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TMI Blog2019 (9) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... a) treats masculine and singular expression in central regulations to be inter-changeable famine gender plural expression; also carries no substance since the legislature expression herein is very much clear that the impugned exemption benefit is available to a member a of Scheduled Tribe only takes to a partnership firm consisting of partners who are member of such a Scheduled Tribe. We reiterate that the said provision General Clause Act itself contains a stipulation that unless there is anything repugnant in the subject or context . We therefore decline the assessee s instant argument as well. We make it clear whilst holding so the Income Tax Act is complete code in itself in the nature of specific law which applies at the cost of all the general laws going by the legal maxim generalia specialibes non derogant as per hon ble apex court s decision in Union of India and Another vs. Indian Fisheries (P) Ltd. [ 1965 (4) TMI 52 - SUPREME COURT] We also wish to quote hon ble apex court s foregoing decision in M/s Jullunder Vegetables [ 1965 (11) TMI 101 - SUPREME COURT] holding that though under the Partnership Law a firm is not a legal entity but only consists of individual partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 348-351/Gau/2018 are restored at their original number(s). With the consent of all the learned representatives appearing at the assessees' and Revenue's behest, we have heard these four main cases as well. 3. The assessees' identical sole substantive ground pleaded in these appeals is that the Assessing Officer as well as CIT(A) have erred in denying sec. 10(26) exemption relief to the two partnership firms. We thus treat former assessee M/s Hotel Centre Point Shillong's appeal No. 348/Gau/2018 for assessment year 2013-14 as the "lead" case. ITA No.348/Gau/2018 AY 2013-14:- 4. We start with the basic relevant fact qua the instant sole issue of denial of sec.10(26) exemption to the assessee / partnership firm. This taxpayer is a partnership firm running its eponymous hotel business under the name and style of M/s Hotel Centre Point at Shillong. It consists of two partners S/Sh Prabhat Dey Sawyan, son of Ka Lisimon Jaid Dkhar residing at Lower Mawprem, and Mr. Walamphang Roy son of Pismon Jaid Dkhar resident of Umsohsun, Shillong. Both these partners are khasis by tribe is a schedule tribe in the state of Meghalaya. They are residents of Khasi Hills Autonomous District cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of the basic charging provision applicable in respect of the total income of the previous year of every person. Section 2(31) defined a "person" to include a firm as well. This followed reference to u/s 2(23) of the Act defining a firm, partner and partnership to be having the same meaning assigned to them under the Indian Partnership Act 1932. The Assessing Officer observed in the light of these provision of the Act that it was clear that a firm is a "person" chargeable to income-tax as per corresponding rates prescribed in the statute. 7. Relevant assessment order dated. 13.02.2017 indicates that the assessee had also furnished a copy of its partnership deed during the course of assessment. The Assessing Officer estimated its gross profit @ 3.5% on the total turnover of ₹6,65,84,000/- after holding the assessee not to have submitted books of account and vouchers for necessary factual verification of the corresponding business expenses. He therefore accordingly declined the assessee's foregoing explanation to conclude that sec. 10(26) of the Act does not include a partnership firm for the purpose of granting exemption. All this resulted in consequential additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners are residing within lire area of Khasi Hills Autonomous District specified in Part - II of the Table appended to Para 20 of the Sixth Schedule to the Constitution of India. The income arising to both the partners in the tribal areas is exempt from income-tax by virtue of the provision contained under section .10(26) of the Income Tax Act, 1961 since such income does not form part of the total income liable to tax under the aforesaid Act. 3. The provisions contained under the Income Tax Act, 1961 as well as under the Constitution of India being relevant for consideration in the instant case are reproduced here-under for the sake of ready reference: (a) Section 10(26) of the Income Tax Act, 1961 "10. Incomes not included in total income- In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ….. ….. ….. ….. ….. ….. …… ….. … ….. …. …. …. ….. …. ….. (26) in the case of a member of s Scheduled Tribe as defined in clause (25) of article 366 of the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part II or Part I11 of the table below to any district shall be construed as a reference to the territories comprised within the autonomous district of that name existing immediately before the day appointed under clause (b) of section 2 of that North-Eastern Areas (Reorganization) Act, 1971: Provided that for the purposes of clauses (e) and (j) of sub-paragraph (1) of paragraph 3, paragraph 4, paragraph 5, paragraph 6, sub-paragraph (2), clauses (a), (b) and (d) of sub- paragraph (3) and sub-paragraph (4) of paragraph 8 and clause (d) of sub-paragraph (2) of paragraph 10 of this Schedule, no part of the area comprised within the municipality of Shillong shall be deemed to be within the Khasi Hills District. (3) The reference in Part IIA in the table below to the "Tripura Tribal Areas District" shall be construed as a reference to the territory comprising the tribal areas specified in the First Schedule to the Tripura Tribal Areas Autonomous District Council Act, 1979. TABLE PART I 1. The North Cashar Hills District. 