1972 (5) TMI 5 - HC - Income Tax

Company entitled to 30% tax rebate for partnership in manufacturing firm. Partners considered engaged in manufacturing business.

The court ruled in favor of the assessee-company, determining that it was entitled to a rebate of 30% in the computation of corporation tax based on its ... Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee-company derives income from manufacturing or processing of goods and that the rebate should be allowed at 30 per cent - We, accordingly, answer the question in the affirmative in favour of the assessee and against the department - Question answered in the affirmative Issues:1. Whether the assessee-company is entitled to a rebate of 30% in the computation of corporation tax based on its engagement in manufacturing or processing of goods.Detailed Analysis:The judgment was delivered in response to a reference made by the Commissioner of Income-tax, Kanpur, seeking the opinion of the court on whether the Income-tax Appellate Tribunal was correct in allowing a rebate of 30% to the assessee-company. The assessee, a private limited company, was a partner in a partnership firm engaged in manufacturing business. The Income-tax Officer had initially allowed a rebate of 20% in the corporation tax assessment for the assessee. However, the assessee contended that it should be entitled to a higher rebate of 30% due to its partnership in a manufacturing firm. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim, stating that the company itself was not directly engaged in manufacturing and thus not eligible for the higher rebate.The Income-tax Appellate Tribunal, in its decision, held that the assessee should be deemed to be engaged in manufacturing business based on its partnership in a manufacturing firm, as established in a previous order for a different assessment year. The Tribunal also determined that the case fell within the purview of section 154, allowing for corrections of apparent errors. The primary issue before the court was whether the assessee was entitled to the 30% rebate as claimed. The court analyzed the provisions of the Finance Act, 1964, which specified rebate rates for companies engaged in manufacturing or processing of goods. The court noted that the assessee's only source of income was its share in the partnership firm, which was involved in manufacturing operations.The court referred to legal principles established in previous cases, such as the definition of partnership under the Indian Partnership Act and the concept that a business carried on by a partnership firm is essentially the business of the partners. Citing precedents, including Sitaram Motiram Jain v. Commissioner of Income-tax and Commissioner of Income-tax v. Arun Industries, the court affirmed that each partner of a firm engaged in manufacturing should be deemed to be engaged in the same business. Consequently, the court concluded that the assessee-company should be considered engaged in manufacturing business and thus entitled to the 30% rebate.In conclusion, the court answered the question in the affirmative, ruling in favor of the assessee and against the department. The court also awarded costs of the reference to the assessee.