Commissioner of Income Tax, Poona vs Bharat Auto and Metal Works

Bharucha, J.—The question to be answered in this reference under s. 256(1) of the I.T. Act, 1961, reads thus :

"Whether the assessee-firm was entitled to relief under s. 84 of the Income Tax Act, 1961, in its assessment, though similar relief was allowed by the Income Tax Officer in the assessments of the partners ?"

The assessee is a partnership firm consisting of three partners. It set up a new industrial undertaking in the accounting year relevant to the assessment year 1967-68. The ITO allowed partial exemption from tax under s. 84, relating to the income of newly established industrial undertakings, in the assessments of the assessee''s partners, but did not allow it in the case of the assessment of the assessee. He gave no reasons for such disallowance. The assessee preferred an appeal. The AAC allowed the appeal and granted to the assessee the relief under s. 84. He based his conclusion upon the judgment of the Gujarat High Court in Commissioner of Income Tax, Gujarat Vs. Arun Industries, The Revenue appealed to the Tribunal and the Tribunal, again relying upon Arun Industries'' judgment, affirmed the AAC''s conclusions. At the instance of the Revenue, this reference has been made.

In Commissioner of Income Tax, Gujarat Vs. Arun Industries, , which dealt with the provisions of the Indian I.T. Act, 1922, it was held that since Income Tax was payable by a registered firm, it was an assessee. It was, therefore, entitled to claim exemption under s. 15C of the 1922 Act from payment of tax in respect of the amount of exempted profits in the determination of the tax payable by it even if such exemption had been given to its partners in their individual assessments. Where a registered firm manufactures or produces articles in an industrial undertaking, each of its partners does so and is, therefore, an assessee within the meaning of s. 15C(1) and would be entitled to claim that no tax was payable by him in respect of his share of the exempted profits. The registered firm and its partners being distinct and separate assessee, the registered firm and its partners were entitled to claim exemption under s. 15C(1) in their respective assessments. In Commissioner of Income Tax Vs. Bharat Bhandar, the Allahabad High Court dealt with the provisions of the present Act. In the case before it, the ITO has held that the assessee, which was a registered firm, was entitled to claim rebate under s. 84, but he apportioned the amount of exemption in the hands of the individual partners. On second appeal, the Tribunal held that the firm should have been allowed the benefits in its assessment. The High Court affirmed the Tribunal''s view and held that the relief under s. 84 was to be allowed in the hands of the registered firm as it in no uncertain terms provided for grant of relief and exemption to the assessee. The fact that the ITO had granted exemption in other hands was no reason to deny to the assessee the benefit to which it was entitled. We find that be Circular No. 123 dated October 31, 1973, issued by the Central Board of Direct Taxes to all Commissioners of Income Tax [1973] 92 ITR 6, the Allahabad High Court judgment just mentioned has been accepted by the Board which had decided that the law laid down therein should be applied to all cases covered by s. 15C of the 1922 Act and s. 84 of the present Act.

One more judgment may be referred to. It is of the Delhi High Court in CIT v. Ramlal Rajgharia & Sons [1980] 123 ITR 1. A firm had been granted relief under s. 84 of the I.T. Act, 1961, in respect of the profits derived from its industrial undertaking. Its partners had claimed in their individual assessments that their share of income derived from the firm was also eligible for exemption under s. 84. The Tribunal accepted their contention. A reference was sought. The Delhi High Court referred to the judgments we have cited above and affirmed the view taken there.

We are convinced of the correctness of the reasoning of the aforesaid judgments and we accept the same. There can be no question but that the assessee before us was entitled to relief under s. 84 even though its partners had been allowed such relief.

Accordingly, the question posed is answered in the affirmative, i.e., in favour of the assessee.

There shall be no order as to the costs of the reference.