Partners’ shares of agricultural income from the firms cannot be included for rate purpose while computing their other income.
ASSISTANT COMMISSIONER OF INCOME TAX vs. SMT. CHANDRI N. SHAH
ITAT, NAGPUR BENCH
K.P.T. Thangal, J.M.
ITA Nos. 602 & 603/Nag/1996; Asst. yrs. 1993-94 & 1994-95
30th November, 1998
(1998) 17 CCH 0337 NagTrib
(1999) 65 TTJ 0840 : (1999) 71 ITD 0231
Legislation Referred to
S 1992FA 2(9)(d), 1992FA SCH. I, PART IV, RULE 2, RULE 5, 1994FA SCH. I, PART IV, RULE 5, 10(2A)
Case referred to
CIT vs. T.V. Sundaram Iyengar & Sons (P) Ltd. 1976 CTR (SC) 25 : (1975) 101 ITR 764 (SC)
Counsel appeared:
Pradeep Hedau, for the Appellant : C.P. Jain, for the Respondent
ORDER
K.P.T. THANGAL, J.M.: :
*Also see Asstt. CIT vs. Smt. Amrit Arvind Shah (ITA Nos. 604 & 605/Nag/1996; Asst. yrs. 1994-95 & 1995-96).
Order
These appeals are by the Revenue and pertain to the asst. yrs. 1993-94, 1994-95 and 1995-96. The issues involved in these appeals being similar, they were heard together and are being disposed of by this consolidated order for the sake of convenience.
- The only effective common ground urged by the Revenue for all the years under consideration is against the orders of the learned CIT(A) in treating the assessees’ shares in agricultural income of Rs. 2,16,838 and Rs. 1,33,740 from the firm (in the case of Smt. Chandri N. Shah) and Rs. 96,815 and Rs. 1,46,186 from the firm (in the case of Smt. Amrit Arvind Shah) are not to be taken for rate purposes as per the provisions of s. 10(2A) of the IT Act, 1961.
- In the case of Smt. Chandri N. Shah, the assessee filed the return for the asst. yr. 1993-94 on 23rd Sept., 1993, declaring total income at Rs. 1,27,770 and agricultural income at Rs. 2,16,838. For the asst. yr. 1994-95, the assessee filed the return of income on 31st Aug., 1994, declaring total income of Rs. 2,55,710 and agricultural income at Rs. 1,33,740. In the case of Smt. Amrit Arvind Shah, the assessee filed the return for the asst. yr. 1994-95 on 24th Aug., 1994, declaring total income at Rs. 3,21,720 and agricultural income at Rs. 1,07,688. The AO for this year has taken the agricultural income at Rs. 96,816 for rate purposes. For the asst. yr. 1995-96, the assessee declared the income of Rs. 4,69,110 and agricultural income at Rs. 1,46,187.
- The assessee were asked to state the reasons as to why the agricultural income shown by them should not be included for the rate purposes. It was submitted that the agricultural income did not form the part of the total income of the assessee as per s. 10(2A) of the IT Act, 1961, and hence the same cannot be considered for rate purpose because of s. 10(2A) of the Act. However, the AO rejected the contentions of the assessee and held that the agricultural income has to be considered in the hands of the assessee for rate purposes. He, accordingly, included the agricultural income shown by the assesses for all the years under consideration for rate purpose.
- When the matter was carried before the learned CIT(A), it was contended that with the insertion of s. 10(2A) with effect from the asst. yr. 1993-94, in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm shall not form part of total income of the partner. As per s. 2(9)(d) of Finance Act, 1992, the net agricultural income of a person was to be computed in accordance with the rules contained in Part-IV of the First Schedule, it was contended. It was further contended that as per the provisions of r. 5 of Part IV of First Schedule, nothing contained in the rule shall apply for computing the agricultural income of the assessee in relation to the assessment year commencing on or after 1st April, 1993. When the agricultural income of the firm was not to be considered as agricultural income of the partners, question of aggregating such agricultural income for rate purposes in the hands of its partners did not arise. Accepting the above, submissions, the learned CIT(A) decided the issue in favour of the assessee on the following lines:
“The submissions are acceptable. The assessee had no agricultural income of her own. The share in agricultural income from the firm was not to be aggregated for rate purpose in view of s. 10(2A), with effect from 1st April, 1993, and omission of s. 67 and r. 5 of Part IV of First Schedule of Finance Act, 1992, with effect from the same date. Accordingly, the AO was not justified in considering the assessee’s share in agricultural income from the firm, in which she was a partner, for rate purpose, in both the years.”
