THE HIGH COURT OF KARNAT:*\KA AT B,5\NGAi..0RE Daied this the 16"' day of February, 2019 Present 93' THE HON'BLI:' MR JUSTICE K L MANJUNA . "'2
THE H()N’BLE Mrs JUSTICE B v;k?AG;;;’zm’7’HNA’~
Income Tax Appeal / ;2″(}{}5x V
Between:
M/54 P1’abh.:1shunkau’ Phtm
# 11. : Cross. 4*” Block
Basavcshwarulmgztr
Bangakore 560 079 _
Rep by Sri K S G:1r1csh_, 333
S/0 K V S Seny ”
Appellant
(B y Sri S 1’z11″tE1L1Swz1:I;–t. Ac§x;) ‘ ‘. ..
And:
I;1″<§0'1m_: "i":».w'___(.}*i"i"i.j:-r;r
Ward Bmlgztkorsz Rcespolldc :11
( By Sh' S954§a2iCl1;1l2-;§'AdV.}
'Thi$.44"Ahp;3E;L1l .1S v!.3led under S.?,6() A of the En<:mnc-3 Tax Act prayE.ng ti)
~ . ;'s:;£..;1Si£jc the o1'dg:r E_~Jf1he ETAT, Bangalore iiaied 4.2.2()()5, em.
._ ' 'E"ihis }§.p}')e;zl cotningf. 0:1 for Elcaling this' day. 8 V .7\';1gL11';1I1111:1 }.
(i=¢'l_iv<_:1'eé:_i tE'1c" fblfawing:
/3,’.
«£3»
The Assessing Officer. after examining the ease of the 35565568-, held that the
firm and the partners being two distinei taxable entities tinder the lI1C()1T}s3..il'”~;1X
Act. the income 2-arising to each is taxable in the ll£E]lCl.\’ of the reeipj.e_r1′;.iiii’le’ss
specifically exempted under the Act and the qtéestioh of 1iiL1tuz1’i’i%__y 0f*ree’ei,r5t*
does not arise with regard to the partnership 2’ii’1e1;’is aéet.ivitieis es,th_e”s:-:i_n1e’wits
done with a profit motive. Aeet)t’di11gly, fer the 35eai’s’-_l996–‘)7′ ;t11d.Vl99″f.-;93.,
the Assessing Officer assessed the reniul iiaebme L1nde:_v\lEin§g thevil .:’;i’ld»:2i* passed by the
Commissioner of Appea%si’fQ1* theWzissevssihe11.t:7ye2irI l.§):9i6l«97 and 1997-98
rejecting the claim of’ ‘.’fiL44Itt’iAtV1v.lv_l{“},-‘ zind
as:.;esse.d the mutual income of the firm
and rental received fromlii1«»i’meii1 iil1e<l3at'::.1ls't')l' the firm.
Being aggrie"ved 'wiVth'theA~-ordei's of zEfs'SCS$mCn[._ the appellant zissessee
:_l"1led_appe§;ls~ be_ft)1'3__ the (:()iP,.!.11l':§Sl()l1CF of Appeals lbr the assessment year
l.9i9'-6-97 '£1l:'€§ Tl'4)v9'i7'–9:E§vtr3i1'ee again urging the plea of mutuality by relying upon
eertain.'dee'isi0ns <;£'ijvu_E:ous High Courts as well as of the Apes Court". The
CCl}l11'llSSl()£l€§" €)~ft Appeals. howevei; dismissed the appeals of the assessee by
.-w''"' i
t)At{l..t’3’1T.(nlz1’i{‘fl’ 21.5.2(3{l2. As against the said order, the essessee p:”€-fCt’t’Cd
a’tp.;§e21¥s;Vbel’t)1-e the Income Tax Appellate Tribunal. The TFll)Lll1’dl’ by ibllev,»-‘ing
A
/3»
It is submitted on beli21lE’0t”tl1e appellant that iii the instant case. the
§)’cll’Il1Cl’f~§hip deed which is uniiexed dis’ aiiinexure B as weii as the SLlppiC1l}Cl1Ial1′}”
deed, eieztriy indieatte. the nature. of business which is undertaken by the iirm:
that the partners LIFO ail related to one another: that the pL’tl'[l]Cl’S’,’h’&’l’¥”C
contributed to the business oi the firm and the gatefits 21i’isii’ig etit,et7._sL T’
business are divided in the respective shares ai’iio:igst the })dl’ll]{’31″S”‘._’~EVi’1£lIiiiilfity dd
not deal with any outsiders; there is no third p’c1l’:i:sf wliiehisze0n’neete:_i inthe
business of the firm and therei’0re. this iswa fit case where them t5i’i:ie’~ipie:_ tiitf
mittuality would apply and therefore, the Tt=i.biireal ought .te’%i;i:\?e g”r;.tnted the
benefit of the said principle uiiderfiyal of tlir:t”i’rie0_tiie: Tax Act 21’tt{i”t’3}{‘L’il11p[ the
income of the firm from {‘dX&1ll011.