2. The Karbi Anglang District. PART II 1. Khasi Hills District. 2. Jaintia Hills District. 3. The Garo Hills District. PART IIA T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, follow that the assessee was entitled to the exemption under section 10(26) (see pp. 504C, 507H, 508A-C)." 5. It may be mentioned that the words used in section 10(26) of the Income Tax Act, 1961 for importing masculine gender are to be taken to include females as well as the words used in singular number are to be taken to include the plural numbers as provided in section 13 of the General Clauses Act, 1897. The aforesaid clause 13 of the General Clauses Act, 1897 is reproduced before for the sake of ready reference "13. Gender and number:- In all Central Acts and Regulations, unless there is anything repugnant in the subject or context- (1) words importing the masculine gender shall be taken to include females; and (2) words in the singular shall include the plural, and vice versa." 6. The Central Legislature, while extending the application of the provisions of the Income Tax Act, 1961 to the whole of India, considered it reasonable and proper to exempt the members of the Scheduled Castes and Scheduled Tribes residing in the areas specified in the Table attached to Paragraph 20 of the Sixth Schedule to the Constitution from the burden of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appointed and functioning under the 1961 Act ought to take a liberal view in granting exemption of income-tax to the deserving individuals and/or units. 8. It is not disputed that under the Income Tax Act, 1961, a firm is an independent and distinct juristic person for the purpose of assessment since it has been deemed to be a 'person' within the meaning of section 2(3) of the 1961 Act. However, in the back drop of the provision contained under section 10(26), it is contended that a partnership firm constituted by the members of the tribal areas specified in Part - II of the Table appended to Paragraph 20 of the Sixth Schedule for the purpose of earning income from any source of income arising in the said specified area is also entitled to avail exemption in respect of its income under section 10(26) of the 1961 Act since such income is shared by the partners who are members of the Schedule Tribes as defined in clause (25) of Article 366 of the Constitution. This is so because a partnership firm is only a collective or compendious name for all the partners. The partnership firm has no existence do hors its partners .. It is the partners who undertake to bring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at had the income in question in the instant case accrued to a single member of Khasi Tribe it would have been exempt under section 10(26) of the Act. The only controversy is that the income in the instant case having accrued not to an individual Khasi but to a Khasi family, whether this exemption will be available. In other words, whether the benefit of exemption available to a member of Khasi Tribe will be available even if the income is earned by him not as an individual but as a group of individuals comprising of the members of his family. There is no dispute that all the members of the family are Khasis. 6. We have carefully applied our mind to the controversy. The words "family" is a popular expression. It should be given a normal meaning and should not be construed technically unless it is so intended by the statute. Most commonly the word "family" refers to a group of persons consisting of parents and children; father, mother and their children; immediate kindred. It also means a collective body of persons who live in one house and under one head or management; a group of blood relatives; all the relations who descend from a common ancestor, or who spring from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is placed on the observations made by the Hon 'ble Apex Court in Income Tax Officer vs. N. Takin Ray Rymbai (1976) 103 ITR 82 (SC) at page 89-90: "Classification for purposes of taxation or for exempting from tax with reference to the source of the income is integral to the fundamental scheme of the Income-tax Act. Indeed, the entire warp and woof of the 1961 Act has been woven on this pattern. Section 2(45) defines total income to mean "the total amount of income referred to in section 5 computed in the manner laid down in-this Act". Section 5 makes the chargeability of income dependent upon the locality of accrual or receipt of the income. It defines the extent of total income with reference to the residence of the assessee and thus makes the incidence of taxation dependent upon whether the assessee is a resident in India. It is the residence in India which entails liability to tax. A non-resident is not liable in India to get his income assessed, but if any part of his income accrues or arises whether directly or indirectly through any business connection in India or from any property in India, the same would be assessable. An "ordinary reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(26) brings to one's notice the differentiation between income accruing or received by a person from a source in the specified areas and the income accruing or received by a person from a source outside such areas. The object behind such differentiation is the legislative intention not only to grant benefit of exemption to the members of the scheduled tribes but also for benefit such areas economically. In support of the above, reliance is placed again on the decision of the Apex Court in Income Tax Officer vs. N. Takin Roy Rumbai (1976) 103 ITR 82 (SC) wherein the Hon'ble Supreme Court at page 90 has explained the objective behind such differentiation. The