1971 (11) TMI 20 - HC - Income Tax

Rebate given to a firm for export - Whether Tribunal is justified in law in directing that export profit rebate has to be allowed to the assessee-firm also in addition to that allowed to the partners - question referred to us has to be answered in the affirmative, that is, against the department and in favour of the assessee - firm and the partners will be entitled to the benefit of rebate under section 2(5)(i)

Summary

Issues:
Interpretation of section 2(5)(i) of the Finance Act, 1963 regarding export profit rebate entitlement for a registered firm and its partners.

Analysis:
The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, regarding the entitlement of export profit rebate to a registered firm and its partners. The question referred was whether the Appellate Tribunal was justified in directing that export profit rebate should be allowed to the assessee-firm in addition to that allowed to the partners. The firm's income included profits from the export of goods out of India, making it eligible for the deduction under clause (i) of sub-section (5) of section 2 of the Finance Act, 1963.

The Income-tax Appellate Tribunal allowed the deductions under the section, but complications arose due to the partners also being given the benefit of the section in their assessments. The Tribunal held that both the firm and the partners are entitled to the benefit of the section, relying on a decision of the Gujarat High Court. The court in the referenced case concluded that both the firm and the partners are entitled to the benefit of the relevant section in their respective assessments.

The High Court analyzed the nature of the income and the legal entity of a firm for income-tax purposes. It determined that if the total income of the firm, including export profits, is divided among the partners, the partners' shares will contain profits from export, entitling them to the benefit of the section. The court rejected the argument that partners' share income cannot include export profits since the export was done by the firm.

The court distinguished this case from previous decisions concerning deductions under the Income-tax Act, emphasizing that the deduction under the Finance Act is a relief from tax imposable on the assessee, not a deduction from income. Ultimately, the court answered the question in the affirmative, ruling in favor of the assessee and against the department. No costs were awarded, and the judgment would be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.