Exemption u/s 10(26) Not Available to Firm Even If All Partners are Members of Scheduled Tribe | ITAT

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  • Last Updated on 26 March, 2024

tax exemption u/s 10(26)

Case Details: Hotel Centre Point v. ITO - [2024] 160 taxmann.com 604 (Guwahati-Trib.)

Judiciary and Counsel Details

    • Rajpal Yadav | Vice-president, Sanjay Garg | Judicial Member & Dr Manish Borad, Accountant Member
    • Sanjay Modi, FCA for the Appellant.
    • Arun Bhowmick for the Respondent.

Facts of the Case

The assessee partnership firm was running a hotel business under the name and style of M/s Hotel Centre Point at Shillong. It consisted of two partners, and both the partners were brothers and belonged to the Khasis tribe, which is enlisted as a Scheduled Tribe in the State of Meghalaya and is covered under Clause (25) of Article 366 of the Constitution of India

The assessee claimed that because partners are individually exempt under section 10(26), a partnership firm comprised of those same partners should also be exempt. However, the Assessing Officer (AO) rejected the assessee’s claim.

Aggrieved by the order, the assessee preferred an appeal to the CIT(A). The CIT(A) allowed the claim of exemption under section 10(26) and the matter reached before the Tribunal.


The Tribunal held that a partnership firm is considered a separate entity for tax purposes under the Income Tax Act. This means it is subject to its own set of rules regarding tax rates, deductions, and allowances, distinct from those applicable to individuals. Deductions or exemptions available to individuals cannot be transferred to or used by the firm, and vice versa.

Section 5 of the Indian Partnership Act clarifies that a partnership is formed through a contract between partners, not by their status as members of a Hindu Undivided Family (HUF) or the same family. Therefore, even if the partners of a firm are siblings or spouses, their relationship does not impact the firm’s status or tax liability.

The exemption under section 10(26) has been specifically conferred on members of the Scheduled Tribe residing in the specified area. This exemption cannot be extended to another separate and distinct person.

The advantages and disadvantages conferred under the Income-tax Act on separate classes of persons are neither transferrable nor inter-changeable. The scope of the beneficial provisions cannot be extended to a different person, even after liberal interpretation, as it may defeat the mechanism and process provided under the Income Tax Act for the assessment of different classes/categories of persons.

Therefore, the benefit of exemption under section 10(26) as available to the individual members of the Khasi tribe cannot be extended to the firm.

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