Per cc)itt1’zt. [has stated thait. it §3Cl’LlSdi of the
various terms and e’,_(l’i’1(.i’l[l(‘)l’1S. :;43lii<t':riei"shi;) firni wcmld eleeirly indicate that
this is not 'd.(3CI1'il".C inuttlality would appiy: that in similar
li"-as said principle and has bl'()U§_._{hE the income
of stieli Eirms ad'-.t_i1§t'ziitcS._}has relied upon the decision of this court in M/s
Eirtzzpar-rzi1§izterpr'ise$"§'..-Vs Income Tax Officer in {TA 60!}/2()()4 decided on
i..:':«ii"3,7;2(}08 W'hzit;il':'}tlC'§§'_3l11Ci1¥ is delivered by this Bench. in support of his
8
On ti reading of the various elatrses; oi’ the aforesziicl agreernents. it is
clear that the nature of bLiSllit3S:~§ activities of the assessee lirm is not rext.;’ihC’ted
to the pi11′[I’t’L31’S only. The tissesxee is engagecl in the bLISinCS.\’ ti.Ef_;firt’i;5ei”e_\=
development. commission ugeiiey and other allied activities ¥’y’]}lCi’t”i:i1f5lltfS’
tieztling with third parties. 1%. also has the intentioj.’i oi’ ‘p’t:t.iliiig i’eso_{ti’ee:4.: ot’–t.he
pz11′[I’i€t’S and the funds; of the partitership firm not i’i”Y}IT1:C~dl.1l[Cl_\«’ i’et1it’i:’.ed«. iayjtlttzfi
firm, can be made use of by the partners. *.._[n”~t_l1e SL1{5l)l¢n1E?{1IilSy’iViigl;iéCI11tf[}[‘,
only with regard to the schedule buildirtg pAi.it—–titpet Féitig Stre’et.~C.’.i\:iil: Station,
Bangaiore. two of the [)L’t1’tI]t’31’H are €iI’1t”ll,1Cd”i0′ i:?<1tiix'C i.oi"–§t_ and pay tents to
the firm. This is only at deviee to tpioiol' lItx'1't3S'L')i,'1.lVi'£..'.v:_.'S my the firm to atilise the
S'c11"l"lC in its other ae–tiviti V__–.'_Tl1-:4'ratliie_i' cl_z:t.é§t:t.s of the initial pzirtnersliip
agreetnciit are to be 'i'c::idiiaie<i:"ptu1i't .att{i.p'£i'it«;el oi" the .~;upplen1enttii'y agreeineitt.
So long as there is"n;_.i isonflict. the elt1i':'::.e..s' in no way indicate that the business
of the tissessee firm is re§tt'i_eted to only the partners. Tiiei'el'oi'e.. the doctrine of
in:it.tialit.y. does not in the instant case.
FL1_i7′,l](‘3″1}._ii}§2ellIf);’}l§ii~1}”lCI1[&1i’y agrieeineitt which has been executed on
l l.l995»._ius by y\.e’»’:t’_\,-‘n{:).e~i”A;clI”¥1t3ndI”l1CF1[ so the earlier p£l1’I116l’Sl”lip deed and tliough
.:’:v$i’.«t§ ‘,t=.z,ii’ious tét’.tfri§~ of the supplementary agreeinent are in order to give the
icolot-ir_ oi’_iiiGj:Li:tlity in the business of the p2l1’E:”lt3-1’5;l1ip firm, we find that taking
£4.
‘pa*1’iieipa{(5r__%.
Hence, where am Axs0ei;1i’io11 or Cothpahy l1’d(.lC.\’ with its n’1e.1’11be1’s 01115;
and the surplus out of the eonmton fund is dismbtstztble attntmg the I”‘lf’;L3!1_:1″l3’1;:”V.S:._
{here is mtttttatlity and the >;il1’p]L13~; is not ussessublt-3 to iztx as pr01’i.’.- me’ ‘ft; ~st__.i1’r3′.
being; that there is complete identity between ilk’ 4:011?.’1″i%fitt=tdt’>;. ting! the
partieipzttorx for only those members would be e_.ntit1ec!ztio §>:;1:’it«;i{3*aate’ =ir’:-,_tl1e;V-
surplus who have contribute-d ta it as cL1st()me:!i_$.
The question whether the Doctrine ()fV”\[‘:f'[[LI'[L1E1]i{y aipgnlit-rs’t’Ln e1V’pa1*tieula1’
activity is iargely :1 question of ‘f’ae’t.’__ A’
Therefore. under the [)t>ei'(_it1é or vE\/1tttt1til’it.y.’that E’0H0wi11g three
conditions’ sho’t.11d exist. beikit’-e’ 4″t1_;t4ett.iVv’i’t’–}«’ could be brought. unéer the concept
of mL1[L1alH[yI (E) Thatt no perscfiat e»:1;i”et;.1rn froth himself”; £2) That there is no
ptfofit mo:tvéfitihntttttl {3} Tltat there is no sharing tat’ profits.
