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2015 (3) TMI 723 - SC - Income TaxValidity of an explanation added retrospectively to Section 26(4) of the Karnataka Agricultural Income Tax Act - Held that:- From a cursory reading of section 26(4) read with section 27, it becomes clear that any sum received after discontinuance of business by a firm is deemed to be the income of the recipient and charged to tax accordingly, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. Section 27 went one step further and also spoke of income of a firm which is dissolved as opposed to a firm whose business had been discontinued. With respect to such income, every person who was, at the time of discontinuance or dissolution, a partner of such firm was liable to be jointly or severally assessed on such agricultural income as also to pay the same by way of tax penalty, etc. In the amended Section 26(4), two changes are made. Whereas in the original provision, no express reference was made to companies or associations of persons, and no reference whatsoever was made to a dissolved firm, both have now been added. By the explanation, which is for the removal of doubts, the legislature declares that where before dissolution of a firm, full payment is not received in respect of income that has been earned pre-dissolution, then notwithstanding such dissolution, the said income will be deemed to be the income of the firm in the year in which it is received or receivable and the firm shall be deemed to be in existence for such year for the purposes of assessment. It will be noticed that by this amendment, the basis of the law as it stood when Cardoza's case [1997 (4) TMI 61 - KARNATAKA High Court] was decided has been changed. Cardoza's case noticed that there was no deeming procedure that continued a firm that had been dissolved to be an assessee for the purposes of income that was earned by it pre-dissolution but received post-dissolution. The deeming fiction has now been introduced by the explanation (and with retrospective effect from 1975) thereby making it clear that the basis of the law as it stood when Cardoza's case was decided has now been changed with effect from 1975. The position which therefore, emerges is that instead of such income being taxed at the hands of the "recipient", it is now taxed in the hands of the dissolved firm. . All that the legislature has done in the present case is to say that with effect from 01.04.1975, dissolved firms will by legal fiction, continue to be assessed, for the purposes of levy and collection of agricultural income tax, insofar as they receive income post dissolution but relating to transactions pre-dissolution. In no manner has the legislature in the present case sought to directly nullify the judgment in Cardoza's case. All that has happened is that the legal foundation on which the Cardoza's case was built is retrospectively removed, something which is well within the legislative competence of the legislature. Appeal allowed.
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