said observations are reproduced below: "The object of this differentiation between income accruing or received from a source in the. specified areas and the income accruing or received from a source outside such areas, is to benefit not only the members of the Scheduled Tribes residing in the specified areas but also to benefit economically such areas. If the contention advanced by Mr. Lahiri is accepted and a member of the Scheduled Tribe residing in a specified area is held entitled to the exemption irres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax under section 10(26) in respect of their income accruing or arising in the specified area. The Income Tax Act, 1961 does not contain any specific and/or overriding provision either for considering such firm a taxable unit or a non-taxable unit. But in the context of the provision presently contained under section 10(26) in favour of the members of the schedule castes and schedule tribes only, it stands to reason to consider a partnership firm constituted by the members of the schedule caste and schedule tribe in the specified area for carrying on business operations only in the specified area as exempt from income tax. A negative view in the matter will tantamount to denial of the fundamental right ensured under Article 19(1)(g) to carry on trade or business under the nomenclature of a partnership firm to the members of the schedule castes and schedule tribes in the specified area. Not only this, this will also be apparently violative of the provision contained under Article 301 of the Constitution which unambiguously declares that subject to the other provisions of Part XIII of the Constitution, trade, commerce and intercourse throughout the territory of India shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. has pointed out that the fundamental rule of interpretation is that in construing the provisions of the Constitution or the Act of Parliament, the Court "will have to find out the express intention from the words of the Constitution or the· Act, as the case may be ... " and eschew the construction which will lead to absurdity and give rise to practical inconvenience or make the provisions of the existing law nugatory. A.P. Sen, J. in Organo Chemical Industries v. Union of India has stated thus: "A bare mechanical interpretation of the words 'devoid of concept or purpose' will reduce most of legislation to futility. It is a salutary rule, well established, that the intention of the legislature must be found by reading the statute as a whole. " 30. Krishna Iyer, J. has pointed out in his inimitable style I Chairman, Board of Mining Examination and Chief Inspector of Mines v. Ramjee: "To be literal ii meaning is to see the skin and miss the soul of the Regulation. " 31. True, normally courts should be slow to pronounce the legislature to have been mistaken in its constantly manifested opinion upon a matter resting wholly with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distinction pointed out above deserves a judicious consideration in the spirit of the provision contained under section 10(26). 15. The learned assessing officer, in order to refute the claim of the assessee, has relied up on the conditions laid down in Section 184 of the Act whereas such reliance has no direct nexus to the claim of exemption as made by the assessee. He has failed to rebut the submission supporting the claim of exempted entity, of the assessee with a speaking order. Justice is not only to be done but also seen to be done. The various case laws related to the issue, most importantly Mahari and Sons, Supra cited by the assessee have not been dealt with at all. 16. The nomenclature of Chapter II of the Income tax Act, 1961 is "Incomes Which Do Not Form Part Of Total Income" and section 10(26) comes under the same chapter. To get a complete understanding, Section 10(26) therefore has to be read as follows "In computing the total income of a previous year of any person, any income falling within the clause 10(26) shall not be included - in the case of a member of a Scheduled Tribe…. ….. " Emphasis is laid on the mention of wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our case the status determined is that of a Firm as per item 2(31)(iv). Now taking the spirit of the decision given in Mahari & Sons by the Hon'ble Guwahati High Court, the Learned income tax Officer should have granted exemption to a firm of tribals which otherwise conforms to the parameters of Section 10(26). In Mahari & Sons it has been clearly held that benefit of the section also accrues to Group of People, as that has been intended in the Statute. A partnership firm is not a separate legal entity distinct from its members. It is merely a collective name given to the individuals composing it. A firm cannot possess property or employ servants, neither it can a debtor or a creditor. It cannot sue or be sued by the others. Actually the property on which the resort is situated is jointly owned by both the partners viz. Shri Prabhat Dey Sawyan and Shri Wallamphang Ray. They are cousin brothers. Section 10(26) has been intended to be a beneficial provision to provide protection to the members of the Scheduled Tribe from the burden of income-tax. In this context your attention is drawn to the concluding paragraph of the order which states that In the light of forgoing discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion. In view of this, the crux of matter to be examined is whether exemption available to Tribal members in scheduled area from business ran in capacity as Individual or BOI would be available if the same is conducted through partnership firm formed by tax-exempt partners. 