JUDGMENT
1. There are seventeen appeals in all in this bench. Four of these appeals are filed by the Revenue. They are directed against two similar but separate orders of the CIT(A)-II, Hyderabad, both dated 14-5-1996, concerning two assessees, viz., Shri Satishchandra Modi (HUF) and Shri Satishchandra Modi (Ind.). The remaining thirteen appeals are filed by five different assessees, and they are directed against similar but separate orders of the Dy. Commissioner (Appeals), Hyderabad, all dated 23-12-1996. Since the issue involved in all these seventeen appeals is common, and the assessees concerned in all these appeals are connected with each other, being partners of the firm M/s. Meera Industries, these appeals are being disposed of by this common order for the sake of convenience.
2. The point involved in all these appeals is very simple. The firm, M/s. Meera Industries, of which the assessees concerned in all these appeals, as noted above, are partners, approached the Settlement Commission with an application under Section 245C on 25-5-1984, and the Settlement Commission disposed of the same by its order under Section 245D(1) dated 3-6-1992. After determining the income of the assessee-firm, M/s. Meera Industries, the Commission had allocated the total income of the firm after firm’s tax, among the partners under Section 158, which for the assessment year 1984-85 read as under :–
ALLOCATION
Sl No.
Name, of partner
% of share
Share of Profit
Interest
Total
1.
Geetha M. Desai
15W
58,869
22,243
81,112
2.
Satish Modi
HUF
25%
98,117
719
98,836
3.
Kantilal B. Desai
HUF
10%
39,247
13,225
52,472
4.
Satish Modi
Ind.
25%
98,117
13,028
1,11,145
5.
Sudha B. Desai
10%
39,247
4,201
43,448
6. Subodh Desai
HUF
596
19,623
3,475
23,098
7. Valmik Desai
HUP
5*
19,623
3,442
23,065
8, Vinod Desai
HUF
5%
19,623
3,430
23,053
3,92,466
63,763
4,56,229
Similar allocation of income among the partners for other years was also made by the Settlement Commission.
3. Thereupon, the Assessing Officer passed orders under Section 155 in the cases of the respective partners, enhancing their share incomes from the firm. Subsequently, the Assessing Officer rectified the orders under Section 155 on the ground that the assessee-partners were liable to pay interest under Section 245D(6A) of the Act, and by mistake the same was not charged while revising the incomes of the assessees under Section 155 of the Act. The assessees objected to the proposals for rectification on the ground that the party who approached the Settlement Commission under Section 245C was only the firm, M/s. Meera Industries, and the partners of the said firm never approached the Commission, and so, even though the share incomes of the partners were liable to be revised in the light of the order of the Settlement Commission, they cannot be charged with interest under Section 245D(6A) of the Act. The Assessing Officer rejected these contentions of the assessce. Elaborate reasons were given by the Assessing Officer in his order under Section 154 dated 13-2-1995 in the cases of Shri Satishchandra Modi (HUF) for the assessment years 1981-82, 1982-83 and 1983-84. This order was followed in the cases of other assessees, though it was not specifically stated to be so. Thus, the orders under Section 155 were rectified under Section 154, and interest under Section 245D(6A) was charged in the individual assessments of the partners.
4. When the above orders under Section 154 were questioned by the assessee-partners, the Commissioner (Appeals) who disposed of the appeals concerning Shri Satishchandra Modi (HUF) for the assessment years 1980-81, 1981-82 and 1983-84 and Shri Satishchandra Modi (Ind.) for the assessment year 1984-85, accepted the contentions of the assessee, by his orders dated 14-5-1996. In brief he held that even though the application under Section 245C in the case of M/s. Meera Industries was moved through the instrumentality of the partners, it cannot be held that the partners themselves were not parties before the Settlement Commission, and the order under Section 245D(4) passed by the Settlement Commission related to the party before it only, viz., M/s. Meera Industries, and it has no direct bearing at all on the individual partners of the said firm. So, it was held that it was only the firm M/s. Meera Industries, which was liable to pay interest under Section 245D(6A) and the partners could not be made liable to pay interest under that section, He also observed
that the issue, at any rate, is controversial and so, the orders of the Assessing Officer under Section 154 rectifying the earlier orders under Section 155, were invalid. The CIT(A) thus deleted the interest charged under Section 245D(6A) in the cases of Shri Satishchandra Modi (HUF) and Shri Satishchandra Modi (Ind.). Aggrieved by the action of the CIT(A) in these matters, the Revenue preferred appeals. ITA Nos. 1533 to 1536/ H/96, before this Tribunal.
