Share profit From Partnership Firm exempted u/s 10 (2A) of Income Tax Act: ITAT [Read Order]

In a recent ruling the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that share profit from partnership firm is exempted under Section 10 (2A) of Income Tax Act, 1961.

The assessee was engaged in the business of manufacture of thermo equipment. Since the assessee had stopped business in the past, it had let out its properties and earned rental income from them. During the year under consideration, the AO noticed that the assessee did not declare rental income from one of the office premises titled as “Marathon Innova A-902”. The assessee submitted that the above said property has remained vacant during the whole of the year and hence rent was not received.

The Assessing Officer observed that the ALV of the property should be computed @ 8.5% of the value of the property. Accordingly, he determined the ALV of the property at Rs.20, 60,713/-, which was computed at 8.5% of the value of property. After allowing deduction of Rs. 30% of the annual letting value towards repairs under Section  24 of the Income Tax  Act, Further determined the rental income accessible under the head Income from house property in respect of the above said property at Rs. 14,42,499/- and assessed the same.

As per Section 10(2) of the Income Tax Act, the amount received by any member of a Hindu Undivided Family (HUF) from the family income, or an impartible estate, out of the income of the family estate is exempt from income tax.

Further provided an exemption for the share of profits received by a partner from a partnership firm or a limited liability partnership (LLP). The exemption was applicable only to the share of profits received by the partner and does not extend to any other income earned by the partner, such as interest on capital or remuneration received from the firm or LLP.

The two member bench of the tribunal comprising Aby T. Varkey (Judicial member) and B.R.Baskaran (Accountant member) observed that the share of profit received from a partnership firm is exempted under section 10(2A) of the Income Tax Act and hence, even if any part of the above said expenditure is related to the share of profit received from a partnership firm, the same is liable to be disallowed, since the expenditure incurred in earning exempt income was not allowable as deduction.

To Read the full text of the Order CLICK HERE

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