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TMI Blog2011 (4) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the partners by adding the same to the income of the assessee - Therefore, allow this appeal by answering the question in the negative in favour of the assessee - ITA NO 780 OF 2004 - - - Dated:- 19-4-2011 - BHASKAR BHATTACHARYA, SAMBUDDHA CHAKRABARTI, JJ. JUDGMENT Bhaskar Bhattacharya, J.: ‑ This appeal under section 260A of the Income-tax Act, 1961 is at the instance of an assessee and is directed against an order dated 12th July, 2004, passed by the Income-tax Appellate Tribunal, "B" Bench, Kolkata, in Income-tax Appeal being ITA No.1738/Kol/2003 for the Assessment Year 1998-99 and thereby allowing the appeal of the Revenue and setting aside the order passed by the Commissioner of Income-tax (Appeals). Being dissatisfied, the assessee has come up with the present appeal. The facts giving rise to filing of this appeal may be summed up thus: (a) The assessee is a partnership firm within the meaning of the Indian Partnership Act, 1932 and carries on the business of dealing in shares, securities, debentures and is duly registered as a stockbroker. (b) The assessee-firm has the two partners, namely, Dwarka Prasad Kejriwal and Govardhan Dass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed March 31, 1998, the assessee-firm purchased on behalf of each of the partners 15,000 shares each in Castrol India Ltd. and after receiving delivery of the said shares, the partners sent the same to the company for registering the transfer in their respective names and received the duly transferred shares from the company. (h) In the transactions relating to purchase and sale of shares in ITC Ltd. and Tata Tea Ltd., the two partners of the assessee earned short-term capital gains which were duly shown by them in their respective income-tax return. The shares in Castrol India Ltd. purchased by the assessee s partners and held by them as at the end of the previous year were duly shown in their respective balance-sheet as at March 31, 1998 filed with their income-tax return. (i) By the order of the assessment dated March 30, 2004, the Assessing Officer taxed the capital gains earned by the partners of the firm in the transactions relating to the shares in ITC Ltd. and Tata Tea Ltd. as the assessee s profit. Over and above, the shares in Castrol India Ltd. purchased by those two partners were treated as belonging to the partnership firm-assessee and the difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the said addition are arbitrary, unreasonable and perverse? Mr. Khaitan, the learned senior Advocate appearing on behalf of the appellant, has strenuously contended before us that the learned Tribunal below committed substantial error in law in setting aside the relief granted to the assessee by the CIT (Appeals) on erroneous ground that sufficient funds were not available to the partners for purchasing the shares or that the purchases and sales could not be lawfully transacted by the partners by mere book entries. By referring to the balance in partners capital accounts on the dates of debit for their personal share investment, Mr. Khaitan points out that on the dates of purchase of those shares in the two companies, each of the partners had sufficient amount in the capital share of the business. Mr. Khaitan submits that the partners of his client have the right to purchase share through the assessee-firm although they are the partners of the firm and it would appear that the necessary brokerage fees and service charges have been credited in the account of the assessee-firm for those transactions. Mr. Khaitan, therefore, prays for setting aside the order passed by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two partners should provide such capital for the smooth running of the partnership business as might be necessary from time to time which should be credited to their respective accounts and the amount standing to the credit of the parties as on 1st April, 1994 in the books of the partnership should be treated as their capital contribution in the partnership and no interest should be payable on the capital contribution by the partners. Clause 7 of the Deed provides that both the partners would be working partners and they would be engaged in attending to and looking after the business of the partnership-firm for which they would be entitled to a remuneration of Rs. 10,000 a month with effect from 1st April, 1994 subject to the limitation that in case of total remuneration payable during a financial year to the two partners exceeded 75% of the book profits of the partnership, the remuneration payable to the partners should be limited to 75% of the book profit of that financial year. The remuneration payable to both the partners should be equal. According to the clause 8, the shares of the partners in assets, liabilities and profit and loss of the partnership should be equal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partners to the partnership-firm and those were reflected in the account of the partnership-firm. In such circumstances, we find no substance in the contention of Mr. Agarwal, the learned Advocate appearing on behalf of the Revenue, that under the law of the land in the facts of the present case the two partners were not entitled to purchase or sale those shares after withdrawing money from their capitals of the said business when it appears that both the partners agreed to such a course and they had withdrawn equal amount of money for purchase of those shares. Similarly, in this case, there is no clause in the Partnership Deed restraining any of the partners from dealing with the same type of business as that of the firm. On consideration of the aforesaid materials on record, we agree with the Commissioner of Income-tax (Appeals) that there was no just reason for treating the transactions in respect of those shares as transaction made by the firm. In the case of Lovelock Lewes v. Commissioner of Income-tax (supra), relied upon by Mr. Agarwal, the assessee-firm in that case had branches at places B and D and took flats on monthly rent as those two places. The partners of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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