Commissioner of Income Tax vs Ideal Entertainment P. Ltd.

M.M. Sundresh, J.—The appeal has been filed by the revenue challenging the order passed by the Tribunal in ITA. No. 1897/Mds/2008

whereby the order passed by the Commissioner of Income Tax (Appeals)-VI was confirmed. The revenue while filing this appeal has raised the

following substantial question of law:

Whether on the facts and circumstances of the case, the Tribunal was right in holding that Assessee Company is entitled for deduction towards

interest income from Kailas Projects, an Association of Persons as per the provisions of Section 86.

The facts in brief are as follows:

The Assessee was a member of an association of persons titled Kailas Project. The assessee received interest from the said association of persons

and claimed the said amount towards exemption u/s 86 of the Income Tax Act. However, the Assessing Officer has disallowed the claim of the

assessee on the ground that the provisions of Section 86 of the Income Tax Act can be made applicable only to the assessee who is not a

company or co-operative society. Therefore, inasmuch as the assessee is a company, the Assessing Officer has held that the provisions of Section

86 of the Income Tax Act are not applicable to it. However on appeal, the Commissioner of Income Tax (Appeals) has allowed the claim and

deleted the additions made by the Assessing Officer. Not satisfied with the same, the revenue took the matter on further appeal before the Tribunal

and the Tribunal on a consideration of Section 86 and comparing the same with Section 40(ba) of the Income Tax Act has concurred with the

decision of the Commissioner of Income Tax (Appeals) by holding that a reading of Section 86 would clearly show that there is no bar for the

assessee to claim the benefits provided thereunder. Challenging the same, the revenue has come up on appeal by raising the substantial question of

law referred above.

In order to appreciate the contentions of the learned Counsel appearing for the appellant, it is useful to extract the provisions of Section 86 of

the Income Tax Act which is as follows:

Where the assessee is a member of an association of persons or body of individuals (other than a company or a co-operative society or a society

registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India),

Income Tax shall not be payable by the assessee in respect of his share in the income of the association or body computed in the manner provided

in Section 67A:

Provided that,

(a) where the association or body is chargeable to tax on its total income at the maximum marginal rate or any higher rate under any of the

provisions of this Act, the share of a member computed as aforesaid shall not be included in his total income;

(b) in any other case, the share of a member computed as aforesaid shall form part of his total income:

Provided further that where no Income Tax is chargeable on the total income of the association or body, the share of a member computed as

aforesaid shall be chargeable to tax as part of his total income and nothing contained in this section shall apply to the case.

A perusal of the above said provision would clearly show that in the case where the assessee is a member of association of persons, income tax

was not to be payable by the assessee in respect of his share in the income of the association or body in the manner provided u/s 67A of the Act.

The exclusion provided under the section that other than the company or the co-operative society or a society registered under the Societies

Registration Act, 1860 would be made applicable only to the association of persons or a body of individuals and not to the member. In other

words, if the association of persons or a body of individuals happened to be a company or a co-operative society or a society registered under the

Societies Registration Act, then in such an eventuality the member, who is also an assessee is not entitled to get the benefits provided u/s 86 of the

Act.

Further, a reading of Section 40(ba) of the Act would also make it clear that the share of the assessee under the income of association of

persons shall not be taxable. Hence, a combined reading of the above said provisions would make it clear that there is no bar for a private

company like the assessee from getting the benefits of Section 86 of the Act.

It is a well settled principle of law that in order to interpret a taxing statute, a literal interpretation will have to be given while interpreting the

same. Unless the interpretation would lead to manifest in justice or absurdity such an interpretation cannot be given other than the literal

interpretation. Therefore, considering the well settled principles of interpretation, we are of the opinion that the decision made by the Tribunal while

confirming the order of Commissioner of Income Tax (Appeals) does not warrant any kua interference. Accordingly, we do not find any merit in

the appeal. Hence, the appeal is dismissed and the substantial question of law raised is answered in favour of the assessee and against the revenue.

No costs.