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TMI Blog1990 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... isting of 13 partners, a registered firm, is an assessee in the books of the Agricultural Income-tax Officer, Nagercoil-1, and that the said Officer has determined the net agricultural income as Rs. 10,73,379 for the assessment year 1983-84 and as Rs. 10,46,733 for the assessment year 1984-85. All the 13 partners had been individually permitted to compound the tax for both the assessment years 1983-84 and 1984-85. The two reasons given by the Commissioner for issuing the show-cause notice are as follows : (1) The 13 partners have no proportionate share of the land in the firm. The exact share had been arrived at by taking into account the profit-sharing ratio which is not valid in law. (2) The partner of a registered/unregistered firm can apply for compounding only if he has two sources of income, (a) the land held by him individually, (b) his proportionate share of the land held by the firm. All the partners sent a common reply through their advocate on December 29, 1986. It was contended in the reply that the law requires only specification of the individual shares of the partners in the registered firm. It can only mean the share of profit or loss in the firm. On the second poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representatives in proportion to their shares in the partnership." Learned counsel for the petitioners relies upon section 46 of the Partnership Act and argues that the word " right " means the share of the partner in the firm. We have given our anxious consideration to the arguments of learned counsel for the petitioners and the reasoning of the Commissioner in holding that because partners' share in terms of lands have not been distinctly and specifically mentioned in the document, they are ineligible for the benefit of composition is not a correct statement of law. So long as it is possible to find out the proportionate share of the partner in the land held by the firm, we are of the opinion that the partner is entitled to the benefit of composition. Therefore, the first reasoning of the Commissioner does not appeal to us and we accept the argument of learned counsel for the petitioners on this aspect. Mr. K. J. Chandran, learned counsel appearing for the partners of the said M/s. Kamadhenu Estates places before us the Division Bench judgment in Tax Case (Revision) No. 1298, etc., of 1989, dated March 21, 1989, R. Anandakumar v. State of Tamil Nadu [1992] 196 ITR 219 (Mad). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources and looked at from that point of view, the absence of individual holding of the partner would preclude him from claiming composition of the agricultural income-tax liability. Otherwise, a partner, who does not own any land individually, would nevertheless be entitled to claim the benefit of composition and that would amount to dispensing with the requirement regarding the holding of lands individually by a partner which is one of the essential requirements to be fulfilled and that would also run counter to the latter part of section 65(3)(a) of the Act. " Therefore, the Division Bench held that, in cases where a partner had both lands held by him in his individual capacity and also the proportionate share of the land held by a firm, such a partner will be eligible for compounding the tax under section 65(3) of the Act. In the following tax cases, it is seen that the petitioners satisfy both the above conditions and, therefore, they are entitled to have the benefit of composition and the Commissioner had erred in cancelling the orders under section 65(3) passed by the Agricultural Income-tax Officer. Tax Cases (Revision) Nos. 432 and 434 of 1990 are, therefore, allowed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay apply for permission to compound the agricultural income-tax payable by him on the aggregate of the income derived by him from (a) the land held by him individually ; and (b) his proportionate share of the land held by the firm. The section does not say that if and only if a partner has got two sources of income as aforesaid, he will be eligible to apply for permission to compound. On the other hand, the right to apply is clearly specified in the first part of the section. The second part of the section relating to aggregation of the two sources of income for the purpose of the applicability of the correct rate of composition fee is only the procedure for assessing the composition fee. We are of the opinion that the second part of the section cannot be put in the forefront to mean that unless the two sources are available to a partner, he cannot apply for composition. We must, therefore, have a second look at the judgment of the Division Bench to find out the reason which compelled them to take such a decision. The following observation of the Division Bench is the basis on which the entire edifice is built (at page 224) " While enabling the assessees to take advantage of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the learned judges seem to think that, if all the partners of a firm do not have individual holdings and all the partners are permitted to compound the tax, it would tantamount to the firm itself being permitted to compound the agricultural income-tax which is not permitted under section 65(3). Here again, we are unable to see how, if all the partners of a firm having only a share in the lands held by the firm are permitted to compound tax, it would tantamount to the firm itself being allowed to compound the tax. Secondly, we do not see anything wrong if all such partners are given the benefit of compounding because the law permits the same. Therefore, with due respect, we are unable to agree with the reasoning of the Division Bench judgment when they held that a partner having only a proportionate share in the land held by the firm and not having any individual holdings is not entitled to the benefit of section 65(3) of the Act. There is also one other reason why we feel a partner having only a proportionate share of the land held by the firm, without individual holdings, should be permitted to compound the tax under section 65(3). Section 65 of the Act seems to enable all per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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