Exemption u/s 10(2A) applicable to Legitimate Share of Profit earned based on LLP Agreement: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that exemption u/s 10(2A) applies to a Legitimate share of profit earned based on LLP agreement.

The assessee is an individual and the source of income is from salary and share of profit from a Limited Liability Partnership (LLP). Return for Assessment was filed declaring income of Rs.52,92,490/- in which the assessee claimed exemption u/s 10(2A) of the Act for the share of profit of Rs.2,04,30,723/- from Adiman Finance Consultants Ltd. LLP.

The scrutiny through CASS followed by the issuance of notice u/s 143(2) & 142(1) of the Act. The AO observed that if the total fixed and capital contribution was considered the assessee’s contribution was only 2.78% and that of Enam Shares & Securities Pvt. Ltd. at 97.22% and held that the assessee was only eligible to receive 2.78% of the total profit Rs.5,97,867/-. The balance income of Rs.1,98,32,856/- was disallowed and denied the benefit of exemption u/s 10(2A) of the Act.

CIT(A) on appeal viewed that the assessee received the share of profit as per the terms of the LLP agreement and there was no legal bar for higher variable contribution either on sharing the profits or losses in the proportion.

The Revenue doubted the arrangement made by the assessee with the other company by way of which the assessee contributed merely 2.78% of the capital but the assessee was able to get 95% of the share of profit and alleged as a mere arrangement of funds in the guise of tax evasion.

Per contra, the assessee stated that the arrangement was made in such a way that funds will be invested by the other partner Enam Shares & Securities Pvt. Ltd. and the assessee will apply his experience and expertise in utilizing the funds for optimum returns. It was submitted that the LLP is duly assessed to tax and no additions have been made in the case of LLP.

The Tribunal observed that the LLP was regularly assessed to tax and the assessee has only received the share of profit from the LLP at the agreed rate of 95% of the profits. It was observed that the assessee being an expert in the field of management and investments joined hands with the company having funds and together after forming the LLP, they are carrying on business activity regularly.

Sri Manish Borad, accountant member & Sri Sonjoy Sarma, judicial member found no inconsistency in the order of the CIT(A) and the appeal of the Revenue was dismissed. Sh. Biswanath Das appeared on behalf of the Revenue and Sh. Manish Tiwari appeared on behalf of the Assessee.

To Read the full text of the Order CLICK HERE

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