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TMI Blog2010 (11) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, is in a narrow compass and runs as follows: The appellant assessee is a private limited company. One of the assets owned by it is the factory building located at 225, Udyog Vihar, Phase-I, Gurgaon, Haryana. The partnership firm with the name, M/s. Gaurav International (hereinafter referred to as "the firm") was formed in which the assessee became a partner. The firm is engaged in an export business. The assessee contributed its capital in the form of building and cash. Partnership Deed dated 02.04.2004 was written in this behalf. As per this Deed, the assessee agreed to provide its aforesaid factory premises at 225, Udyog Vihar, Phase-I, Gurgaon, Haryana (hereinafter referred to as „factory building) for the use of partnership business. 3. We are concerned herewith the Assessment Year 2005-06. In this year, the assessee company received its share of profit of Rs.12.38 lacs from the firm. It was also agreed between the partners that interest would be paid to the partners on the capital contributed by them to the firm in cash. Thus, the assessee company also received interest of Rs. 2.52 lacs on the cash capital contributed to the said firm. The share of profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as the assets used by the partners themselves. On this analogy, he submitted that the asset which was admittedly used by the partnership firm had to be treated, in law having been used by the assessee company and therefore, conditions stipulated under Section 32 of the Act stood fulfilled. He referred to the following judgments in support of his submission, again pointing out that these judgments were cited before the Tribunal, but were not considered by the Tribunal: (i) Commissioner of Income Tax Vs. Ramnik Lal Kothari [74 ITR 57] wherein the Supreme Court explained the principle in the following words: "6. Where a person carries on business by himself or in partnership with others, profits and gains earned by him are income liable to be taxed Under Section 10 of the Indian Income-tax Act, 1922. Share in the profits of a partnership received by a partner is "profits and gains of business" carried on by him and is on that account liable to be computed Under Section 10, and it is a matter of no moment that the total profits of the partnership were computed in the manner provided by Section 10 of the Income-tax Act and allowances admissible to the partnership in the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department, conceded that the depreciation on the building of the assessee used for the purpose of business of the firm, of which she was a partner could be allowed as a permissible deduction under the Indian Income-tax Act, 1922, but he submitted that the position under the Act of 1961 is different. Though the latter Act contains provisions similar to Sections 10(2)(vi) and 10(2)(xv) of the Indian Income-tax Act, 1922, there is a special provision, namely, Section 67, which deals with the method of computing a partner's share in the income of the firm. Under Section 67(3) it is provided that any " interest paid by a partner on capital borrowed by him for the purposes of investment in the firm shall, in computing his income chargeable under the head ' Profits and gains of business or profession in respect of his share in the income of the firm, be deducted from the share". He argued that the sub-section is exhaustive of the permissible deductions in computing a partner's share in the income of the firm, and except the interest paid by the partner on the capital borrowed by him, no other deduction is permissible. He submitted that the provisions in Sections 30 to 37 which provide f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by inserting sub-section (2A) was made by this Act and he highlighted that the purpose was to avoid double taxation, viz., first taxing partnership firm and thereafter taxing the share of profits in the hands of partners again. Therefore, his argument was that this provision had not made any difference. 7. Ms. Rashmi Chopra, learned counsel appearing for the Revenue, on the other hand, argued that the judgments cited by the appellant were of pre 1992 period, viz., before Section 10 was amended by introducing sub-section (2A) therein. Her submission was that this provision made make all the difference insofar as taxation is concerned. Sub-Section (2A) reads as under: "(2A) In the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm." 8. She, thus, argued that the position prior to this amendment was different, viz., the partner-assessee was also liable to pay the tax on the share of profits received by him even when the tax was paid by the partnership firm as well on the profits earned by it. It was in this context that the share of profits at the hands of partner was treated as profit from the partnership fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest received by the appellant from the firm, only that expenditure which has been incurred for the purposes of earning such income can be allowed as deduction. Depreciation on factory building claimed by the appellant is not an expenditure incurred by the appellant for earning of the said income/interest because earning of interest and claim of depreciation operate in two different and un-related spheres. Moreover, for the purposes of claim of depreciation, it is essential that the assets shall be used for the purpose of the business or profession of that person. AS indicated in para 3.2 above, the business of the appellant company is not to give its assets to partnership firms and therefore, it cannot be said that by giving the assets of the appellant to the partnership firm, the appellant did use the said asset for the purpose of his business. Thus, the claim made by the appellant company on this account cannot be allowed. 3.6 The other component received by the appellant from the partnership firm is "share of profit" which is exempt u/s 10(2A) of the Act. As the said profit is exempted, provisions of Section 14A come into play. This section provides that no deduction shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below that Section 10(2A) read with Section 28(v) of the Act, the position in law has changed and the judgments cited by the learned counsel for the appellant would be of no avail. We agree with the reasoning of CIT (A) and Tribunal. We have already reproduced above the discussion in CIT (A)'s order. The Tribunal has dealt with the issue as under: "3...... The computation of income under the head "profit and gains of business or profession" is made in accordance with the provisions of Section 29. Section 29 provides that deduction eligible u/s 30 to 43D is to be allowed while computing the business profits. The claim of depreciation on the building contributed by the assessee for the purpose of its business is to be considered u/s 32. Thus, whatever the assessee company has earned either in the form of share of profit or interest which is a business income of the assessee has to be computed after allowing deduction of expenditure permissible u/s 30 to 43D. Section 14A stipulates for disallowance of expenditure against the exempt income. However, if the expenditure is incurred in respect of the exempt income, such expenditure is to be reduced from the exempt income and the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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