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TMI Blog2016 (6) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... e totality of the above said facts and circumstances, we consider the issue in the light of deliberations of CIT(A) on the said so called additional evidence, since the powers of CIT(A) are co-terminus with the Assessing Officer. Accordingly, we hold that the income received by the assessee merits to be assessed in its hands as income from business and corollary to the same, brought forward losses on account of depreciation would form part of current depreciation in the hands of assessee and the same merits to be adjusted against income of the current year and in case of any balance, merits to be carried forward to the succeeding year. Lease rent received by the assessee from M/s. Deccan Bottling & Distilling Industries Ltd. - the said income is to be taxed as income from business and not income from other sources. - Decided in favour of assessee Disallowance under section 43B - Held that:- Since the income is assessed as income from business, relevant provisions of section 43B of the Act are attracted. The Assessing Officer is directed to verify the same and decide the issue. - ITA No.1143/PN/2013, SA No.100/PN/2015 - - - Dated:- 25-4-2016 - MS. SUSHMA CHOWLA, JM AND SHR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Rs.2,38,41,543/- A.Y. 2000-2001 - ₹ 54,21,893/- A.Y. 2002-2003 - ₹ 58,79,117/- 7. The learned CIT(Appeals)-III, Pune erred in law and on facts in denying the appellant to produce the additional evidences relating to genuine partnership with M/s. Jawahar SSK Limited on record. 8. The learned CIT(Appeals)-III, Pune erred in law and on facts in characterizing the genuine partnership deed of the appellant as a sham document and a colourable device. 9. Without prejudice to Ground No.2, the learned CIT(Appeals)-III, Pune erred in law and on facts in disallowing ₹ 12,30,068/- u/s 43B of IT Act without appreciating the fact that provisions of Section 43B are not applicable in case of Income from Other Sources . 10. The appellant craves leave to add / modify / alter / delete all / any of the grounds of appeal. 3. The issue arising in the present appeal is in relation to the treatment of lease rent received by the assessee from two different concerns i.e. sum of ₹ 3,06,63,400/- from M/s. Shriram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crystallized sugar in partnership with another sugar factory namely Jawahar Shetkari Sahakari Sakrkhana Ltd. The said partnership deed was entered on 09.10.2006 and was valid for period of 15 years. As per the terms of partnership deed, the profit of partnership firm was to be earned by Jawahar SSK and the assessee was to be given compensation of ₹ 100/- per MT of cane crushed for the first five years starting from the year 2006-07 to 2010-11, ₹ 110/ - from 2011-12 to 2015-16 and ₹ 120/- for the rest of five years. Besides, the distillery unit owned by the assessee was given on lease to Deccan Bottling Distilling Industries Ltd. 6. The second issue raised by the assessee was the claim of set off of brought forward depreciation and it was pointed out that in view of the provisions of section 32(2) of the Act, brought forward depreciation was to be treated as part of current depreciation and along with current depreciation, the same was first to be adjusted against the business income of relevant year and in case amount remains unabsorbed, then the same is to be set off against income from any other head of income. If further, there is certain unabsorbed porti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order was passed after giving adequate opportunity for adducing the evidence before the Assessing Officer, and where the assessee has failed to bring on record any evidence to show that the partnership existed at the time of assessment proceedings and production of the same before the Assessing Officer was prevented by circumstances beyond its control, then in such circumstances, the additional evidence filed by the assessee could not be admitted. However, vide para 6.3 onwards, the CIT(A) in the interest of justice and fair play, noted that the clauses of partnership deed filed by the assessee as additional evidence. The CIT(A) vide para 6.4 observed that the assessee had offered its sugar plant for usage as capital contribution in kind to the partnership for period of 15 years, in lieu of which, certain compensation was paid to the assessee. The CIT(A) observed that to constitute a valid partnership within the definition of partnership under section 4 of the Partnership Act, two essential conditions were to be satisfied (i) that there should be an agreement to share the profits as well as losses of business and (ii) the business must be carried on by all or any of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Jawahar was that of Lessor and Lessee and not of partnership. Further, if it is the case of income from partnership as claimed by the assessee, there was no necessity for Jawahar to deduct tax at source under section 194I of the Act. The CIT(A) was of the view that the clauses in partnership deed clearly show that the alleged partnership with Jawahar was only sham and colourable device and sole intention was to claim set off of brought forward business losses against the lease rental income by treating the same as income from business. Hence, the claim of the assessee was denied on all counts. 8. The assessee is in appeal against the order of CIT(A). 9. The learned Authorized Representative for the assessee made a prayer for condonation of delay in filing the present appeal late by 90 days. Our attention was drawn to the application filed in this regard, wherein it was pointed out that earlier the case of the assessee was being looked after by M/s. Mohan Deshmukh Co. However, the assessments and appeal of the assessee were looked after by M/s. ANRK Associates LLP. On 16.01.2013, the assessee received a letter giving effect to the appellate order passed by the CIT(A)-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al through its members. The workforce was also provided by the assessee along with machinery and was responsible for the methods to be utilized in crushing the sugarcane. The other partner was working partner, who had infused money and expertise in running the sugar factory. The learned Authorized Representative for the assessee pointed out that the assessee s interest in the said partnership was that its member cane growers, cane is used for crushing and also appropriate and timely wages are