4.3.1 According to section 4(1) of the Act income tax is charged on person in accordance with Central Act. Person is detained u/s 2(31). The same is extracted as. under: (31) "person" includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and- (vii) every artificial juridical person, not falling within any of the preceding sub-clause From a reading of the inclusive definition, it is clear that firm has distinct identity as separate from that of Individual or BOI though outside of the income tax Act, it might not have separate legal existence. Not only is a firm recognized as separate person, the IT. Act provides for separate scheme of taxation for firms as under: 1. A firm is taxed as a separate entity. It is separate from its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividuals comprising the members of his family. The Hon'ble High Court answered the question in the affirmative for the following reasons/rationale. (i) Family is a group of blood relatives descending from a common ancestor. (ii) The exemption will be availed by father, mother and children - the immediate kindred, who live in one house. (iii) Section 10(26) is a beneficial provision and benefit is to be given to tribal people and members of Khasi tribe cannot be disentitled. From the order, it seems that the benefit has been extended from an "individual" to a "Body of Individual". The reasons why this decision cannot be extended to other "Persons", i.e. firm, company, HUF, AJP, AOP, trusts, JV etc. are as under: (i) There is very little difference between "individuals" and "Body of Individuals" in the sense that an accumulation of individuals is a B0I. That is a BOI comprises only of individuals. ii) On the other hand, an AOP, a firm, a company could contain other entities. Hence, what applies to an "individual" may well apply to its collective, i.e. a B01. But it would most certainly not apply to AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) When there is ambiguity In exemption notification which is subject to strict Interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands overruled." The aforementioned decision of as-Judge Benchy of Hon'ble Apex Court applies in fullest measure to the appeal under consideration. On strict interpretation of section 10(26), there is no reason to believe that exemption given to members of Scheduled Tribe can be extended to Partnership Firm formed by such individual tribals. 4.3.5 A/R also relied on provision of clause 13 of General Clauses Act. The said clause states that word importing masculine gender shall include females also and that singular shall include plural and vice versa. Placing reliance on this clause to mean that a partnership firm can be treated as belonging to a member of Scheduled Tribe is too far-fetched interpretation. The Income tax Act distinguished a firm and individual partners. They are to be assessed separately and at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this assessee a registered partnership firm, is not entitled for sec. 10(216) exemption under the provision of the Act. He submits that the assessee's both partners are very much eligible for the impugned exemption. They could have continued to carry on the very relief in case the income in issue would have been treated to have accrued in their individual hands. It is time and again emphasised that both these partners are members of a Scheduled tribe defined under Article 366 of the Constitution of India. And that the impugned relief would also have been extended to them in the status of "Body of individuals" qua this income arising to a schedule tribe's members since accruing them in the specified tribal area. 10. Learned authorized representative next quotes sec. 10(26) of the Act that the same applies in case of computation of total income of any "person" of a previous year who is member of a schedule tribe than to an individual assessee only. His case is that the legislature has nowhere used the clinching expression "individual" category of assessee alike that u/s 10(26AAA) sec. 87A, sec. 54(1) and sec. 54F(1) etc. Learned counsel contends that wherever the legislature has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion as beneficial in nature. 12. Mr. Modi next invites our attention to sec. 2(31) of the Act defining a "person" to include an individual, HUF, a company, a firm, an association of persons or a body of individuals (whether incorporated or not), a local authority and every artificial juristic person not falling under any of the preceding clause. He pleads that the lower authorities have erred in denying the impugned exemption benefit to a firm thereby creating an artificial definition between a body of individual and a firm whereas both of them contains joint incomes of their members and partners; respectively. 13. The assessee's next cotes hon'ble Gujarat high court's decision CIT vs. Harivadan Tribhovandas (2002) 106 ITR 494 (Guj) that a body of individuals "BOI" accruing in sec. 2(31) of the Act means a glomeration of individuals who carry on the same activity with the object of earning income. Its submissions is that a partnership firm is nothing such a glomeration of individuals only. And that sec. 2(31) of the Act imports definition of a firm, a partner and partnership from the Indian Partnership Act, 1932 only meaning thereby partners collectively are taken as a fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention to the CIT(A)'s detailed discussion extracted in the preceding paragraphs in light of hon'ble apex court's recent constitution bench's decision in M/s Dilip Kumar and Company & Ors. (Civil Appeal 3327 of 2007) dated 30.07.2018 settling the law in case of an exemption / deduction clause in a tax statute. He quotes their lordship yet another judgment in State of Punjab vs. M/s Jullandr Vegetables 1966 AIR 1295 (SC) that for the purpose