Published on: 27 September 2023 at 11:20 IST
Court: High Court of Gauhati
Citation: Radha Krishna Jalan V. Commissioner of Income-Tax (2007)
Hon’ble High Court of Gauhati has held that a “Partnership Firm” can become a partner cum shareholder of an another “Partnership Firm”. It is further held that Partnership Firm who is a Partner in another “Partnership Firm” will enjoy the benefits of exemption of Income Tax under aegis of Section 10(2) of the Income Tax Act, 1963.
27. This anomalous and illogical consequence has arisen because of refusal to consider M/s. Radha Krishna Jalan, the appellant firm as a partner of the main partnership firm M/s. Rook International for the limited purpose of section 10(2A) of the Income-tax Act, 1961. This is evidently not only contrary to the facts available on record, but also to the scheme of the Income-tax Act as well as the principles of diversion of income by overriding title. This refusal has ended in double taxation.
The legal fiction created for non-application of the provisions of section 10(2A) on the ground that the appellant firm is not a partner of the main partnership has ushered in an absurd situation contrary to the facts as well as the provisions of the Act. The note of discord has to be tuned with the legislative intent as reflected in the scheme of the Act.
To obviate this absurdity, we hold that a sub-partnership which is in receipt of the share of profit of a partner in the main partnership, has to be deemed to be a partner in the main partnership for the limited purpose of section 10(2A). Else, the absurdity will continue.
The contention of the Revenue that the appellant firm not being a partner of the main partnership will not be entitled to the benefit of section 10(2A) is not accepted for the reason that it is totally in disharmony with the scheme of the Act. For the reasons above, we answer the questions formulated in both the appeals in favour of the assessee and against the Revenue. Consequently, we set aside the order dated, 17th September, 2003 passed by the Income-tax Appellate Tribunal, Guwahati Bench, Guwahati in I.T.A. Nos. 49(Gau.)/2001 and 33 (Gau.)/2001.
Drafted By Abhijit Mishra