paid to its workforce, so that there is no unrest and possibility of money getting jeopardized is reduced. Further, the learned Authorized Representative for the assessee stressed that the assessee was carrying on the said activity, where it was its duty to supply cane and also to undertake that the plant was functioning properly and workforce are carrying on their duties. He stressed that some risks vis- -vis business aspects were being carried on by the assessee and it cannot be said that the assessee was not engaged in the business. Our attention was drawn to the order of CIT(A) in this regard, where he had objected to the claim of assessee that it was not carrying on any business activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Representative for the Revenue stressed that there was no risk taken by the assessee except that no fixed or minimum amount has been decided. Referring to the clauses of partnership deed, the learned Departmental Representative for the Revenue stressed that there is no say of the assessee, in the activity being carried on by the said partnership. Further, the members of cooperative society have to make supplies and though entire workforce is provided but the said concern can have its own work source. It was further pointed out that the partnership deed was made for a period of 15 years with clause of extension which established that there was no intention to revert back to the business being carried on. In this regard, reference was made to clauses 15 and 16 of partnership deed. Since the entire control was with Jawahar, income was rightly assessed as income from other sources. Another aspect referred to by the learned Departmental Representative for the Revenue was that the proposed partnership had treated the payment in the nature of lease rent and had deducted tax at source. He further placed reliance on the ratio laid down by the Hon ble Supreme Court in New Savan Sugar G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership was formed under the Maharashtra Cooperative Societies Act, which provided that the provisions of Partnership Act would not apply. 13. We have heard the rival contentions and perused the record. The issue arising before us is in respect of assessability of income received by the assessee during the year under consideration. The assessee was a cooperative society under section 9 of the Maharashtra Co-operative Societies Act, 1960 and had entered into a Deed of Partnership with M/s. Shriram Jawahar Shetakari Sahakari Sakhar Udyog (Jawahar) on 09.10.2006. As per the understanding between the two parties, where the assessee was a cooperative society registered under section 9 of Maharashtra Co-operative Societies Act and Jawahar was a registered cooperative society under Multi State Cooperative Societies Act, 1984, formed a partnership of societies under section 20 of Maharashtra Cooperative Societies Act, 1960, to undertake the business of processing of agricultural produce mainly sugarcane, by utilizing the existing sugarcane crushing plant of the party of the first part located in Phaltan Taluka, District Satara . The assessee owned a full-fledged sugarcane processing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... har had also got the approval of their Board of Directors as empowered by their general body resolution dated 13.06.2006 and their byelaws. The parties, therefore, after adequate, due deliberations, discussions and understanding, executed a partnership for the operation of said sugar plant through an independent body i.e. partnership (referred to as management). It was mutually agreed between the parties that the name of partnership would be Shriram Jawahar Shetkari Sahakari Sahkar Udyogm . The main object of the partnership as per clause 2 was to process sugarcane through existing unit of the party of the First Part and further, it was entitled to carry on any other business of any kind, with mutual consent of both the parties. As per clause 3 of partnership deed, principal place of business was factory site at Phaltan and also the registered office as per clause 4 was the premises of assessee at Phaltan. As per clause 5, partnership shall be a particular partnership under section 20 of the Maharashtra Cooperative Societies Act and it shall be particular in respect of carrying on the business of processing of sugarcane through the crushing mull of assessee at Phaltan. The period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond part is bringing its entire strength of finance and expertise and is shouldering the responsibility of entire day to day management and execution, it will be entitled for all the profits after payment of compensation @ ₹ 100/- per M.T. of sugarcane crushed for the first five crushing seasons i.e. from 2006-2007 to 2010-2011, @ ₹ 110/- per MT for next period of five years i.e. from crushing seasons 2011- 2012 to 2015-2016 and @ ₹ 120/- per M.T. for the further period of five years i.e. from crushing seasons 2016-2017 to 2020-2021 to tile partner, all the expenses, liabilities including the tax liabilities as approved by the Commissioner of Sugar and Registrar of Co-operative Societies under his order No. 77/2006 dtd. 30/9/2006. The partner shall not be responsible for any losses or shortages in the operations of the said sugar plant by the working partner. The partner shall be entitled for the compensation as enumerated hereunder and the benefits of future developments which would accrue them through the modernization and expansion, diversification of the said sugar plant and activities by the working partner. The partner shall also be entitled to ensure that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng dues to workers / employees or to the statutory authorities and if the same was imposed on the management of working partner, then the same shall be made good by the partner and the management shall not be responsible for any such liability. As per sub-clause (d) to clause 15, the management was at liberty to employ additional workforce necessary for it and payment of salary / wages / fringe benefits was the responsible of the management. It was further provided that the partner i.e. assessee shall take the disciplinary proceedings and action against workers / employees of the partner and further, no worker / employee had a right to proceed directly / indirectly in any matter against the working partner. As per clause 18 of the Deed, the partner declared and committed to different conditions as his responsibility. As per one of the clauses, it was also agreed that the partner shall