SHIRISHBHAI DHIRAJLAL KAPADIA HUF AND BALWANTLAL DHIRAJLAL KAPADIA HUF Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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B.V. Venkataramaiah, Accountant Member -
(1.) THESE are appeals by the assessee against the orders of the AAC holding that the ITO was justified in rejecting the assessees' applications under Section 154. The assessees are HUFs. They are partners in the firm of D. Chunnilal Dahyabhai & Shah, represented by their kartas While submitting the return for the assessment year 1975-76, the firm added a note in the statement of accounts accompanying it as follows :
(2.) The salary paid to Shri Balvantlal Dhirajlal and Shri Shirishkumar Dhirajlal has been paid in individual capacity for the service rendered. Salary was also paid by the HUF in earlier years. This revised return is submitted, including the same in the firm's total income, as there is no recognition as individual and HUF in partnership case. Hence for firm's total income same has been added. The salary has not been included in the income of HUF of Shri Balvantlal Dhirajlal and Shri Shirishkumar Dhirajlal.
Returns were filed by Shirishkumar Dhirajlal individual and HUF as also by Balvantlal Dhirajlal individual and HUF. The individual's assessments were completed including therein the salary received from the firm of D. Chunnilal Dahyabhai. The HUF's assessments were completed under Section 143(1) taking the share income of the kartas as determined in the firm's case. The assessee applied for rectification of their assessments requesting that salary from the firm should be deleted as the same has been included in the individual assessments. This was negatived by the ITO. The AAC agreed with the ITO on the ground that there was no mistake apparent from records. The assessees are in appeal before us.
2. The contention on behalf of the assessee is that they had brought to the notice of the ITO that the salary was paid to the individuals by the firm and not to the HUFs, but the legal requirements required the addition of the salaries paid to the income of the firm. In reality the salary belonged to the individuals. An assessment had been made in the hands of the individuals including the salary and as such the salary income could not be taxed at two places. The inclusion of salary in the hands of the individuals was quite proper and hence the same had to be deleted from the income of the HUFs. Reliance was placed on the decision of the Supreme Court in the case of Mahendra Mills Ltd. v. P.B. Desai, AAC  99 ITR 135.
The learned departmental representative argued that there were no mistakes apparent from record. The assessees were partners in the firm. Their share income had to be determined in the assessment of the firm. The salary had been included in the hands of the partners. The share thus determined had to be transported without any modification to the assessments of the partners. What the assessees were urging was a reconsideration of the issue of taxing the salary in the hands of the partners by reference to different records. The record of the individuals cannot be taken as forming part of the record of the HUFs and as such the Supreme Court decision in Mahendra Mills' case (supra) was not applicable.
(3.) WE have considered the rival submissions. In our opinion, the revenue has proceeded on extremely technical grounds. While submitting the return the firm had clearly indicated that the salary paid to Shirishkumar and Balvantlal was in their individual capacity. It had made the assessments of the individuals including the salary income. In our opinion, the record of the firm, the HUFs and the individuals have to be considered as one record as the assessment of the HUFs, and individuals are intimately connected with the assessment of the firm. The principle stated in Mahendra Mills' case (supra) would apply to the present case also. In that case a change in the value of the closing stock for one year was considered to be a mistake apparent from record justifying the rectification of the value of the opening stock for another year. If the revenue's interpretation is correct, one could say that the mistake should be apparent from the record of that particular year. In the sense that a change in the facts relating to one year affects another year as a mistake apparent from record, it would be perfectly justifiable to hold that a finding in one case can be the cause for rectification in a connected case. The ITO having once accepted that the salary was received by the individuals on the basis of the statements made by the firm, cannot tax the salary again in the hands of the HUFs. The mistake is apparent from record. WE direct that the amounts added by way of salary in the case of the HUFs be deleted.;
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