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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 ..... re each in the said partnership. (c) The aforesaid two partners of the assessee desired to purchase shares by way of investment or to sell their existing investment and in such cases, instead of involving an outside stockbrokers, they decided to transact such sale and purchase through their own firm, assessee itself, as a registered stockbrokers. In respect of such transactions, the assessee-firm charged its usual brokerage including service charge from its partners. In this type of purchase of shares by the partners, the payment for the same was made by debit of the amount to their capital accounts and in case of sale by the partners of their investments, the sale proceeds received were credited to the partners' capital accounts. (d) During the previous year ended March 31, 1998, in December 1997, the assessee-firm purchased for each of its two partners 18,000 shares each in ITC Ltd. and 10,000 shares each in Tata Tea Ltd. The shares in ITC Ltd. were sold on behalf of the partners in December 1997 itself and those in Tata Tea Ltd. were sold in January, 1998. (e) The payment for the purchase of shares in ITC Ltd. was made on behalf of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm-assessee and the difference between the market value of the said shares as on March 31, 1998 and the purchase price was added in the assessee's assessment as alleged undervaluation of the closing stock. (j) Being aggrieved, the assessee-firm preferred an appeal before the Commissioner of Income-tax (Appeals) and the said Appellate Authority, by an order dated March 06, 2003 deleted the addition made by the Assessing Officer in respect of the transactions relating to shares in ITC Ltd. and Tata Tea Ltd. but upheld the addition on account of the shares in Castrol India Ltd. (k) Being dissatisfied, the Assessing Officer preferred an appeal against the said order of the Commissioner of Income-tax (Appeals) deleting the addition made in respect of transactions relating to the ITC Ltd. and Tata Tea Ltd. before the Income-tax Appellate Tribunal and the assessee-firm also preferred an appeal before the Tribunal against the order of the Commissioner of Income-tax (Appeals) so far as the addition in respect of the transactions relating to shares in Castrol India Ltd. was sustained. (l) The Tribunal by the order impugned allowed both the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Khaitan, therefore, prays for setting aside the order passed by the Tribunal as regards the re-addition of the amount relating to the transaction of share in ITC and Tata Tea Ltd. Mr. Agarwal, the learned counsel appearing on behalf of the Revenue, has, however, opposed the aforesaid contention advanced by Mr. Khaitan and has contended that the learned Tribunal below rightly held that there were merely book entries in the transaction of shares relating to ITC and Tata Tea Ltd. and that it was really the income of the firm itself and as such, we should dismiss the appeal. According to Mr. Agarwal, the firm is the compendious name for the partners who constitute it and therefore, when the firm pays something to its partners, it really pays to itself and likewise, when the firm extends to the partners a benefit, the benefit is availed by the firm itself. In support of his contention, Mr. Khaitan placed strong reliance upon a Division Bench decision of this Court in the case of Lovelock & Lewes v. Commissioner of Income-tax, [1994] 208 ITR Page-95. Mr. Agarwal further contends that according to Partnership Act, the partners of the firm cannot run the similar type of business with tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities and profit and loss of the partnership should be equal. It further appears from those terms, that there is no restriction of carrying on similar nature of business at the instance of any of the partners and similarly, there is no restriction of withdrawing the capital contribution of the partners at any point of time with mutual consent. At this stage it will be profitable to refer to the provision contained in sections 11 and 16 of the Partnership Act which are quoted below: "11. Determination of rights and duties of partners by contract between the partners.-(1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners, and such contract may be expressed or may be implied by a course of dealing. Such contract may be varied by consent of all the partners, and such consent may be expressed or may be implied by a course of dealing. Agreements in restraints of trade.-(2) Notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 (9 of 1872), such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B and D and took flats on monthly rent as those two places. The partners of the firms were residing in those flats and part of rent paid by firm for the flats was claimed as deduction on the ground of partners' discharging their official duties from their residence. In such a case, the Division Bench held that when the partners conducted firm's business at outstation places, they rendered services to the firm and not to a different entity and no relationship of employer and employee existed between the firm and the partners and as such, the part of the rent paid for the flat was not an allowable deduction. In that context, the Division Bench held that when the firm pays to its partners, it pays to itself and likewise when the firm extends to the partners a benefit, the benefit is availed of by the firm itself. We fail to appreciate how the principle laid down in the said decision can have any application to a case where the two partners of the firm after withdrawing from capital of the partnership-firm by mutual consent of the two partners decided to purchase and subsequently to sell shares of different companies by giving brokerage to the assessee-firm of which they are the part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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