REFERENCE APPLICATION NO.6/LB OF 2000 VS REFERENCE APPLICATION NO.6/LB OF 2000
2001 P T D (Trib.) 2065
[Income-tax Appellate Tribunal Pakistan]
Before Mazhar Farooq Sherazi, Accountant Member and
Zafar Ali Thaheem, Judicial Member
Reference Application No.6/LB of 2000, decided on 24/03/2001.
(a) Income-tax---
----Reference application---Question of fact---Question for reference to the High Court was as to whether the Tribunal was justified in holding that the firm and individual partners were not two separate legal entities was a question of fact---Question framed being a question of fact could not be referred to the High Court for opinion.
PLD 1985 Tsar. 83; 1980 CLC 1300; PLD 1956 SC (Ind.) 873 and PLD 1979 SC 815 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
---Ss.12(18-A) & 136---Addition---Reference---Assessment year 1994-95-- Firm---Lady partner---Loan from husband of lady partner who resided out of Pakistan---Treatment of the amount of loan as loan from partner----Addition of amount received as loan from the husband of the lady partner on account of having not been repaid within five years was deleted by the First Appellate Authority on the ground that the provisions of S.12(18-A) of the Income Tax Ordinance, 1979 were not applicable because the receipt of foreign remittance was admitted three years earlier---Appellate Tribunal maintained the Appellate Order holding that firm and individual partners were not two separate legal entities because the amount in question was received by the firm only from one of its partners whose husband had advanced the same---Question, whether the Tribunal was justified in holding that loan received from husband of a partner could be treated as loan received from the partner of the firm was put by the Department for reference as a question of law---Validity---Loan was a foreign remittance which was received during the period from 13-6-1981 to 14-6-1988 and at that time the provision of S.12(18-A) was not in existence and at the time of re-assessment the provisions of S.12(18-A) stood deleted vide Finance Act, 1996---Order of the Appellate Tribunal did not hit the provisions of S.12(18-A) of the Income Tax Ordinance, 1979, therefore, the question raised by the Department was a question of fact and not question of law arising out of the order of the Tribunal---Reference application was rejected by the Appellate Tribunal in circumstances.
Javed Aziz, D.R. for Applicant.
Mirza Muhammad Waheed Baig for Respondent.
ORDER
By this reference application for the assessment year 1994-95 the department wants this Tribunal to refer following questions of law, which the Revenue feel arise out of the order of the Tribunal ---I.T.A. No.3885/LB of 1999, dated 1-7-2000:---
Questions:
(i)Whether under the law and circumstances of the case the learned Tribunal was justified in holding that the firm and individual partners are not two separate legal entities?
(ii)Whether under the law and circumstances of the case the learned Tribunal was justified in holding that loan received from husband of a partner can be treated as loan received from the partner of the firm?
Statement of the Case.
2. The assessee is a registered firm deriving income from manufacturing of medicines. Assessment for the year under reference was finalised under section 62 at a total income of Rs. 13,87,663 against the declared Rs: 136,742. The assessee had claimed that the firm had received a loan of Rs. 12,09,465 from a brother of the partners and husband of a lady- partner, residing outside Pakistan. The Assessing Officer by resorting to provisions of section 12(18A) of the Income Tax Ordinance, 1979 added the alleged loan as the assessee firm had failed to repay the loan. The CIT(A), Multan deleted the entire addition of Rs.12,09,465 holding that provisions of section 12(18A) were not applicable because the receipt of foreign remittances was admitted to be three years earlier. The department agitated the deletion of addition and the Tribunal maintained the appellate order and dismissed the department appeal holding that firm and individual partners are not twoseparate legal entities because the amount in question was received by the firm only from one of its partners i.e. Mrs. Fayyaz Haider whose husband Dr. Fayyaz Haider had advanced the money:
3. We have heard the arguments of the learned D.R. and learned A.R. of the assessee/respondent.
4. The learned D.R. has argued that the Tribunal while disposing of departmental appeal did not appreciate the legal position of issue in the instant case. He further contended that the Tribunal did not at all appreciate the fact that source/mode of advancement was not questioned, bur the legal issue in the case was non-repayment of loan within the period of five years which squarely hit the provisions of section 12(18A). The learned D.R. has claimed that for the foregoing reasons the questions framed by the department are questions of law, as the law point is involved, which may be forwarded to the Honourable High Court for the opinion of their lordships.
