1995 (6) TMI 83 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction under section 32AB of the Income-tax Act, 1961.
2. Applicability of the proviso to section 32AB(1) for partners of a firm.
3. Requirement of filing an audit report under section 32AB(5).

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 32AB:

The primary issue is whether the assessee, a partner in two firms, is entitled to a deduction under section 32AB of the Income-tax Act, 1961, based on a separate deposit made with IDBI. The assessee claimed a deduction of Rs. 13,023 under section 32AB, which was disallowed by the Assessing Officer on the grounds that the deduction had already been allowed to the firms, and thus, the assessee was not entitled to any further deduction in respect of the share of income.

The first appellate authority allowed the assessee's claim, stating that the proviso to section 32AB(1) only prohibited double deductions based on the firm's deposit but did not bar the partner from claiming a deduction based on a separate deposit made by the partner himself. The department appealed against this decision.

2. Applicability of the Proviso to Section 32AB(1) for Partners of a Firm:

The department argued that the assessee, being a partner, is clearly hit by the proviso to section 32AB(1), which states that the deduction under this section shall not be allowed in the computation of income of any partner of a firm. The department's representative cited the case of CIT v. A. N. Arunachalam to support the argument that the principle underlying section 80J is equally applicable to section 32AB.

The assessee's counsel contended that the proviso is intended to prevent double benefits from the same deposit, not to bar partners from claiming deductions based on separate deposits. However, the tribunal held that the benefit of deduction is admissible only to the assessee who carries on the eligible business or profession and makes a deposit with IDBI. Therefore, the firm, not the partners, is entitled to the deduction under section 32AB.

3. Requirement of Filing an Audit Report under Section 32AB(5):

The department also contended that the assessee failed to file the audit report as required by section 32AB(5). The assessee's counsel clarified that the audit report was filed in Part II of Form 3CCA, which is applicable to non-company assessees. Upon verification, the department's representative acknowledged that the audit report was indeed filed in Part II of Form 3CCA.

Conclusion:

The tribunal concluded that the assessee is not entitled to the deduction under section 32AB in relation to his share of the income of the two firms, as the firms had already claimed and been allowed the deduction based on their deposits. The tribunal emphasized that the legislative intent was to grant the deduction only to the firm carrying on the eligible business or profession and not to its partners. Thus, the first appellate authority's order was set aside, and the Assessing Officer's order was restored.

Judgment:

The departmental appeal was allowed, and the assessee's claim for deduction under section 32AB was denied.