9911796707
TMI Blog1972 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowing the exemption in respect of Rs. 25,000 being the general exemption granted to a registered firm and whether the interpretation placed on the Finance (No. 2) Act of 1967 read along with section 114 of the Income-tax Act is in accordance with law? " Two brothers, K. I. Viswambharan and K.I. Sukumaran, formed a partneership and carried on business in the firm name " K. I. Viswambharan & Bros.", Ernakulam. In the year 1960, a building was purchased in the name of K. I. Viswambharan, one of the partners, with funds belonging to the partnership concern and both partners fixed up residence in that buildging. In the partnership records, the building was shown as an asset of the firm and the price paid as well as the costs incurred later on in effecting certain improvements thereto went into the partnership accounts. On June 20, 1966, the house property was sold by the firm for an amount of Rs. 45,000. For the purposes of the assessment for the year 1967-68, the assessee-firm estimated the cost of the building and improvements thereto at Rs. 15,000, and deducting such outlay from the total sale consideration of Rs. 45,000, admitted the total "capital gains " to the tune of Rs. 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year in which the transfers took place, by virtue of the provisions contained in section 45 of the Act. In view of the combined operation of these provisions, it is clear that for purposes of assessment to tax, the Income-tax Act treats a registered firm as an entity distinct from the partners and that "capital gains" also goes as assessable income. The short point urged on behalf of the assessee is that, though under the Income-tax Act a firm may be an independent unit for assessment, under the law relating to partnerships, the firm has no corporate existence so as to own any property in its own name, and, consequently, there cannot be a transfer of any capital asset by a firm so as to attract section 45 of the Act. This argument runs counter to certain provisions of the Partnership Act. Section 14 of the Indian Partnership Act, dealing with the property of a firm, is in the following terms : " Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm is the owner of the house properties as well. Therefore, section 26 cannot be invoked, nor can any claim be made under that section that the income should be assessed in the hands of the several partners of the firm. The assessment by the department under section 22 of the Act including the income of the house properties in the total income of the firm appears to be correct. In view of the specific provisions of the Partnership Act relating to the property of a firm and the judicial pronouncements on the matter, there cannot be any doubt that a firm is legally competent to own or hold property and also to deal with such property. Any profit or gain derived by a firm in pursuance of the sale of a capital asset owned or held by the firm is, therefore, exigible to tax in accordance with the relevant provisions of the Income-tax Act. After the sale of the house property belonging to the firm, Sri K. I. Sukumaran, one of the partners, purchased in his name a residential building for Rs. 20,000. It was contended before the assessing authorities that the cost of the new purchase is also deductible from the proceeds realised by the firm on the sale of its building by virtue of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of a capital asset. In this case, the capital gain accrued to the firm and, on such accrual, it became part of the firm's total income just like any other receipt that satisfies the attributes of "income" as understood in law. What the partner, Sri K.I. Sukumaran, was entitled to get at the end of the year was his share in the divisible profits of the firm, and not a share in each category of income derived by the firm. It cannot, therefore, be held that Sri K.I. Sukumaran realised any capital gains on the sale of a building used for his residence so as to attract section 54(i) of the Act; and the claim made by him for deduction of Rs. 20,000 in computing his taxable income for the relevant year has only to be repelled. The third question which is primarily concerned with the firm arises out of the contention of the assessee that, being a registered firm, it is entitled to claim a basic exemption of Rs. 25,000 in accordance with the provisions of the Finance (No. 2) Act, 1967 (XX of 1967), which admittedly applies to the assessment involved in these proceedings. Sub-section (1) of section 2 of the Finance (No. 2) Act, 1967, reads as follows : " (1) Subject to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
