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TMI Blog2013 (8) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the income returned by the assessee. Assessee has not been able to place any record to show that Assessing Officer had called for any details regarding the number of partners during the course of assessment. A crisp order by itself might not show that Assessing Officer had not applied his mind. But, when the circumstances show that despite availability of materials, is that Assessing Officer had not looked into such aspects nor applied his mind. Assessee had claimed substantial amount as remuneration to its partners under Section 40(b) of the Act and this was allowed as such without considering the crucial aspect of the legality of its claim of status as a firm. CIT went over board when he directed the Assessing Officer to modify the assessment order by treating the assessee as an AOP and disallow the claim of remuneration to its partners. The CIT ought have simply set aside the order of A.O. for consideration of issue afresh, since it was erroneous insofar as it was prejudicial to the interests of Revenue and to this extent, order of ld. CIT required modification - Decided partly in favour of assessee. - I.T.A. No. 1164/Mds/2012 - - - Dated:- 4-7-2013 - Shri Abraham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was only to share the profits of the assessee-firm and nothing more. Reliance was also placed on the decision of Hon'ble Apex Court in the case of Rashik Lal and Co. v. CIT (229 ITR 458). As per assessee, through this decision, it was clarified by the Hon'ble Apex Court that only individuals could become partners of the firm and even if a person joined the firm in his capacity as representative of a body or association, vis- -vis the firm, his position was still that of an 4 I.T.A. No. 1164/Mds/12 individual only. Agreement which an individual had with a third party to divide the profits received from the firm did not bind the firm nor did it alter the position of the firm under the Partnership Act or Income-tax Act. Assessee argued that a 'person' mentioned in Section 4 of Indian Partnership Act, 1932 could only be a natural person or a juristic or legal person. A firm or Association of Persons was not a legal person. Thus, according to assessee, though Shri Mukund Dharmadhikari was acting in a dual capacity, the total number of partners never exceeded 20 during the relevant previous year. In any case, as per assessee, the view taken by Assessing Officer was a possible one and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act. Relying once again on the decision of Hon'ble Apex Court in the case of Rashik Lal Co. (supra), learned A.R. submitted that even if Shri Mukund Dharmadhikari was considered as a representative of M/s Deloitte Haskins Sells, Mumbai, he still remained an individual qua the assessee-firm. For the purpose of count, what mattered was number of individuals. Section 4 of Indian Partnership Act, 1932 was clear that there had to be a relation between partners agreeing to share the profits for a partnership to come into existence. According to him, when a person was treated as a partner in his representative capacity, it could not be stated that the firm was bound to the person whom he was representing. 'Person' mentioned in Section 4 of the Indian Partnership Act, 1932, could either be a natural person or juristic or legal person. Once again relying on the decision of Hon'ble Apex Court in the case of Bagyalakshmi Co. (supra), learned A.R. submitted that a partner could be a trustee, could enter into partnership with others, could be a representative of group of persons or could be a benamidar. Even if he occupied a dual position, qua the partnership, he functioned in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests of Revenue. Hence, according to him, CIT was justified in invoking his revisionary power under Section 263 of the Act. 7. We have perused the orders and heard the rival submissions. There is no dispute that partnership deed dated 1.4.2007 and amendment deed dated 1.5.2007 were before the Assessing Officer when he completed the assessment under Section 143(3) of the Act originally. The amendments made through the latter deed, which has given rise to this dispute, are reproduced hereunder:- IN THE PRINCIPAL DEED THE FOLLOWING CLAUSES SHALL BE AMENDED AS STATED BELOW: Partner is Representative Capacity 1 the following shall be added as a part of the recitation under the first paragraph PARTIES SHRI MUKUND DHARMADHIKARI, a Party of the Fourth Part, is a Partner in the said Firm on his own behalf. In addition with effect from the first day of May, 2007, he shall be also be a Partner in a representative capacity, representing Deloitte Haskins Sells, Mumbai, a Participating Firm. PARTNERS REMUNERATION AND SHARE OF PROFITS 2. clause 9 of the Principal Deed shall be substituted by the following: Remuneration a. Each Active Partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm" in the original partnership deed dated 1st day of April, 2007. "Participating Firm" has been defined in the said deed as under:- ""Participating Firms" shall mean the group of Firms comprising, in alphabetical order, A.F. Ferguson Co., A.F. Ferguson Associates, C.C. Chokshi Co., Ahmedabad, C.C. Chokshi Co., Baroda, C.C. Chokshi Co., (Mafatlal House) Mumbai, C.C. Chokshi Co., (Worli) Mumbai, C.C. Chokshi Co., New Delhi, Deloitte Haskins Sells, Ahmedabad, Deloitte Haskins Sells, Baroda, Deloitte Haskins Sells, Chennai, Deloitte Haskins Sells, Kolkata, Deloitte Haskins Sells, (National Firm), Deloitte Haskins Sells, Mumbai, Deloitte Haskins Sells, New Delhi, Fraser Ross, Fraser Ross Associates, P.C. Hansotia Co., S.B. Billimoria Co., Touche Ross Co., Chennai, Touche Ross Co., Mumbai, and such other Firms as may be decided from time to time." There is a specific provision again in the very same deed which harps on the policy making powers that have an effect on "Participating Firm". This provision reads as under:- Certain decisions by the Participating Firms n. Notwithstanding anything contained in any of the clauses the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Apex Court in the case of Rashik Lal Co. (supra) has clearly held that a partner may be a trustee or may enter into a sub-partnership with others, or can be a representative of a group of persons. Qua the partnership, he functions in his personal capacity. But, in our opinion, the above decision as well as decision in the case of Bagyalakshmi Co. of Hon'ble Apex Court (supra) will not have any applicability here, since assessee was indirectly trying to bring in M/s Deloitte Haskins Sells, Mumbai, another firm, which was already a participating firm, as its partner, circumventing the limit of maximum 20 members. It is also obvious that Assessing Officer despite having the amendment deed with him, had not gone into these aspects. Assessment order is a crisp one accepting the income returned by the assessee. Assessee has not been able to place any record to show that Assessing Officer had called for any details regarding the number of partners during the course of assessment. A crisp order by itself might not show that Assessing Officer had not applied his mind. But, when the circumstances show that despite availability of materials, is that Assessing Officer had not lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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