The Delhi bench of the CESTAT comprising Judicial Member Mr. Ashok Jindal and Technical Member Mr. C J Mathew held that since the Partner and a Partnership Firm are inseparable and one would cannot provide service to oneself, there is no service element in the role of a partner in the Firm, for the purpose of imposing service tax under the Finance Act, 1994.
The appellant, Gautham Bhattacharya approached the Tribunal contending that he is a partner of partnership firm alongwith other partners and they received certain renumeration and distribution of profit and same amount is shown as profit in their income tax returns. The said amount is nothing but a renumeration received as a partner of the partnership firm and they have not provided any service to anybody else except to their partnership for which they are the owners.
The department was of the view that the appellants had filed their income tax returns showing components such as ‘sale of services’, against which partners have shown certain amount received from the partnership firm as their income. Therefore, relying on the said income tax returns, the department demanded service tax on account of sale of service under the Finance Act, 1994.
According to the appellant, no service tax is payable by the appellant. He further drew our attention to the decision of Hon’ble Mumbai High Court in the case of Amrish Rameshchandra Shah vs. Union of India and Others in Writ Petition No.387 of 2021, order dated 8.3.2021, who is another partner in the same partnership firm and the Hon’ble High Court directed to withdraw the show-cause notice against the said partner. He further submits that in another partner of the same partnership firm, in the case of Shri Nambiseshan Balaji, the Deputy Commissioner, Anna Nagar Division, Chennai has also dropped the show-cause notice vide Order-inOriginal No.5/2022 dated 27.1.2022.
The appellant further relied on the Apex Court decision in Commissioner of Income Tax, Madras vs. R. M. Chidambaram Pillai and Others wherein it was held that any renumeration received by a partner of a partnership firm is not a service i.e., only a share in the profit of the partnership firm.
Allowing the contentions of the appellant, the Tribunal held that the service recipient at the best in this case is only a partnership firm.
“The partner of a partnership firm is none other than the same, therefore, one would cannot provide service to oneself. As there is no recipient of service in this case, no service has been provided by the appellant. In the income tax returns, the figures shown by the appellants as sale of service is just a portion of the profit earned by them from the partnership firm. In that circumstance, on merits itself, the appellants are not liable to pay service tax,” the bench said.
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