A W’1th reg;{:*t1_ttS«t]1e first condition i.e.. no person cam earn froth himself
t1’1e;11is.t11a’t, t’here'”–:z]1Vou.hJhe £1 Ct)1nph:i’t3 identity between the C()1Et1″ihti%(.)l’S and
ff’/’J
In the ca..~;e ofC1zel:ns_f?)r(l Club – 243 ITR 89, the nieaiiings of ‘mutual
concern’ and ‘principle of aiitituaility’ were explained by stating that S.2{Zr=sl_:)i’ot’
the Act shows; that the Act. recognized the principles of 11’1L1tL1ttlit~},..;,1i’1cl __ili.tfs, ii
excluded all business; involving SLlL’.ll principle from the pil[“»{VlQ\?\:”‘-“:).l.’ Act._3
except those memioraed at clause (vii) of the Section. i;~”,.fter i’e’I’citrii”lg. toiiizi;
earlier decision in CIT Vs Royal l/l*’ester:z India Tlllf;’:C;Ii~;,b Ltd _’fp9i53 24
551 (SC). the Supreme Court stated that «n
It is crystal clear that the law recognises the’prihie’i-ple-»o’E” 1nt1tE1é2″.vit.§.,-rekcltidihg
the levy of income tax from the inc’t)irie_t)f–.suci,h ivbukiiieeatto which the above
principle is applicable. in the aboveAcaae,thisi__Court;”t;tipei’¢Itii’*;e’Wliit3–lteS’a–le’ Society Ltd Vs CToininissioner of
Agricultural I T itiv.9<§3Zl i6*lTl{~.27lli.i'§C.)i'iexistei1ce of which establishes the
doctrine of 1]v1L1l_u'dlilyiii"TllCy~ are a§l_'t)ll()'ws (page 559)
('_if_t ii 'Fheiii(le1ii'tity ol"«t._he contribtitors to the fund and the recipients from the
fund'tgliitheit'reatn}eri~:of the company though incorporated as a mere entity for
the c()nifet1iicr1ce ()§"*i'l.LlCA,::lllt3lTEb(3l'S and policy holders, in other wortis. as an
"3
ll3SIl'Llll}CllI.""€)bCfllllCl'¥t"J10 their niaiidete. and in} the iii1P<.)ssibilit.}' that
-« :.L’,’Q’1-1__{1;l”§£”Lll()I’S szltoailil cferive profits from contributions made by [llL’2n1SCl\=’t3I’§ to a
‘.__i”fu_nd«whipcliiieould only be expended or returned to themselves. /5;
_’ no
l{)
A comparison of the facts and circumstances of the above noted J.-htee
decisions hats enabled us to conclude that the liissts Lllld cii”ett1t1sta:’1L’es»o'{7.thei’
éiistaiit case is not covered by the decision of the Andltra Prades-i’i_ l:ilgl1_C0ttil’it..
in Nataraj Finance Corporation ease and we are .supported in our il’i’.’:\;5′ biyvt_l§1e
principles laid down by the Hotfble Supreme Cotirt. aitd this eo–u_rt :tef’et’1’e::_i”t«o
supra. Taking into C0l1Sl(lBi’EtIl0§t the objeCtioiis..ol’ tl1e”asse:«;see.g its”._sot:t?r:c’°of
funds during the relevant years an__d the app.l.ieitbilit’y_» of sz1i’cE.,l’t1nds5tbr the
benefit of its members and keepiiigf’-E111 ntinrii the’Vir1t’e:?est ‘ti-it investments. the
decision of this Court in Ill”! l5122;;’i()y’e€.§’I)ea£t’i_& ii.SLl’flt£’rt1ilI1’1’1’-t'(lIi()11 Relief
Fund is applicable to t.he_fe. zi_i1d~.eitretimstanecsol;tlteiiiistztm case.
In this context. it wotiid_i:l>e 05 Ite’lt:vt11tCt? to rel’er to the decision of this
Court E'(‘3E1Ll€1’Vt”..{.l.l}’y’ us ll’. the ~1.Z§ti'”}C o&’.M/it Amipam iifnterprises. In the sztid ease
zijlsomhe zt’:_:isesse_e.Awe.is it 1’egist’e’i’ed’ipz-trtttersltip firm consisting of four brothers
and theii” respeeit-Eyed iigietises. The nature of the business as indicated in the said
vpVa%rt11ersl’1Aip ‘deed w’;t:~:.”j_to’:ea:’ry on the business oi money lending and trade in
V”-«_l:vi’1l)i’lCS and gilI’I’1«tBI][.\’. tn the said case also the contention i*eg;:1rdii1g
i”‘t3}(Cl”ii§3¥l()t1i”(Mt the principles of mutuality was raised by the said partnersliip
~.s’l’i.1’m’. pliiteirzg reliance on the decision rendered in the ease ot’Cr3nzmissio1:er of
Iinioirae Tax ‘Vs Bankipm’ Club I.-rd and Conm-iissioizer of 1:-icmne Tax Vs
E’/3;
Acccardiitgéy, ‘E})E1()w’i11g.g uur decision in Mfs Amzpam I1-‘F1t€i'[3f£’S£1S;,”:.'{r’¥’Cf
ctmfimt the orciirr passed by the Tribunal and dismiss the appeal ”
the qucstiott against the 1-ip;)CH;il1I assesses . ‘ ‘ 4 K
An