5. While the matter was decided in favour of the assessees by the CIT(A) in the cases of the two assessees before him, a contrary fate awaited the cases of other set of partners, whose appeals went before the Dy. Commissioner (Appeals). The Dy. Commissioner (Appeals) referred to the order of the CIT(A), but preferred to take a contrary view in the matter. Her observations in the case of one of the partners, viz. Shri Vinod K. Desai, in her order dated 23-12-1996 are extracted below-
“… I beg to differ from the decision taken by the Commissioner of Income-tax (Appeals)-II, relied upon by the appellant. A firm is a compendium of partners, and the partners are jointly and severally responsible for all activities undertaken by a Firm, as well as its statutory obligations. The interest in the impugned case has been charged on the appellant’s share only, for which the appellant is individually responsible by virtue of being a partner in the Regd. Firm M/s. Meera Industries. Therefore, if the Firm has filed an application before the Settlement Commission, and if the Firm is obliged to pay interest under Section 245D(6), it is imperative that the partners should pay such interest similarly on their individual enhanced share income, irrespective of the fact that no separate application was moved by the partners before the Settlement Commission. Since the Firm is a compendium of partners (which is settled law), the partners are individually and jointly liable to pay interest, and not the firm alone. In essence, any decision taken in respect of the Firm extends to its partners also, and no separate filing of application is called for in the partners cases, when the Firm’s affairs, are covered by the order of the Settlement Commission.
The Asstt. Commissioner of Income-tax has therefore rightly charged interest under Section 245D(6A) of the order of the Settlement Commission passed in the case of the firm M/s. Meera Industries is also equally applicable to all its partners.
In conclusion, I hold that the interest has been rightly charged in the appellant’s case, and the Asstt. Commissioner’s of Income-tax action in resorting to Section 154 for rectifying the consequential order is, therefore, confirmed.
The orders under Section 154 for the two assessment years are therefore confirmed, and the two appeals are dismissed.”
Similar views are expressed by the Dy. Commissioner (Appeals) in the appeals concerning the other assessees before her. She thus, confirmed the action of the Assessing Officer in passing the orders under Section 154 and charging interest under Section 245D(6A) in the cases of the five
partners who were in appeal before her. Aggrieved by the orders of the Dy. CIT(A) in this behalf, these five assessee-partners preferred the appeals. ITA Nos. 521 to 533/Hyd/97 before this Tribunal.
6. Before us, the learned Departmental Representative supported the orders of the Assessing Officer passed under Section 154, in all these cases. His contention is that a firm is only a compendium name of its partners, and the partners do not have any separate existence. The order under Section 245D(4) passed in the case of the firm M/s. Meera Industries, according to the learned Departmental Representative, holds good and is equally binding on the partners so far as their share incomes are concerned. So, he submitted that the partners are also liable to pay interest under Section 245D(6A) just as the firm is liable. It is also mentioned that the concerned partners have not disputed the order under Section 245D(4) and the distribution of share income among the partners in terms of Section 155 therein. So, there is no reason for them to dispute the charging of interest under Section 245D(6A), which is only consequential, according to him. It is also mentioned that in its application before the Settlement Commission, the firm M/s. Meera Industries, made the following prayer –
“the Hon’ble Commission would he pleased, not to impose any penalty or any other liabilities on the applicant and the partners under the Income-tax Act, in respect of the aforementioned assessment years and also grant immunity to it and its partners from prosecution for any offence that might be alleged to have been committed under the Income-tax Act, 1961 or any other Central Act for the time being in force.”
In the light of the above prayer made before the Settlement Commission, it is pleaded that as the firm pleaded for immunity for its partners also, the partners are liable to pay interest under Section 245D(6A) as a natural consequence of the order of the Commission.
7. The learned counsel for the assessee on the other hand, pleaded that it is settled law that the firm and partners are separate assessable entities under Income-tax Act, and it is also accepted practice that if the partners want to approach the Commission, they do so on their own. In the present case, the appellant before the Settlement Commission is the firm alone.
