving account. Hence, we direct the AO to delete the amount and allow the appeal of the assessee.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Taxation of interest income received by individual partner from partnership firm.
3. Segregation of income between individual partner and partnership firm.

Analysis:

Issue 1: Condonation of delay in filing appeal
The appellant filed an appeal 61 days late due to the COVID-19 pandemic. The appellant contended that the delay was unintentional, which was accepted after considering the condonation petition and hearing both parties. The delay was condoned, and the appeal was admitted for adjudication.

Issue 2: Taxation of interest income received by individual partner
The appellant, a partner in a construction firm, received interest income from banks but did not disclose it in the return of income, explaining that the income was already reflected in the firm's accounts. However, the Assessing Officer enhanced the income, which was upheld by the CIT(A) based on 26AS statements. The Tribunal noted that the firm consistently showed all income sources in its accounts, and since the amount was already taxed in the firm's hands, taxing it again in the partner's hands would result in double taxation. The AO was directed to delete the amount and allow the appeal.

Issue 3: Segregation of income between individual partner and partnership firm
The appellant argued that all income, including interest income, received in the partner's name belonged to the firm, as evidenced by the consistent practice and supported by previous tribunal decisions. The contention was accepted by the Tribunal, emphasizing that the principle of consistency in accounting practices must be recognized. The Tribunal directed the AO to delete the amount from the partner's income, as it had already been taxed in the firm's hands, preventing double taxation.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of consistent accounting practices and avoiding double taxation by ensuring income is appropriately attributed to either the individual partner or the partnership firm.