2019 (9) TMI 902 - AT - Income Tax

Exemption u/s 10(26) - denial of exemption relief to the two partnership firms that was formed by two tribal individuals - Benefit of doubt in relation to an exemption provision - diversified views - HELD THAT - Benefit of doubt in relation to an exemption provision in a tax law goes in favour the Revenue / State and not to the taxpayer anymore. We follow the same to hold that the assessee s arguments that a partnership firm is a member of a scheduled tribe is not liable to be accepted. We also make it clear that this is going by their lordships foregoing landmark decision(s) there is no scope left for us hold that there is any scope of intendment in the impugned statutory provision stretching the impugned exemption to a partnership firm as a member of Scheduled Tribe under Article 366 Constitution of India. The assessee s next argument that sec. 13 of the General Clauses Act 1897 (supra) treats masculine and singular expression in central regulations to be inter-changeable famine gender plural expression; also carries no substance 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 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. We notice that sec. 10(26) comes into play in case of a member of a Scheduled Tribe notified in Article 366 of the Constitution of India. Similar exemption clauses sec. 26A is applicable to any income accruing or arising to any source in the district of Ladakh are admittedly applicable in cases of individual; HUF firms association of person and company u/s 6 (1) to (4) and sec. 10(26AAA) deals with an individual only; respectively. The necessary inference that flows from a comparative analysis of all these exemption provisions is that sec. 10(26) pre-possess any person who is also a member of a Scheduled Tribe as against sec. 10(26A) and 10(26AAA) applicable in case of specified categories of person respectively. We also involve the doctrine of necessary implication in this backdrop that what is implied in the statute is as much a part thereof as that what is expressed. We thus find no infirmity in the CIT(A) s lower appellate order upholding the Assessing Officer s action that the assessee is not entitled for the exemption benefit u/s. 10(26) - Decided against assessee.

Summary

Issues Involved:
1. Recall of ex parte order due to non-prosecution.
2. Denial of Section 10(26) exemption to the partnership firm.

Issue-wise Detailed Analysis:

1. Recall of ex parte order due to non-prosecution:
The assessees filed four miscellaneous applications under Section 254(2) of the Income Tax Act, 1961, seeking to recall ex parte orders dated 01.07.2019, which dismissed the main appeals due to non-prosecution. The Authorized Representative's absence was due to a medical issue. The Tribunal found the medical records substantiating the Authorized Representative's illness and noted that the Revenue did not dispute these claims. Consequently, the Tribunal recalled the orders dated 01.07.2019 and restored the corresponding appeals to their original numbers.

2. Denial of Section 10(26) exemption to the partnership firm:
The core issue in the appeals was whether the partnership firm was entitled to Section 10(26) exemption, which provides tax relief to members of Scheduled Tribes residing in specified areas. The assessee, a partnership firm running a hotel business, consisted of two partners who were members of the Khasi tribe, a Scheduled Tribe in Meghalaya. The firm claimed that since both partners were eligible for the exemption under Section 10(26), the firm should also be entitled to the same benefit.

Assessing Officer's and CIT(A)'s Stand:
The Assessing Officer (AO) denied the exemption, arguing that a firm is a distinct legal entity under the Income Tax Act and is separately assessable. The AO referenced Section 2(31) of the Act, which includes a firm in the definition of a "person," thereby making it chargeable to income tax. The AO also noted that the case laws cited by the assessee pertained to individuals or families, not firms.

The CIT(A) upheld the AO's decision, emphasizing that Section 10(26) explicitly applies to "a member of a Scheduled Tribe" and not to a firm. The CIT(A) also referred to the recent Supreme Court decision in Commissioner of Customs (Import) vs. M/s Dilip Kumar and Company, which held that exemption provisions should be interpreted strictly, and any ambiguity should favor the Revenue.

Assessee's Arguments:
The assessee argued that the term "person" in Section 10(26) should include a partnership firm, as the firm is merely a collective name for its partners. The assessee cited various judicial precedents, including the Gauhati High Court's decision in CIT vs. Mahari & Sons, which extended Section 10(26) benefits to a Khasi family, arguing that the same logic should apply to a partnership firm.

Tribunal's Findings:
The Tribunal examined the legislative intent and statutory provisions, noting that Section 10(26) specifically mentions "a member of a Scheduled Tribe" and not a firm. The Tribunal highlighted the Supreme Court's principle that tax exemption provisions should be strictly interpreted, and any ambiguity should favor the Revenue.

The Tribunal also referred to the Supreme Court's decision in M/s Jullundur Vegetables, which held that for tax purposes, a partnership firm is a separate legal entity distinct from its partners. The Tribunal concluded that the assessee's reliance on the Mahari & Sons case was misplaced, as it pertained to a family unit and not a firm.

Conclusion:
The Tribunal dismissed the appeals, holding that the partnership firm was not entitled to the Section 10(26) exemption, as the provision specifically applies to individual members of Scheduled Tribes and not to firms. The Tribunal's order emphasized the need for strict interpretation of tax exemption provisions, aligning with recent Supreme Court rulings.