M.R. Sharma, J.
1. At the instance of the Commissioner of Income-tax,Patiala-II, Patiala, the Income-tax Appellate Tribunal, Amritsar Bench, has referred the following question of law to us for our opinion:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee-firm is not liable to pay tax on capital gains under Section 114 of the Income-tax Act, 1961 ?'
2. The assessee is a registered firm and carries on business as property dealer. For the assessment year 1966-67, the assessee derived a capital gain of Rs. 57,572. The Income-tax Officer included this amount towards the total income of the assessee and charged tax equal to 15% of the net capital gain. He also included the proportionate amount of capital gain falling to the share of each partner in his total income and subjected the same to tax at 15%. The Appellate Assistant Commissioner affirmed in appeal the assessment framed by the Income-tax Officer. The assesseewent up in appeal before the Income-tax Appellate Tribunal, Amritsar Bench, and submitted before it that the legislature never intended to impose tax on a registered firm in respect of capital gains. Reliance was also placed on Sections 114 and 182 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), and some cases decided by the Income-tax Appellate Tribunal, Ahmedabad Bench and Bombay Bench. The Appellate Tribunal held :
'However, if tax is levied on the capital gains also on a registered firm, it would amount to hardship inasmuch as the partners will have to pay again tax on the capital gains allocated to their respective shares as in the present case before us. In our opinion, this was never the intention of the legislature while enacting Section 114 of the Income-tax Act, 1961.'
3. After hearing the learned counsel for the parties, we are of the opinion that the view taken by the Appellate Tribunal cannot be supported either on principle or on authority.
4. Material portion of Section 114, as it stood on the statute book at the relevant time, reads as under :
'114. Where the total income of an assessee, not being a company, includes any income chargeable under the head 'capital gains', the tax payable by him on his total income shall be--...... '
Obviously, a registered firm cannot be equated with a company as defined in Section 2(17) of the Act. Such a firm cannot, therefore, derive any benefit from the above-mentioned section.
5. In K.I. Viswambharan & Brothers v. Commissioner of Income-tax : 91ITR588(Ker) , a Full Bench of the Kerala High Court has said that for purposes of assessment to tax, the Act treats a registered firm as an entity distinct from the partners. Under the specific provisions of the Partnership Act relating to the property of a firm and the judicial pronouncements on the matter, 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 exigible to tax in accordance with the relevant provisions of the Act. We are in respectful agreement with this view.
6. For the reasons mentioned above, we answer the question in favour of the revenue and against the assessee. There would be no order as to costs.