5. On the other hand the learned A.R. of the assessee/respondent has opposed the arguments of the learned D.R. The learned A.R. has argued that the questions raised by the Revenue through reference applications are being based on the questions of facts which are not liable to be adjudicated by the Hon'ble High Court. Regarding question No. l he has supported the order of the Tribunal on the ground that the firm and the individual partners are not two separate legal entities. He has claimed that a firm is not an entity; it is merely a collective name for the individuals who are members of the partnership, which is neither a legal entity nor, is it a person. He further added that a firm name, in truth, is merely a description of the individuals who compose the firm and have agreed to jointly own property and do business to share the profit. Its rights and liabilities are the rights and liabilities of the partners and are enforceable by or against them individually. Therefore, under the law, there can be no recognition of a firm composed of an individual and a firm. In support of his arguments he has placed reliance on the following judgments: ---
(i) PLD 1985 Kar. 83 (D.B.);
(ii) 1980 CLC 1300,
(iii) PLD 1956 SC (Ind.) 873, and
(iv) PLD 1979 SC 815.
The view-point adopted by the superior Courts in aforementioned case-law has been summarized by the learned A.R. of the assessee as under:----
A, firm is not a legal entity but only consists of the individual partners for the time being. The essential characteristic of a firm is that each partner is a representative of the other partner. Each of the partners is an agent and a principal. He is an agent in so far as he can bind the other partners by his acts within the scope of the partnership business and he is a principal to the extent that he is bound by the acts of the other partners. The liabilities of a firm can be enforced against each of the partners personally.
He further contended that the legislature has laid down the provision of section 77(3) of the Income Tax Ordinance, 1979,to safeguard the State Revenue.
6. After hearing the arguments of both tote sides and perusal of the case law we are of the view that the Tribunal, in its decision (supra) has rightly held that the firm and the individual partners are not two separate legal entities. Therefore, we hold that the question No. 1 is a question of fact which cannot be referred to the Honourable High Court for the opinion of their lordships. Hence rejected.
7. Regarding question No.2 the learned D.R. argued that the Tribunal while disposing of the appeal of the department has not appreciated the legal position of issue in the instant case. He has contended that advancement of loan/funds is not a question but the legal issue is non-repayment of loan within a stipulated period of five year which hits the provisions of section 12(18A) of the Income Tax Ordinance, 1979. In view of the said position, he has claimed, the issue required further adjudication by the Honourable High Court on the question of law.
8. The learned A.R. of the assessee/respondent has stated that in our Islamic society due to the customs and manners of the country the women are; as a special privilege, exempted from the appearance generally in public and particularly in physical participation in the business. As such, women are usually dormant partners in the partnership business called in common parlance as firm. This legal phenomenon has been duly considered by the legislature and also judiciary. For the said reason, the learned A.R. claimed, they are exempt from personal appearance in the Courts under section 132 of C.P.C. Nevertheless they are to safeguard their revenue interests and avoid the losses, if any. So, in case of any exigency, if she is required to contribute the other partners/firm, she can, manage the funds through anybody preferably her husband or other blood relations avoiding her personal appearance. Likewise, she can conduct her business affairs through her husband/brother etc. In view of the factual position stated above, the learned A.R. has strongly contended that the Tribunal has rightly held that loan received from the husband of a partner can be treated as loan received from the partner of the firm. Therefore, the question does not contain any element of law which may be referred to the Honourable High Court for further adjudication.
9. We have heard the rival arguments of the parties and examined the records available before us. From examination it has been noted that the loan was a foreign remittance which was received during the period from 13-6-1981 to 14-6-1988 and at that time the provision of section 12(18A) was not in existence. Moreover, at the time of re-assessments the provisions of section 12(18A) stood deleted vide Finance Act, 1996. In view of the said position we are of the considered view that the order of the Tribunal cited supra does not hit the provisions of section 12(18A) of the Income Tax Ordinance, 1979. Therefore, the question raised by the department at Serial No.2 is a question of fact. No question of law arises out of the order of the Tribunal which can be referred to the Honourable High Court for their consideration:
10. For the foregoing reasons and discussion the reference applications are hereby rejected.
C.M.A./M.A.K./80/Tax(Trib.)Applications rejected.