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TMI Blog2014 (2) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... istered firm was abandoned and it is the same position as a member of AOP or BOI that of the partner of the firm - The profits of partnership firm are itself taxed and whatever remains will be distributed among partners to the extent of proportion of their shares as tax free share – The decision in ITO Vs. Ch. Atchaiah [1995 (12) TMI 1 - SUPREME Court] relied upon - The firms as assessed u/s. 184 and 185 of the Act w.e.f. 01.04.1993 because the profit of the firm is taxed in the hands of the firm and share of the partner is never taxable in their individual assessment – thus, the assessee is not eligible to claim unabsorbed depreciation of the firm against incomes of the assessee who is partner of the firm and assessed in individual capacity – Decided against Assessee. - I.T.A No. 1767/Kol/2012 - - - Dated:- 19-2-2014 - Shri Mahavir Singh, JM And Shri Abraham P. George, AM,JJ. For the Appellant : Shri R. Dhar, Advocate For the Respondent : Shri Saboorul Hasan Usmani, JCIT, Sr. DR ORDER Per Shri Mahavir Singh, JM: This appeal by assessee is arising out of order of CIT(A)-XXX, Kolkata in Appeal No. 121/CIT(A)-XXX/Cir-48/2010-11 dated 22.08.2012. Assessment was fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to Rs.13,68,242/- as computed u/s. 44AD of the Act. The assessee filed his return of income declaring total income at Rs.7,65,180/- after setting off his share of loss (unabsorbed depreciation of Rs.9,16,271/-) in the firm M/s. Seva Cold Storage. This return was processed u/s. 143(1) of the Act. Subsequently, the AO reopened the assessment as income has escaped taxation u/s. 147 r.w.s. 148 of the Act. The AO while completing assessment u/s. 143(3) r.w.s. 147 of the Act disallowed the claim of depreciation by holding that the partnership firm is a separate entity and the assessee who is a partner cannot claim depreciation on the asset of the firm in view of the provision of section 32 of the Act, while computing his individual income. Accordingly, the AO disallowed the claim of unabsorbed depreciation of Rs.9,16,271/- while computing the income of the assessee. Aggrieved against the action of AO, assessee preferred appeal before CIT(A), who confirmed the action of AO vide para 2.3 of his appellate order as under: "2.3. The submissions of the Appellant have been considered. It is however seen that in respect of the relevant Assessment Year in appeal .e. Assessment Year 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no longer prevailing after the amendment in the Income-tax Act by virtue of which the provisions of sections 182 and 183 of the Act have been omitted by the Finance Act, 1992 w.e.f. 1993 i.e. for and from AY 1993-94. The earlier position, prior to amendment, was that after the taxable income of a registered firm had been ascertained and computed in the normal manner the procedure laid down in section 182 of the Act is followed. The income-tax payable by the firm itself is determined and a demand was made from the firm of the tax due. The share of the firm's taxable income, apportioned to each partner in accordance with the provisions of section 67 of the Act, was then taken to hiws respective assessment as an individual. His such share of firm's taxable income was added to the partner's other income and the amount of tax to be levied on such total income was then assessed and demand for tax thereon was made from him. If, however, there was loss in the registered firm, the partner was entitled to set his allocated share off against his other income or to get it carried forward and set off in accordance with the provisions of section 75 of the Act. The provisions of sectio0n 32(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n claim no immunity because the Assessing Officer [Income-tax Officer] has taxed the said income in the hands of another person contrary to law. We may proceed to elaborate. Section 3 of the Indian Income-tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1939, read as follows: "3. Charge of income-tax. _ Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually." (emphasis** added). The expression "person" was defined in clause (9) of section 2 in the following words: "(9) 'person' includes a Hindu undivided family and a local authority". As against the above provisions, section 4 of the present Act (before it was amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989) read thus: "4. (1) Where any Central Act enacts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no words in the present Act which empower the Income-tax Officer or give him an option to tax either the association of persons or its members individually or for that matter to tax the firm or its partners individually. If it is the income of the association of persons in law, the association of persons alone has to be taxed; the members of the association of persons cannot be taxed individually in respect of the income of the association of persons. Consideration of the interests of the Revenue has no place in this scheme. When section 4(1) of the present Act speaks of levy of income-tax on the total income of every person, it necessarily means the person who is liable to pay incometax in respect of that total income according to law. The tax has to be levied on that person, whether an individual, Hindu undivided family, company, firm, association of persons/body of individuals, a local authority or an artificial juridical person. From this, it follows that if income of A is taxed in the hands of B, A may be legitimately aggrieved but that does not mean that B is exonerated of his liability on that account. B cannot say, when he is sought to be taxed in respect of the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 of the draft (definition of "person") did expressly provide an option similar to the one contained in section 3 of the 1922 Act. Clause (27) read thus: "(27) 'person' includes (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm or other association of persons, whether incorporated or not, or the partners of the firm or the members of the association individually, (v) a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within subclauses (i) to (vi).'' (emphasis* added). In the "Notes on Clauses" appended to the draft, the Commission stated: "27. Person. _ The definition of 'person' in existing section 2(9) has been amplified. The existing definition includes (a) a Hindu undivided family, and (b) a local authority. The General Clauses Act, defines 'person' as including a company or association or body of individuals whether incorporated or not. The charging section (section 3) of the Income-tax Act enumerates the units for taxation as 'individual, Hindu undivided family, company, local authority, firm and other association of persons, or the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the learned judge held the Income-tax Officer cannot, at the same time, bring the unregistered firm to tax in respect of the very same income. Section 183 was also referred to in that connection." 6. Similarly, under the unamended provisions of sections 182 and 183 of the Act the unabsorbed depreciation u/s. 32(2) of the Act of an unregistered firm is carried forward for set off against next year's total income of the unregistered firm itself. Although, in case of unregistered firms, there is allocation of the firm's profits amongst the partners, it is not u/s. 158 of the Act, which section is applicable only to registered firms or unregistered firms assessed as registered firms. The allocation, in case of unregistered firms assessees, is only for rate purposes as provided in section 86(iii) of the Act. The unabsorbed depreciation as well as loss is carried forward to be set off only against the firms' income and not that of partners. Now exactly, similar is the position of the firms as assessed u/s. 184 and 185 of the Act w.e.f. 01.04.1993 because the profit of the firm is taxed in the hands of the firm and share of the partner is never taxable in their individual assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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