It is against these orders, the assesses are in appeal before the Tribunal.
- The learned Departmental Representative, relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons (P) Ltd. 1976 CTR (SC) 25 : (1975) 101 ITR 764 (SC) wherein it has been held that if the language of the statute is clear and unambiguous, and if two interpretations are not reasonably possible, it would be wrong to discard the plain meaning of the words used in order to meet the possible injustice. Getting support from the decision, the learned Departmental Representative submitted that the only income that may not be included in the total income is the agricultural income. Agricultural income is defined in s. 2(1A) of the IT Act, 1961. Under the Finance Act, 1992, the net agricultural income is defined as under :
“2(9)(d) ‘net agricultural income’, in relation to a person, means the total amount of agricultural income, from whatever source derived of that person computed in accordance with the rules contained in Part IV of the First Schedule.”
Coming to Part IV of the First Schedule, the learned Departmental Representative submitted that in the instant case of the assessee r. 2 is applicable which reads as under :
“Rule 2—Agricultural income of the nature referred to in sub-cl. (b) or sub-cl. (c) of cl. (1A) of s. 2 of the IT Act (other than income derived from any building required as a dwelling house by the receiver of the rent or revenue or the cultivator or the receiver or rent-in-kind referred to in the said sub-cl. (c) shall be computed as if it were income chargeable to income-tax under that Act under the head “profits and gains of business or profession” and the provisions of ss. 30, 31, 32, 36, 37, 38, 40, 40A (other than sub-ss. (3) and (4) thereof) 41, 43, 43A, 43B and 43C of the IT Act shall, so far as may be, apply accordingly.”
Therefore, the learned Departmental Representative submitted that the order of the AO may be restored.
- Countering the above submissions, the learned authorised representative for the assessees submitted that as far as the assessees are concerned, newly inserted s. 10(2A) with effect from asst. yr. 1993-94 is applicable. For every year, Finance Act provides the system of calculating agricultural income. Sec. 2(9)(d) of the Finance Act, 1992, provides that net agricultural income in relation to a person, means the total amount of agricultural income from whatever sources derived of that person computed in accordance with rules contained in Part IV of the First Schedule.” The authorised representative for the assessee further submitted that in case of an HUF, a company or a firm, agricultural income earned by these three entities will be considered in the hands of its members, its shareholders or its partners. Therefore, it is evident that agricultural income by a firm shall not be considered as agricultural income in the hands of its firm. If the agricultural income of a firm cannot be considered as agricultural income of its partners, then the question of aggregating such agricultural income for the rate purpose is also out of question. Thus, the learned representative summed up the arguments as under:
(a) The assessees have no agricultural income;
(b) The share in agricultural income from the firm, in which the assessee is a partner, should not be aggregated for the rate purpose in view of s. 10(2A) with effect from 1st April, 1993 i.e., from the asst. yr. 1993-94 and omission of s. 67 and r. 5 of Part IV of First Schedule of Finance Act, 1992, with effect from same date i.e., 1st April, 1993.
Thus, the learned authorised representative for the assessee submitted that the orders of the CIT(A) may be upheld.