of sales tax assessment, a partnership firm is a separate assessable entity distinct from its partners. We are taken to their lordship's detailed discussion declining the department's argument that a partnership firm's partners could be assessed on its behalf post dissolution as well. Their lordship hold "though under the Partnership Law, a firm is not a legal entity but only consists of individual partners for the time being, for tax law, income-tax as well as sales tax, it is a legal entity". MR. Sengupta accordingly urges us to affirm both the lower authorities' action holding the assessee as not entitled for sec. 10(26) exemption even if it is a partnership firm consisting of two partners having equal share who are themselves eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the 23rd February, 1951, issued by the Governor of Assam under the proviso to sub-paragraph (3) of the said paragraph 20 as it stood immediately before the commencement of the North-Eastern Areas (Reorganization) Act, 1971 (81 of 1971) or in the Ladakh region of the State of Jammu and Kashmir, any income which accrues or arises to him,- It is clear that the specified (a) (b) member of a Scheduled Tribe only is covered under Article 366 of the Constitution of India enjoys, exemption of his income derived from "any source in the area" and also "income from dividend or interest on securities." It transpires from a perusal of the above statutory provision that the legislature has not only granted exemption income of "any person" only but also it applies the impugned benefit in case of a member of Scheduled Tribe" only. 19. Hon'ble apex court has also been settling the relevant principles of interpretation to be adopted in case of taxation laws from time to time. Their lordships latest constitution bench's decision in M/s Dilip Kumar and Company & Ors. (supra) holds that every taxing statute including, charging, computation and exemption clause (at the threshold stage) shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that of Khasi family structure as under:- "10A. On the second count, however, we are not inclined to accept the contention of the learned departmental representative. The ordinary state of Khasi society is that of jointness, wherein the individual is not the unit of society; the families constitute the clan and the various clans constitute the society. The ancestral properties, as in the present case, are inherited and held not by an individual for her own exclusive use, but by Ka Khaddu for the benefit of the entire family, which in the case of Khasis, is matriarchal in form. Even the self-occupied property of a male Khasi, if acquired before marriage, and if he dies before getting married, goes to his mother or "Kur". The earnings of the male are regarded as part of the family earnings and are placed by him at the disposal of the mother. Even if he keeps some income for himself, on his death, his mother or h4er nearest female kur, takes it. After marriage, the Khasi husband goes to live in thehouse of the mother of his wife or in the house of his wife. Before the wife has a child, the husband uses sufficient part of is own earnings for the maintenance of his wife, the surplu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry expression "in the case of a member of Scheduled Tribe". It is in this backdrop of facts that we hold the learned co-ordinate bench's decision to be per imcuriam and not a binding precedent in view of the Commissioner of Income-tax vs. B.R. Constructions (199) 202 ITR 222 (AP) [FB]. We also wish to make it clear that the beneficial interpretation taken recourse to in the above stated decision no more holds the field going by hon'ble apex court's recent constitution bench judgment (supra). Whilst observing so, we are very much conscious of the fact that hon'ble Gauhati high court had acted as hon'ble jurisdictional high court as well till March 2013 when hon'ble Meghalaya high court at Shillong came to be established after suitable amendments in the "Constitution of India and North-Eastern Areas (Reorganisation) Acts of 1971. Be that as it may, their lordships of the hon'ble apex court have settled the law now that the benefit of doubt in relation to an exemption provision in a tax law goes in favour the Revenue / State and not to the taxpayer anymore. We follow the same to hold that the assessee's arguments that a partnership firm is "a member of a scheduled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uled Tribe" notified in Article 366 of the Constitution of India. Similar exemption clauses sec. 26A is applicable to any income accruing or arising to any source in the district of Ladakh are admittedly applicable in cases of individual; HUF, firms, association of person and company u/s 6 (1) to (4) and sec. 10(26AAA) deals with an individual only; respectively. The necessary inference that flows from a comparative analysis of all these exemption provisions is that sec. 10(26) pre-possess "any person" who is also a member of a Scheduled Tribe as against sec. 10(26A) and 10(26AAA) applicable in case of specified categories of person respectively. We also involve the doctrine of necessary implication in this backdrop that what is implied in the statute is as much a part thereof as that what is expressed. We thus find no infirmity in the CIT(A)'s lower appellate order upholding the Assessing Officer's action that the assessee is not entitled for the exemption benefit u/s. 10(26) of the Act. 25. Coming to various judicial precedents quoted at the assessee's behest (supra), we find that none of these deals with an instant of interpretation of an exemption provision in tax laws. Their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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