1988 (12) TMI 149 - AT - Income Tax

A Firm, A Partner, Assessment Year, Business Or Profession, Other Sources, Share In Firm, Share Income

Summary

Issues:
- Whether an assessee is entitled to claim deduction under section 35CCA from income derived out of his share in a firm.
- Whether the absence of eligibility for exemption in section 67 of the Income-tax Act affects the allowability of deduction under section 35CCA.

Analysis:

The judgment by the Appellate Tribunal ITAT HYDERABAD-A addresses the issue of whether an assessee, deriving income from a firm, can claim a deduction under section 35CCA of the Income-tax Act, 1961. The case involved an individual assessee who contributed Rs. 50,000 to an institution and claimed it as a deduction under section 35CCA. The Income-tax Officer initially allowed this deduction, but the Commissioner of Income-tax later issued a notice under section 263, contending that such a deduction was impermissible unless the taxpayer carried on a business or profession, citing section 67 of the Act.

The appellant argued that the nature of income from which the payment was made was derived from business, making him eligible for the deduction under section 35CCA. The Commissioner maintained that the deduction was prejudicial to revenue interests and directed the Income-tax Officer to withdraw it. The Tribunal considered the submissions and highlighted that the institution receiving the payment was eligible for benefits under section 35CCA. The appellant's counsel argued that as long as the payment was made from business income, there should be no restriction on claiming the deduction.

The Tribunal analyzed the provisions of section 35CCA and section 67 of the Act. While section 67 governs the computation of a partner's share in firm income, it does not explicitly address deductions under section 35CCA. The Tribunal noted that section 35CCA allows all types of assessees to incur specified expenditures, and the absence of a specific mention in section 67 did not preclude an assessee from claiming the deduction. The Tribunal emphasized that the term 'assessee' includes a person liable to pay tax, which encompasses a partner of a firm.

Ultimately, the Tribunal held that the deduction under section 35CCA is not limited to computing income chargeable under section 28. The share of a partner in a firm retains its character as profits and gains of business, irrespective of the provisions of section 67. Consequently, the Tribunal quashed the Commissioner's order under section 263(1) and allowed the appeal in favor of the assessee.