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TMI Blog1981 (9) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case, registered firm and its partners will be liable to pay tax on capital gains under section 114 of the Income-tax Act, 1961, separately and not cumulatively ? " It is made clear that we propose to deal with the question as referred to us by the Tribunal only, though in the course of our judgment we will have occasion to indicate how the point involved in the reframed question arose. The assessee is a registered firm. For the assessment year in question, that is, 1965-66, a sum of Rs. 40,446 was determined as capital gains obtained by it in respect of sale of machinery. These capital gains were considered to relate to, assets other than short-term capital assets. There were two partners of the assessee-firm, namely, P. J. Ghohel and Ramanlal Maganlal, having a 62% and 38% share respectively. The said sum of Rs. 40,446 was allocated to its two partners, and each partner seems to have been assessed in respect of capital gains allocated to his share. The ITO taxed the assessee-firm in respect of capital gains at the minimum rate, namely 15%. The assessee-firm contended before the AAC in an appeal filed by it that it should not have been assessed to tax on the capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of a registered firm. The Tribunal also referred to the statement of the Finance Minister whilst proposing tax on registered firms for the first time, when it had been stated that the intention was only to levy a small tax on registered firms and thereby avoid double taxation of the same income. For all these reasons the Tribunal held that registered firms would not be liable to pay any tax on capital gains under s. 114. The orders of the authorities, including the earlier order of the Tribunal in Income-tax Application No. 10094 of 1967-68 are to be found annexed to the statement of the case. Mr. Joshi referred us, in the first place, to s. 2 which is the definition section, and we were referred by him to the definitions of " assessee occurring in s. 2(7) and " person " occurring in s. 2(31). There is no doubt that a firm is included within the definition of " person ", and if any tax or any other sum of money is payable by a firm, the firm would be an assessee in its own right. Our attention was then drawn to ss. 182 and 183 of the said Act, which are the principal sections pertaining to assessment of registered and unregistered firms. The position of assessment in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt the basic exemption of Rs. 25,000 granted by the Finance (No. 2) Act of 1967 would not be available to the assessee-firm. By virtue of the first proviso to s. 114(b)(ii) of the I.T. Act, 1961, the minimum rate at which net capital gains was to be taxed was 15% and the assesses-firm had been assessed only at that rate. It was urged before the Full Bench on behalf of the assessee that though under the I.T. Act, 1961, a firm may be an individual unit for assessment, under the law relating to partnership, a firm had no corporate existence so as to own any property in its own name, and consequently there cannot be transfer of any capital asset by a firm so as to attract s. 45 of the I.T. Act, 1961. The court considered the provisions and the scheme underlying the Indian Partnership Act, 1932, and, in its opinion, in view of the specific provisions of the Partnership Act relating to the property of a firm, there cannot be any doubt that a firm is legally competent to own or hold property as also to deal with such property. In the opinion of the Full Bench, any profit or gain derived by a firm in pursuance of the sale of a capital asset owned or held by the firm was, therefore, exigi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was placed on the observations to be found in Volkart Brothers v. ITO [1967] 65 ITR 179 (Bom). The Division Bench was principally concerned with construing the power of the ITO under s. 35 of the Indian I.T. Act, 1922, or the corresponding s. 154 of the I.T. Act, 1961, that is, rectification of mistakes which are apparent from the record. The view expressed by the Division Bench principally pertained to the nature of rectification that could be made and the limits on the power of rectification. It observed that the error may be an error of fact as also of law, but the same must be apparent on the examination of the record without entering into any fresh or additional investigation. The error must be obvious and patent from the record. It was laid down by the Division Bench that an error which can be discovered as a result of elaborate argument cannot be properly regarded as an error apparent from the record. The Division Bench, however, had also occasion to consider the applicability of s. 17(1) of the Indian I.T. Act, 1922, to registered non-resident firms, and there are undoubtedly certain observations in the said decision which go to support the contention advanced on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are to be taxed in the hands of the firm and the same cannot be taxed twice over as it cannot be held to be capital gains again in the hands of the partners., The Act deals separately with the tax on capital gains. The word 'payable' in the proviso to s. 114 has been used in the sense of being payable by the partners as well as the firm taken together. The impact of this proviso stands exhausted if once it is found that on the same amount of capital, gains, the minimum 15 per cent. is paid by the firm. Hence, when tax on capital gains is to be charged in the hands of a registered firm under s. 114, then under the first proviso to s. 114(b)(ii), it would be payable by the registered firm cumulatively with its partners at the minimum rate of 15 per cent. and not separately by each of them." In this reference we are not called upon, really, to consider whether it was right to allocate the respective share of capital gains to the two partners and, thereafter, to tax them on such capital gains at the minimum rate of 15 per cent. The Pearl Woollen Mills' case [1980] 123 ITR 658 (P & H) also establishes that the tax on capital gains is payable by registered firm at the rate prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enunciated the uniform policy pursued by the Bombay High Court in such matters where the Division Bench followed the view of a Special Bench of the Madras High Court, and it is pertinent to note that that view was followed although the opposite view favourable to the assessee appealed more to the Division Bench. Observations to the same effect are to be found in CIT v. Chimanlal J. Dalal & Co. [1965] 57 ITR 285 (Bom). In the latter case the judgment of the Gujarat High Court in CIT v. Kantilal Nathuchand [1964] 53 ITR 420 was doubted but still followed for the sake of uniformity. We are aware that the practice is not uniform among the High Courts, but nevertheless we are of opinion that it is a desirable one. Unless the judgment of another High Court dealing with an identical or comparable provision can be regarded as Per incurium, it should ordinarily be followed. In our view, the decisions of the Kerala and the Punjab and Haryana High Courts dealing with identical provisions conclude the question in favour of the revenue and against the assessee. The considerations of hardship and of double taxation which undoubtedly weighed with the Tribunal are not decisive. Accordingly, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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