1. The appeal of the revenue is directed against the order dated 22nd January, 1990 of the Deputy Commissioner of Income-tax (Appeals), Rohtak. The dispute is relating to allocation of share amongst the partners of the firm.
2. The assessee had made a claim under Section 32AB which was allowed by the Assessing Officer in computing income of the firm. This deduction, however, was added back for the purpose of apportionment of shares amongst the partners. Aggrieved by the action of the Assessing Officer, the assessee appealed to the first appellate authority. The Deputy Commissioner (Appeals) relying upon a decision of the Commissioner of Income-tax (Appeals), Karnal, in the case of M/s. Life International, Karnal allowed the appeal of the assessee and directed the Assessing Officer not to include the deduction allowed to the firm under Section 32AB while making the share allocation. The revenue is aggrieved.
3. It was contended before us that under Section 32AB deduction is permissible to the firm only and that no deduction is permissible to the partners.
4. We have given our careful consideration to the rival submissions.
Section 32AB has been incorporated by the Finance Act of 1986 with effect from 1-4-1986 providing for deduction out of income from profits and gains of business or profession subject to fulfilment of certain conditions. Since the assessee has fulfilled the conditions as provided under Section 32AB deduction was allowed to the firm. A proviso has been inserted by the Finance Act of 1987 with effect from 1 -4-1987, which reads as under:- Provided that where such assessee is a firm or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member of such firm, association of persons or body of individuals.
5. The issue before us is as to whether the Assessing Officer was justified in allocating the income of the partners after adding back the deduction allowed under Section 32AB in the case of the firm. In this connection, it is necessary for us to consider the provisions of Section 182. Section 182 as applicable for assessment year 1988-89 reads as under:- Assessment of registered firms-(1) Notwithstanding anything contained in Sections 143 and 144 and subject to the provisions of Sub-section (3), in the case of a registered firm, after assessing the total income of the firm,- (i) the income-tax payable by the firm itself shall be determined; and (ii) the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly.
6. In thiscase, the Assessing Officer after having computed the income of the firm has determined the income-tax payable by the firm itself.
The next step as per Section 182 is to include the share of each partner in the income of the firm in his total income and to be assessed accordingly. There is no room for making the adjustment of deduction allowed in the case of the firm under Section 32AB. Once the income of the firm is assessed, the share income has got to be allocated in accordance with Section 182. The question of double deduction under Section 32AB would arise in the cases of partners of the firm and not in the case of the firm itself. As far as the firm is concerned, it is not disputed that the deduction under Section 32AB is permissible. Proviso to Section 32AB comes into operation only in computing income of the partners of the firm. The language of the proviso is unambiguous and the emphasis is on "deduction" under Section 32AB in the computation of income of the partner. When income of the firm is determined under Section 143(3) or 144 the share has to be allocated amongst the partners under Section 182 and thereafter, if deduction is claimed by the partner under Section 32AB, such deduction is prohibited as the similar deduction has been allowed in the case of the firm. The proviso inserted by the Finance Act of 1987, in our view, is to prevent double deduction, once in the hands of the firm and then again in the hands of the partners. This could be possible but for the proviso if the ratio of the Supreme Court in the case of CIT v.Ramniklal Kothari [1969] 74 ITR 57 is taken into consideration. In the said case, their Lordships of the Supreme Court have held that the business carried on by the firm is also business carried on by the partners. The partners as such could claim deduction under Section 32AB by making a deposit in IDBI in respect of share income of the firm.
This has been prohibited by the proviso to Section 32AB. The proviso, however, in our considered opinion, does not empower the Assessing Officer to act contrary to Section 182 of the Act. The Assessing Officer having acted in contravention of provisions of Section 182, the Deputy Commissioner (Appeals) was justified in reversing his order and directing to allocate the income of the firm amongst the partners without adding back deduction allowed to the firm under Section 32AB.We, accordingly, uphold his decision.
7. We may point out that in the case of Life International the Tribunal in [IT Appeal Nos. 1318and 1319 (Delhi) of 1990) for assessment years 1986-87 and 1987-88 has taken the same view. In U.P. Dyeing & Printing Works [IT Appeal No. 7822 (Delhi) of 1989] for assessment year 1987-88, "C" Bench of the Tribunal has also decided the issue in favour of the assessee.