1980 (4) TMI 152 - AT - Income Tax

Summary

Issues:
Computation of tax at 65% instead of 55% for the assessment year 1975-76.

Detailed Analysis:
The dispute in this case revolves around the computation of tax at 65% instead of 55% as claimed by the assessee for the assessment year 1975-76. The assessee, a private limited company, became a partner in a firm named Kohinoor Paint Colour and Varnish Works. The share of profits specified for the company was 1/6th. The Income Tax Officer (ITO) assessed the income at Rs. 62,679, charging tax at 65%. The assessee contended that being a manufacturing company, the correct tax rate should have been 55%. The ITO rejected this contention, leading to an appeal to the Appellate Assistant Commissioner (AAC).

The AAC upheld the ITO's decision, stating that as the only source of income for the assessee during that year was the share from the registered firm, it could not be considered an industrial company eligible for the lower tax rate of 55%. The assessee then appealed to the Tribunal, arguing that the business of the firm should be deemed to be carried on by the assessee as a partner, citing relevant case laws.

The Tribunal considered the submissions and relied on the proposition of law established by the Supreme Court in CIT vs. Ramniklal Kothari, which states that the business carried on by a firm is deemed to be carried on by the partners. Since the firm in question was a manufacturing concern, the assessee company, being a partner, should also be treated as a manufacturer. The Tribunal also referred to a decision of the Allahabad High Court supporting this interpretation. Additionally, the fact that the assessee was charged tax at 55% in the subsequent assessment year further supported the claim that it should be treated as a manufacturing concern for tax purposes.

Based on the established legal principles and the specific circumstances of the case, the Tribunal allowed the assessee's claim and held that the correct tax rate applicable should have been 55%. Consequently, the appeal was allowed in favor of the assessee.