JUDGMENT R.L. Gulati, J.
1. At the instance of the Commissioner of Income-tax, Kanpur, the Income-tax Appellate Tribunal, Delhi Bench "C", has submitted this statement of the case under Section 256(1) of the Income-tax Act, 1961, seeking the opinion of this court on the following question of law :
" 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 ? "
2. The assessee is a private limited company and is a partner in a partnership firm styled as M/s. Hill Hardware Company, New Delhi, in which it has 50% share. While making the assessment for the year 1964-65 the Income-tax Officer had allowed a rebate @ 20% in the computation of corporation tax. The assessee moved an application under Section 154 claiming that since the firm from which share income was derived was engaged in manufacturing business, the company itself should be deemed to be so engaged and rebate at 30% should have been allowed. The Income-tax Officer rejected the assessee's application on the ground that the assessee itself was not engaged in any manufacturing business and as such was not entitled to the rebate claimed by it. On appeal by the assessee, the Appellate Assistant Commissioner of Income-tax upheld the order of the Income-tax Officer, on the ground that the alleged error in the rate of rebate was not an error apparent from the record and, as such, Section 154 was not applicable. The assessee then filed a second appeal before the Income-tax Appellate Tribunal which held that the case fell within the purview of Section 154. It also held that the assessee was entitled to the rebate of 30% relying on its earlier order dated January 10, 1968, in the assessee's own case for the assessment year 1965-66 in which the Tribunal had taken the view that as the firm in which the assessee was a partner was engaged in a manufacturing business, the assessee should also be deemed to be so engaged. The Commissioner is aggrieved and has brought this reference before us.
3. Before the Tribunal two questions were raised. The first question was as to whether Section 154 was applicable and the second question was as to whether the assessee was entitled to a rebate of 30%. The Tribunal decided both the questions against the department. The Commissioner has sought this reference only on the second question, namely, as to whether the assessee is entitled to a rebate at 30%.
4. Part II of the Finance Act, 1964, prescribes the rates of super-tax and surcharge on super-tax. Paragraph D of that Part relates to every company other than the Life Insurance Corporation of India. The rate of super-tax prescribed in the case of a company is 55%. Under the proviso a rebate is to be allowed to certain companies under specified circumstances. We are concerned with Clause (iii)(A) of the proviso, which says that in the case of a company, which is wholly and mainly engaged in the manufacturing or processing of goods, rebate would be at 30 per cent, on so much of its total income as does not exceed Rs. 2 lakhs and at 20 per cent, on the balance of the total income. The total income of the company, as computed by the Income-tax Officer, is Rs. 1,18,993, which is less than two lakhs of rupees. It is not clear as to how the Income-tax Officer allowed the rebate at the rate of 20%. The standing counsel for the department has not been able to point out any provision under which a rebate of 20% was admissible. However, that point is not material. The question now before us is as to whether the company is entitled to a rebate of 30% ? It will be so entitled if it is wholly or mainly engaged in the business of manufacturing or processing of goods.
5. Now, so far as the assessee-company is concerned, the only source of its income is its share in the partnership firm. It has no separate business of its own. Admittedly, the firm is engaged in a manufacturing business. The Income-tax Officer himself has stated in paragraph 4 of his order passed under Section 154 that "the assessee-company is a partner in the firm, M/s. Hill Hardware Co., 72 Janpath, New Delhi, which is engaged in the manufacturing operations." There was no dispute before the Income-tax Appellate Tribunal on this point. The contention raised by the department before the Tribunal as also before us is that merely because the firm in which the assessee is a partner is engaged in a manufacturing business, the assessee cannot be said to be so engaged.
6. Under Section 4 of the Indian Partnership Act, a " partnership " is defined as the relation between persons who have agreed to share the profits of the business carried on by all or any of them acting for all. It follows, therefore, that the business carried on by a partnership firm is in reality the business carried on by the partners. When a firm is engaged in a business each partner shall be deemed to be so engaged. This principle appears to have been recognised by the Income-tax Act. When an assessment is made against a partnership firm carrying on business, the share of each partner is also assessed as income from business and not as income from other sources, even if a particular partner is not actively engaged in the business. In Sitaram Motiram Jain v. Commissioner of Income-tax, [1961] 43 I.T.R. 405 (Guj.) the same principle has been enunciated by K. T. Desai C.J. of the Gujarat High Court in the following words at page 412 :
" We shall next deal with the point whether a business which has been carried on by a partnership could be regarded as a business carried on by a partner, A ' partnership ' is denned by Section 4 of the Indian Partnership Act, as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. When a firm carries on business, it is a business carried on by the partners of that firm. One partner is the agent of the other in carrying on that business. When a partnership carries on a business each partner thereof carried on that business."
7. In Commissioner oj Income-tax v. Arun Industries, [1966] 61 I.T.R. 241 (Guj.) the Gujarat High Court has recently held that where a registered firm manufactures or produces articles in an industrial undertaking, every partner of the registered firm does so. We, respectfully, agree with this view and hold that, in the facts and circumstances of the case, the assessee-company should be deemed to be engaged in the manufacturing business and thus entitled to a rebate of 30%.
8. We, accordingly, answer the question in the affirmative in favour of the assessee and against the department. The assessee would be entitled to the costs of this reference, which we assess at Rs. 200.