It is also pleaded that the Settlement Commission has no jurisdiction over the affairs of the partners, when the application before it was filed by the firm only. It is also mentioned that the enhancement in the share incomes of the partners was because of specific provisions of Section 55 and not simply because of the fact that the order under Section 245D(4) in the case of the firm was passed by the Commission. He submitted that the order of the Commission under Section 245D(4) was applicable to the case of the firm alone, and it has no binding effect on the partners, except to the extent warranted by the provisions of Section 155. So, it is pleaded that charging of interest under Section 245D(6A) was not valid. It is also mentioned that at any rate, the issue relating to chargeability of interest
under Section 245D(6A) in the cases of partners is a controversial one, and so, beyond the scope of the provisions of Section 154, under which only the mistakes apparent from record could be rectified.
8. We are inclined to agree with the view taken by the Commissioner (Appeals) in his orders dated 14-5-1996. Admittedly, the partners were not the appellants before the Settlement Commission. The revision of share incomes of the partners consequent upon the order of the Settlement Commission, is as warranted by the provisions of Section 155. Thus, the revision of share incomes of the partners as a fallout of the order of the Settlement Commission is because of the specific provisions of Section 155. The fact that the order of the Settlement Commission under Section 245D(4) was followed by changes in the share incomes of the individual partners does not in any way lead to the conclusion that the provisions of Section 245D(6A) are also applicable to the partners. There is no statutory warrant for this inference. The provisions of Section 245D(6A) read as under-
“245D…………..
(6A) Where any tax payable in pursuance of an order under Sub-section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then, whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid.
(7)…………..”
It may be observed that the provision comes into picture when the tax payable in terms of and in pursuance of an order under Section 245 is not paid by the assessee within 35 days of the receipt of the copy of the order by him. Admittedly, the assessee before the Settlement Commission is the firm, M/s. Meera Industries, and the order under Section 245D(4) passed by the Commission is received by the firm only. Even if the order is received by one of the partners, it is received by him only on behalf of the firm and not in his individual capacity as a partner of the firm. Under Section 245C, an assessee may approach the Settlement Commission at any stage of the case relating to him by an application in the prescribed form. In the present cases, the application in the prescribed form is made by the firm, M/ s. Meera Industries and not by the individual partners who are distinct assessable entities under the Scheme of the Income-tax Act. The partners conceivably can have other income apart from share income, and so, their status as separate assessees cannot be whittled away.
9. The allocation of the share incomes among the partners ordered under Section 245D(4) by the Settlement Commission, does not make the said order, an order passed in the cases of the partners directly. It remains an order passed in the case of the applicant before the Settlementp
Commission, viz. M/s. Meera Industries. Its slope get extended to the assessments of the partners only because of the specific provisions of Section 155(1), which read as under-
“155. (I) Where in respect of any completed assessment of a partner in a firm it is found-
(a) on the assessment or reassessment of the firm, or
(b) on any reduction or enhancement made in the income of the firm under this section, Section 154, Section 250, Section 254, Section 260, Section 262, Section 263 or Section 264, or
(c) on any order passed under Sub-Section (4) of Section 245D on the application made by the firm,
that the share of the partner in the income of the firm has not been included in the assessment of the partner or, if included, is not correct, the Income-tax Officer may amend the order of assessment of the partner with a view to the inclusion of the share in the assessment or the correction thereof us the case may be; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the financial year in which the final order was passed in the case of the firm.
(2)………”
It may be seen that an amendment of an assessment of the partner consequent to an order under Section 245D passed by the Settlement Commission on an application of the firm, is specifically provided in clause (c) of Section 155(1). It is this statutory authority that extends the scope of the order under Section 245D(4) in the case of a firm to its partners, by way of revision of their share incomes. No such provision is made to extend the scope of the provisions of Section 245D(6A) to the partners of the firm, which approached the Settlement Commission with an application.
10. In the light of the foregoing discussion, we are of the view that the order of the CIT(A) dated 14-5-1996 impugned in ITA Nos. 1533 to 1536/ Hyd/96, lays down the correct position of law. At any rate, the issue is controversial and beyond the scope of the provisions of Section 154, again, as held by the CIT(A) in that order. We accordingly uphold the orders of the CIT(A) and reject the contentions of the Revenue in those appeals.
11. In view of the above, the orders of the Dy. CIT(A) dated 23-12-1996 impugned in all other appeals are liable to be set aside. We accordingly set aside the same and delete the amounts of interest charged under Section 245D(6A) by the Assessing Officer in his orders under Section 154 in those matters.
12. In the result, Revenue’s appeals, being ITA Nos. 1533 to 1536/H/96 are dismissed and assessee’s appeals being ITA Nos. 521 to 533/Hyd/97 are allowed.