- I have heard the rival submissions and gone through the orders of the Revenue authorities. After giving careful consideration, I am of the view that the order of the CIT(A) is to be confirmed. Sec. 2(9)(d) of the Finance Act, 1992, provides that net agricultural income in relation to a person means the total amount of agricultural income from whatever sources derived of that person computed in accordance with the rules contained in Part-IV of the First Schedule. The learned Departmental Representative’s argument that as far as the assessees are concerned, definition given in s. 2(1A) applies is a difficult proposition to accept. It defines only what is the agricultural income means and it does not form a part of the assessment procedure. Sec. 2(1A) defines “agricultural income” and “agricultural income” means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. This definition has widened the scope of agricultural income which includes rent and revenue derived from the land. Sub-cl. (b) of this section states that it includes any income derived from such land. Rates of income are provided in the Finance Act and newly inserted s. 2(9)(d). I have already noted it provides that “net agricultural income” should be computed in accordance with rule contained in Part IV of the First Schedule. The learned Departmental Representative’s argument is that as far as the assessees are concerned, since s. 2(1A) is applicable, the net agricultural income should be computed under r. 2 of Part-IV of Schedule I. Rule 2 provides that agricultural income of the nature referred to in sub-cl. (b) or sub-cl. (c) of cl. (iA) of s. 2 of the IT Act [other than income derived from any building required as a dwelling house by the receiver of the rent or revenue or the cultivator or the receiver of rent-in-kind referred to in the said sub-cl. (c)] shall be computed as if it were income chargeable to income-tax under that Act under the head “profits and gains of business or profession” and the provisions of ss. 30,31,32,36,37,38,40,40A [other than sub-ss. (3) and (4) thereof] 41,43,43A,43B and 43C of the IT Act shall, so far as may be, apply accordingly. It is further to be noted that the assessee’s income is not type of income that referred in s. 2(1A). I am of the view that the learned CIT(A) has taken the correct view and applied r. 5 as far as these assessees are concerned. Rule 5 reads as under :
“where the assessee is a partner of a registered firm or an unregistered firm assessed as a registered firm under cl. (b) of s. 183 of the IT Act, which in the previous year has any agricultural income, or is a partner of an unregistered firm which has not been assessed as a registered firm under cl. (b) of the said s. 183 and which in the previous year has either no income chargeable to tax under the IT Act or has total income not exceeding the maximum amount not chargeable to tax in the case of an unregistered firm but has any agricultural income, then, the agricultural income or loss of the firm shall be computed in accordance with these rules and his share in the agricultural income or loss of the firm shall be computed in the manner laid down in sub-s. (1), sub-s. (2) and sub-s. (3) of s. 67 of the IT Act and the shares so computed shall be regarded as the agricultural income or loss of the assessee:
Provided that nothing contained in this rule shall apply for computing the agricultural income of the assessee in relation to the assessment year commencing on or after the 1st day of April, 1993.”
It is not disputed that the assessees are the partners of the firms. As per this rule, the assessees’ share in the agricultural income or loss of the firm shall only be computed in the manner laid down in sub-s. (1), sub-s. (2) and sub-s. (3) of the IT Act and the shares so computed shall be regarded as the agricultural income or loss of the assessee. Proviso to this section further states that nothing contained in this rule shall apply for computing the agricultural income of the assessee in relation to the assessment year commencing on or after the 1st day of April, 1993. Therefore, it makes clear that in the case of the assessees, r. 5 shall be applicable. Sec. 10(2A) inserted w.e.f. 1st April, 1993, reads as under :
“in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm shall not form part of total income of the partner”
Explanation : For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits.”
Therefore, it is clear that on or after from 1st day of April, 1993, the agricultural income of the firm is not to be regarded as agricultural income or loss of its partners. The Finance Act, 1994, amended the r. 5 of Part IV of Sch. I which reads as under :
“Rule 5—Where the assessee is a member of an AOP or a BOI (other than an HUF, a company or a firm) which in the previous year has either no income chargeable to tax under the IT Act or has total income not exceeding the maximum amount not chargeable to tax in the case of an AOP or a BOI (other than an HUF, a company, or a firm) but has any agricultural income, then, the agricultural income or loss of the association or body shall be computed in accordance with these rules and the shares of the assessee in the agricultural income or loss so computed shall be regarded as the agricultural income or loss of the assessee.”
The above rule makes it clear that in case of an HUF or in case of a company or in case of a firm, the agricultural income earned by these three entities shall not be considered in the hands of its members, its shareholders or its partners as share of agricultural income. Therefore, it leads to the conclusion that this income shall not form part of the agricultural income of the partner of a firm for the rate purpose in the partner’s hands.
- In view of the above clear position of the law, I am of the view that the learned CIT(A) was well justified in directing the AO not to include the assessees’ shares of agricultural income from the firms for rate purpose while computing their other income. The orders of the CIT(A) are upheld in both the cases of assessees.
- In the result, the appeals by the Revenue fail and are dismissed.