ensure adequate action and efforts from their side for providing cane to the sugar plant from its members and non-members. The producer members of the partner shall be bound to supply the cane to the management as resolved in the special general body meeting dated 10.09.2006 and the management shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned for entering into such a partnership. The prior approval is to be obtained from the Registrar by way of resolution passed by three-fourths majority of the members present and voting at the general meeting of each such society, for which clear 10 days written notice of the resolution and date of meeting has to be given to the members. In case any partnership is formed of the societies under section 20 of the Maharashtra Cooperative Societies Act, then the section itself provides that nothing in Indian Partnership Act, 1932 shall apply to such a partnership. In other words, the provisions provided under the Indian Partnership Act, would not govern a partnership of two or more societies, which was formed under section 20 of Maharashtra Cooperative Societies Act. 19. The assessee before us was a cooperative society which was running sugar plant at Phaltan. The assessee was not able to efficiently run the said sugar plant and consequently, in order to look after the interests of members of its cooperative society, totaling about 12982 and also non-members i.e. persons who were residing in the surrounding areas and wanted their sugarcane to be crushed, sought permission from the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also non-members. The contribution of other partner was not only the financial contribution but also to effectively manage the operations of sugar plant. Undoubtedly, the sugar plant along with its plant machinery and the land permits, rights, etc. were infused by the assessee in the said partnership. Further, even the workforce employed by the assessee was taken over by the other partner. The responsibility to pay the said workforce was upon the assessee though the said remuneration was to be reimbursed by the other partner. Even the statutory dues in respect of the said workforce were to be paid through the assessee by the other working partner. Undoubtedly, the new partner had the right to engage any other persons to run its business but it was clearly agreed between the parties that the existing workforce of sugar plant shall be taken over by the partnership formed between the parties. The management of partnership was carried out by the three partner directors, two of which were to be nominated by the incoming society and one to be proposed by the assessee society. The decision making was to be made compulsorily by all the three partner directors except in the case of diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip so constituted in the present case by the assessee with Jawahar is a special vehicle constituted as per the provisions of Maharashtra Cooperative Societies Act, which admittedly, are to be applied for the functioning of cooperative societies in the State of Maharashtra. Section 20 of the said Act recognized the partnership of societies which stands on a different footing than the partnership as formed under the Indian Partnership Act, 1932. Sub-clause (2) of section 20 of the said Act, very categorically lays down that nothing contained in the Indian Partnership Act, 1932 shall apply to such partnerships. Since the partnership entered into by the assessee is under different statute, then it could not be held that the partnership so formed is not to be recognized as partnership firm as some of the conditions of Indian Partnership Act are not complied with. 21. The first and foremost objection of the authorities below is that the said partnership does not provide the sharing of losses between the two parties. The perusal of terms agreed upon between the parties clearly reflected that there is no sharing of losses, which has been categorically so provided. The assessee partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but has also undertaken to provide cane for running of the sugar plan and also participated in the functioning of plant through its workforce and also efficient running of the business by being part of the management of the said concern. In the entirety of the above said facts and circumstances, where the assessee has taken over the risks of running its sugar plant by way of entering into a partnership with another partner, who shall be a working partner, we hold that the assessee was engaged in the carrying on of business. The remuneration received by the assessee merits to be assessed as his share of profits under the head Income from business . We find no merit in the orders of authorities below in assessing the same as Income from other sources . Where the assessee has taken a business decision to run its sugar plant more efficiently by way of entering into such an agreement of partnership, we find that the income earned by the assessee is its income from business. 22. Now, coming to the objections raised by the authorities below and also by the learned Departmental Representative for the Revenue before us that the assessee has entered into a lease of its sugar plant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed as income from business. 23. Now, coming to various case laws relied upon by the learned Departmental Representative for the Revenue. It may be pointed out that during the course of hearing itself, it was pointed to him that the point of difference in all the reliances placed upon by him was that these were the cases of lease agreement, whereas in the present case, it is the case of partnership deed. The learned Authorized Representative for the assessee has also pointed out that the facts in the said cases relied upon by the learned Departmental Representative for the Revenue are distinguishable and are different from the facts of the present case. We hold that the ratios laid down by the said decisions are not applicable to the facts of the present case because of distinguishing facts. 24. One another aspect to be noted in the present case is that the assessee had failed to file the copy of partnership deed before the Assessing Officer. However, the said deed of partnership was filed before the CIT(A) as additional evidence. The CIT(A) in the first instance has not admitted the same but later on has discussed various terms and conditions of partnership deed to com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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