2023 (7) TMI 350 - HC - Income Tax

Exemption u/s 10(26) - income of Scheduled Tribe residing in Specified Areas - applicable to income of an individual or extended to a group of individuals of same family - As in Mahari Sons 1991 (12) TMI 51 - GAUHATI HIGH COURT ruled that when certain individuals who belonged to the same family had set up a business jointly, they would be entitled to the benefit of the exemption under Section 10(26) - Whether such rule was per incuriam or, at any rate, no longer good law in view of subsequent Supreme Court pronouncements? - HELD THAT - In the present appeals, in one of the matters the registered partnership firm has a husband and wife as partners. In the other matters, uterine brothers constitute the partnership firm in each case. Going by the dictum in Mahari Sons and, particularly, the interpretation of the concept of family made therein, it would appear that an association, even if it be a partnership, between a husband and wife or between a brother and another, would be entitled to the same exemption as any of the partners would in their individual capacity. The fact that the dictum in Mahari Sons has held the field for three decades and the recognition that the order impugned has been rendered by a specialised tribunal it is deemed fit and proper to remand the matter before the Appellate Tribunal with a request to the President of the Tribunal to constitute a larger bench without including either member who was a party to the order impugned, for the consideration of the entire gamut of the matter. The President is requested to ensure that a larger bench of at least three members is constituted within a month of the receipt of an authenticated copy of this order with a request to the relevant bench to dispose of the legal issue which has arisen as expeditiously as possible and, preferably, within three months of the first sitting of such bench.

Summary

Issues Involved:
The judgment involves a common question of law regarding the applicability of the ratio decidendi in a previous judgment and the interpretation of a taxing statute exemption clause.

Judgment Details:

Issue 1 - Applicability of Previous Judgment (Mahari & Sons):
The Gauhati High Court's ruling in Mahari & Sons dealt with the exemption under Section 10(26) of the Income-Tax Act for family members engaged in a business. The Tribunal found the law in Mahari & Sons no longer valid due to subsequent Supreme Court judgments discrediting the principle of strict interpretation of taxing statutes in favor of the assessee.

Issue 2 - Interpretation of Exemption Clause:
The Tribunal held that an exemption clause cannot be broadly interpreted to extend benefits to individuals not specifically intended to be covered. It emphasized that individuals claiming exemption under Section 10(26) must fall within the defined scope, excluding entities like partnership firms from the benefit.

Issue 3 - Partnership Firm Composition and Exemption Eligibility:
The judgment discussed partnership firms with family members as partners, like husband and wife or brothers, in light of the Mahari & Sons ruling. It questioned whether such associations should be entitled to the same exemption as individual partners, highlighting the concept of family business.

Issue 4 - Tribunal's Interpretation and Legal Discussion:
The Tribunal's order was criticized for not fully exploring the legal nuances of the issue, especially regarding partnership firms with close relatives as partners. Despite relying on Supreme Court dicta on taxing statutes, the Tribunal did not directly address the specific situation covered by Mahari & Sons.

Issue 5 - Remand and Larger Bench Formation:
Considering the longstanding application of the Mahari & Sons rule and the specialized nature of the Tribunal, the judgment remanded the matter for reconsideration by a larger bench. The President of the Tribunal was tasked with constituting a new bench to delve into the legal issue thoroughly and expeditiously.

Conclusion:
The judgment disposed of the appeals without expressing a final opinion on the legal issue, setting aside the impugned order for fresh consideration. It emphasized the need for a comprehensive review by a larger bench and highlighted the importance of interpreting taxing statutes with care and caution by specialized tribunals. No costs were awarded in the matter.