1. The Cuttack Bench of the Income-tax Appellate Tribunal has stated this case under Section 256(1) of the I.T. Act of 1961 (hereinafter referred to as 'the Act'), at the instance of the assessee and has referred the following question for the opinion of the court:
' Whether a partner is entitled to exemption under Section 80L of the Income-tax Act in respect of interest earned by the firm on bank deposits held in its name '
2. The short facts relevant for- answering this question are these : The assessee is a HUF. The relevant year of assessment is 1975-76 with the previous year ending on March 31, 1975. The HUF represented by the karta was a partner of the firm, M/s. Setty Ramayya Patra & Co. The firm received interest on bank deposits during the year and the assessee claimed relief under Section 80L of the Act in respect of the share in the interest received by the firm by way of exemption. The ITO disallowed the claim, but the AAC accepted the assessee's stand and directed that relief under Section 80L of the Act should be given to the assessee in respect of that portion of the bank interest which fell to his share. The revenue appealed to the Tribunal, but the decision of the AAC was upheld. The Tribunal took the view :
' We have heard the contentions of both the parties and have gone through the facts on record. We find that Section 80L of the Act grants exemption up to Rs. 3,000 for any income by way of interest on deposits with a bank. There is no dispute that the amounts on which exemption was claimed were received as interest from the bank. There is also no dispute that the amount in respect of which the exemption is claimed by each of the six assessees together with such interest earned by each of them separately did not exceed the maximum limit of Rs. 3,000. The dispute is as to whether the interest earned by the firms and allocated to the partners could still be said to be interest received from the bank by the partners for purposes of Section 80L of the Act. We find force in the reasoning given by the Appellate Assistant Commissioner. There is no difference between the firm and the partners so far as the acts of the firm are concerned. We also find that Section 67 of the Act lays down the methpd of computation of the partner's shares in the income of the firm. Section 67(2) of the Act states that the share of a partner in the income of the firm shall, for purposes of assessment, be apportioned under the various heads of income in the same manner in which the income of the firm has been determined under each head of income. The Income-tax Officer has computed the income in question under the head ' Other sources ' in the case of the firm and then apportioned the same to the partners. The mere fact that the interest earned by the firm has been taken into account in the assessment made under the Income-tax Act in the case of the firm does not, in any way, alter its basic character. In other words, the interest from the bank received by the firm remains as such in the hands of the partners after apportionment. In this view of the matter, we agree with the finding of the Appellate Assistant Commissioner. It is significant to note that the language used in Section 80L of the Act is ' any income by way of...'. The section does not say that the exemption is limited to any income received as interest on deposits made by the individual himself. Considering all the facts and circumstances of the case, we have no hesitation in upholding the order of the Appellate Assistant Commissioner. '
2. Section 80A(1) of the Act provides :
' In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter the deductions specified in Sections 80-C to 80-VV.'
3. Therefore, it is the assessee alone who is entitled to the benefit of the deductions. Section 80L, as far as relevant, provides:
' 80L. Deductions in respect of interest on certain securities, dividends, etc.--(1) Where the gross total income of an assessee, being-...
includes any income by way of--...
(vi) interest on deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies...;
there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction as specified hereunder, namely :--
(a) in a case where the amount of such income does not exceed in the aggregate three thousand rupees, the whole of such amount; and
(b) in any other case, three thousand rupees. '
4. There is no dispute before us that the firm is an assessee in terms of s, 2(7) of the Act. Section 67 of the Act provides the method of computing a partner's share in the income of the firm. Sub-section (2) thereof provides:
' The share of a partner in the income or loss of the firm, as computed under Sub-section (1) shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which income or loss of the firm has been determined under each head of income. '
5. Strong reliance has been placed by the Tribunal and the assessee's counsel on this provision for the stand that when in the hands of the partner the various heads of income of the firm are to be apportioned, the benefit under Section 80L which relates to one of the heads being ' Income from other sources ', must be available. Admittedly, there is no direct decision on the point. Reliance has been placed by the assessee's counsel on a decision of the Gujarat High Court in the case of CIT v. Arun Industries : 61ITR241(Guj) and a decision of the Allahabad High Court in the case of CIT v. Smt. Sakuntala Banerjee : 120ITR837(All) , for the stand that the firm and the partner are one and the same and no distinction can be drawn between the two. The observations in the reported decisions have been made in some other connection. Admittedly, the partners are agents of the firm and a partnership is the totality of the partners who are its constituents. Law is settled that an exemption provision has to be strictly construed and when the statutory mandate is that the assessee shall have the benefit of the exemption, we do not think, any person other than the assessee can enjoy the benefit. There is no dispute that the firm and the partners constituting the firm are separate assessees. Section 67 makes provision for the manner of assessment of the partners. Sub-section (2) does not provide any material relevant for deciding the question in issue. In our view, the AAC and the Tribunal clearly went wrong in coming to hold that the benefit of exemption under Section 80L of the Act admissible to a firm as the assessee is extendable to the partners constituting the firm notwithstanding the fact that such partners are assessees different from the firm.
6. We would, therefore, answer the question referred to us against the assessee by saying that a partner is not entitled to the exemption under Section 80L of the Act in respect of interest earned by the firm on the bank deposits held in its name.
7. There would be no order for costs.
J.K. Mohanty, J.
8. I agree.